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[UPDATED] New Year’s Resolution for 403(b) Plan Sponsors

[UPDATED] New Year’s Resolution for 403(b) Plan Sponsors

January 14, 2020

Authored by: Denise Erwin and Sarah Bhagwandin

UPDATE:

The IRS has posted the following information regarding extension of the deadlines for 403(b) plans a(see complete posting here).   The IRS is extending the last day of the initial remedial amendment period for Section 403(b) plans from March 31, 2020, to June 30, 2020. Plan sponsors now have until June 30, 2020, to update their pre-approved and individually designed 403(b) plan documents.

ORIGINAL POST:

Previously we posted on our blog about a deadline looming in the distance for 403(b) plan sponsors to adopt a pre-approved plan document.  Now that 2020 has arrived, the deadline is just around the corner and imminent action is required.

As you may know, if a plan sponsor retroactively adopts a pre-approved plan by the last day of the remedial amendment period on (3/31/2020), it will automatically be deemed to have corrected any form defects in the plan document it previously adopted and will be considered to be in compliance with applicable plan document requirements back to January 1, 2010.

This opportunity is important because although an individually designed plan can be amended to correct any form defects prior to the end of the remedial amendment period, the IRS has opted against establishing a determination letter program for 403(b) plans at this time.  As a result, adoption of a pre-approved plan document is the only way to obtain assurance from the IRS that a 403(b) plan document is fully compliant.

For more background and our suggested Action Steps, see our Read More

2019 Qualified Plan Limits Released

The Internal Revenue Service released the 2019 dollar limits for retirement plans, as adjusted under Code Section 415(d). We have summarized the new limits (along with the limits from the last few years) in the chart below.

Type of Limitation

2019 2018 2017 2016 2015 Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1)) $19,000 $18,500 $18,000 $18,000 $18,000 Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate) $6,000 $6,000 $6,000 $6,000 $6,000 SIMPLE Salary Deferral $13,000 $12,500 $12,500 $12,500 $12,500 SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals $3,000 $3,000 $3,000 $3,000 $3,000 415 limit for Defined Benefit Plans $225,000 $220,000 $215,000 $210,000 $210,000 415 limit for Defined Contribution Plans $56,000 $55,000 $54,000 $53,000 $53,000 Annual Compensation Limit $280,000 $275,000 $270,000 $265,000 $265,000 Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993  

$415,000  

$405,000  

$400,000  

$395,000  

$395,000 Highly Compensated Employee 414(q)(1)(B) $125,000 $120,000 $120,000 $120,000 $120,000 Key employee in top heavy plan (officer) $180,000 $175,000 $175,000 $170,000 $170,000 Tax Credit ESOP Maximum balance $1,130,000 $1,105,000 $1,080,000 $1,070,000 $1,070,000 Amount for Lengthening of 5-Year ESOP Period $225,000 $220,000 $215,000 $210,000 $210,000 Taxable Wage Base $132,900 $128,400 $127,200 $118,500 $118,500 IRAs for individuals 49 and below $6,000 $5,500 $5,500 $5,500 $5,500 IRAs for individuals 50 and above $7,000 $6,500 $6,500 $6,500 $6,500 FICA Tax for employees and employers 7.65% 7.65%

Deadline Looming in the Distance for 403(b) Plans: What Plan Sponsors Should Be Doing Now

Last year when the IRS announced that the initial remedial amendment period for 403(b) plans will end March 31, 2020, the natural reaction to this very important (but rather remote) deadline was to immediately put it on the to-do list, somewhere near the bottom, where it has been languishing ever since.  If this describes your reaction, you are certainly not alone.

We think it is a good time to move this to the front burner and take some action.  As you may recall, 403(b) plan sponsors were required to adopt a written plan document for existing 403(b) plans on or before December 31, 2009.  At the time, there were no pre-approved 403(b) plans and no determination letter program was available for 403(b) plan sponsors to gain assurance that the document satisfied the requirements of section 403(b) and applicable regulations.  In order to provide a system of reliance for 403(b) plans, the IRS announced the commencement of a 403(b) pre-approved plan program and, on March 31, 2017, it issued the first opinion letters and advisory letters for prototype and volume submitter plan documents under the program. If a plan sponsor retroactively adopts a pre-approved plan by the last day of the remedial amendment period, it will automatically be deemed to have corrected any form defects in the plan document it previously adopted and will be considered to be in compliance with applicable plan document requirements back to January 1, 2010.

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