IRS Extends Retirement Plan Amendment Deadlines
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The IRS on August 3 announced it would extend by three years the deadline for amending retirement plans or individual retirement arrangements (IRAs) to reflect certain provisions under the SECURE Act, the Bipartisan American Miners Act of 2019 and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Many tax-qualified retirement plans, including non-governmental 403(b) plans) and IRAs, were running short on time to make needed amendments to plan documents before the December 31, 2022, deadline to comply with recently enacted law changes.
Under the new Notice 2022-33, plans and IRAs now have until December 31, 2025, to amend those documents to reflect the following changes:
- All the changes in the law related to retirement plans and IRAs made by the SECURE Act.
- The change lowering the age for in-service withdrawals from defined benefit plans from age 62 to age 59½ made by the Miners Act.
- The change that temporarily suspended required minimum distributions (RMDs) for 2020 under the CARES Act (but IRAs that suspended 2020 RMDs do not need amendment).
Notice 2022-33 does not extend all deadlines for retirement plan changes made by the CARES Act Therefore, plan year-end deadlines may still apply to some retirement plans
The new relief provides a deadline later than December 31, 2025, only for governmental plans (including governmental 457(b) plans and 403(b) plans) maintained by public schools. That deadline is based on the legislative sessions for the plan’s applicable governing body.
Before this welcome announcement, the amendment deadline for the SECURE, Miners and CARES Act changes in the law generally was the last day of the first plan year beginning on or after January 1, 2022, that is, December 31, 2022, for calendar year plans but later for fiscal year plans. The new December 31, 2025, plan amendment deadline is a fixed date that applies to all plans, regardless of whether the plan operates on a calendar year or fiscal year.
The December 31, 2025, plan amendment deadline applies to both union and non-union plans, even though union plans often get an extended plan amendment deadline based on the expiration date of their current collective bargaining agreement. Perhaps the IRS thought no special deadline was needed since all of the required changes are technical and would not be the subject of collective bargaining.
Anti-cutback relief is also extended until the applicable plan amendment deadline.
Regardless of when the plan is amended, it must be operated as if the amendment applied as of the original effective date of the applicable change in the law.
No Extension for Coronavirus-Related Distributions (CRDs) or Expanded Plan Loans
The new amendment deadline relief does not apply to the CARES Act provisions that allowed retirement plans and IRAs to voluntarily make coronavirus-related distributions (CRDs). CRDs are aggregate distributions up to $100,000 from IRAs and defined contribution retirement plans made between January 1 and December 30, 2020 (not December 31) due to certain COVID-19-related reasons. Individuals could include the CRDs in income ratably over three years (2020, 2021 and 2022). CRDs can be repaid in full or in part to the retirement plan or IRA within three years after the date the distribution was received (i.e., repayments are allowed through the 2023 anniversary date of the distribution). If the CRD is timely repaid, the individual can file an amended federal income tax return to claim a refund of the tax attributable to the amount of the CRD that the taxpayer included in income for those years.
Likewise, the new deadline relief does not apply to retirement plans that allowed expanded plan participant loans, which were also authorized by the CARES Act. IRAs are not allowed to lend money to IRA owners, so this COVID-19 relief did not apply to IRAs. Thus, unless further guidance is issued, plans that allowed CRDs or expanded participant loans still must be amended by the last day of the first plan year beginning after January 1, 2022 (i.e., December 31, 2022, for calendar year plans).
Plans that had a short plan year that began on or after January 1, 2022, would have needed to amend their plan by the end of that short plan year for 2020 suspended RMDs and for CRDs and expanded plan loans. Those plans now have until December 31, 2025, to amend for suspending the 2020 RMDs, but do not have any further relief for amending the plan for CRDs and expanded plan loans. Late amendments may be corrected under the IRS’s Employee Plans Compliance Resolution System (EPCRS).
Under the CARES Act, suspending the 2020 RMDs and allowing CRDs and expanded plan participant loans were optional, not mandatory, provisions — employers and IRA owners were free to ignore or implement those opportunities. Therefore, it is unlikely the IRS would include those provisions in its annual Required Amendments List (RAL) for individually designed plans.
Generally, individually designed plans have two years after an item appears on the RAL to adopt the required amendment. As part of the new deadline relief, the IRS said that it intends to include in the 2023 RAL all required items from the SECURE, Miners and CARES acts, so that individually designed plans will have a single deadline to adopt all required plan amendments.
Retirement Plans Must be Amended Before Termination
Regardless of any IRS relief for plan amendment deadlines, retirement plans must be updated for all relevant changes in the law before they are terminated. This has long been the general rule for retirement plans.
Plans that were already amended for the SECURE, Miners and CARES acts may not need to make any changes due to this new amendment deadline relief. But the IRS is expected to issue more guidance under those acts over the next year or so, and plans should remain vigilant to react timely to such guidance.
Nongovernmental plans that have not amended for the SECURE, Miners and CARES acts should vigilantly monitor guidance, including the 2023 RAL, and finalize comprehensive amendments by the 2025 deadline.
Governmental plans should determine their revised amendment deadline based on the legislative sessions of their government bodies.
The amendment deadlines for 457(b) plans sponsored by tax-exempt employers are unchanged. Accordingly, plan amendments might be required as early as December 31, 2022.
Furthermore, the need for more plan amendments is a possibility due to another bipartisan package of retirement plan changes pending in Congress, the so-called “SECURE 2.0,” that may be enacted later this year.
Finally, “Cycle 3” amendments and restatements of IRS pre-approved defined contribution retirement plans were generally required to be signed by July 31, 2022. Employers who missed that deadline may correct that failure under other recent IRS guidance. BDO’s Retirement Plan Services Team can assist with that and other retirement plan corrections.
Written by Norma Sharara and Joan Vines. Copyright © 2022 BDO USA, LLP. All rights reserved. www.bdo.com