Compliance September 9, 2021

IRS Issues Procedures for 403(b) Plan Remedial Amendment Cycle 2

The IRS says it is modifying the procedures for the 403(b) pre-approved plan program to be more similar to those under the Internal Revenue Code (IRC) Section 401(a) pre-approved plan program.

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The IRS has published Revenue Procedure (Rev. Proc.) 2021-37, which sets forth the agency’s procedures for issuing opinion letters regarding satisfaction in the form of 403(b) pre-approved plans with respect to the requirements for the second Remedial Amendment Cycle (Cycle 2).

It also sets forth the rules for determining when Remedial Amendment Periods expire for 403(b) pre-approved plans.

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In Rev. Proc. 2019-39, the IRS established a recurring remedial amendment period for 403(b) plans and extended the initial remedial amendment period beyond March 31, 2020, for certain form defects.

The IRS says Rev. Proc. 2021-37 is modifying the procedures for the 403(b) pre-approved plan program to be more similar to the procedures applicable under the Internal Revenue Code (IRC) Section 401(a) pre-approved plan program in several ways, including by:

  • simplifying the 403(b) pre-approved plan program by eliminating the distinction between prototype and volume submitter plans;
  • providing that the IRS will issue a cumulative list of changes in the 403(b) requirements and identify the 403(b) requirements that the IRS will take into account in reviewing 403(b) pre-approved plans submitted for Cycle 2;
  • making 403(b) pre-approved plan program provisions regarding reliance on an opinion letter more similar to the provisions applicable under the 401(a) pre-approved plan program. It aims to do this, in part by including provisions that permit the submission during the employer adoption window of an application for a determination letter using Form 5307, “Application for Determination for Adopters of Modified Volume Submitter Plans,” by either an adopting employer of a non-standardized plan that makes amendments to the plan that are not extensive or an adopting employer of any 403(b) pre-approved plan (whether a standardized plan or a non-standardized plan) that adds language to satisfy the requirements of IRC Section 415 due to the required aggregation of plans; and
  • providing details regarding the system of cyclical remedial amendment periods that follows the initial remedial amendment period.

Rev. Proc. 2021-37 provides that the on-cycle submission period for Cycle 2 applications will begin on May 2, 2022, and end on May 1, 2023.

The revenue procedure extends the plan amendment deadline for making interim amendments with respect to a change in 403(b) requirements, for most plans, until the end of the second calendar year following the calendar year in which the change in 403(b) requirements is effective. The IRS also issued Rev. Proc. 2021-38, which also extends the deadline for making interim amendments for IRC Section 401(a) plans.

Rev. Proc. 2021-37 sets forth the date on which the limited extension of the initial remedial amendment period expires and extends the deadline for adopting an initial amendment (if applicable) that is required under certain circumstances in order for the limited extension of the initial remedial amendment period to apply.

Finally, the revenue procedure provides rules for permitting the participation of employees of certain church-related organizations, as described in IRC Section 414(e)(3)(B), in a 403(b) pre-approved plan that is intended to be a retirement income account. This includes special rules for amending a Cycle 1 403(b) pre-approved plan that is intended to be a retirement income account to permit the participation of employees of certain church-related organizations, retroactive to the beginning of Cycle 2.

Data and Research September 9, 2021

Study Finds Advantages in Working With a Sole Recordkeeper

The research highlights ways sponsors of multiple retirement plans can benefit from working with just one provider.

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As some employers with multiple retirement plans are choosing to work with a single recordkeeper for all their plans, new research from Principal finds most plan sponsors believe they’d save time on retirement plan administration by working with one recordkeeper instead of several. And, in reality, using one recordkeeper for multiple retirement plans can be an “efficiency game changer,” the firm says.

The survey, which included more than 300 plan sponsors and was conducted by NMG Consulting on behalf of Principal, finds employers that worked with one recordkeeper on several retirement plans had potentially significant time savings, features and services that made plan administration easier.

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With a single recordkeeper, plan sponsors said they spent less time on plan administration and still have access to the plan features and expertise they typically need. More than three-quarters of plan sponsors said they could reduce the time spent on their retirement plans by working with a single recordkeeper. Depending on the type of plan, sponsors with multiple recordkeepers reduced the time they spent on their plan by 17% if they switched to a sole recordkeeper. Hourly time savings from using one recordkeeper translated to as many as 14 business days over the course of a year, Principal says.

Additionally, sponsors with one recordkeeper reported increased employee satisfaction and higher engagement, and many said they believed their employees have a better understanding of retirement benefits. Among employers working with a single recordkeeper, 73% reported their employees are better engaged with all their retirement benefits, while 62% of those working with multiple recordkeepers said the same.

Compared with plan sponsors with multiple recordkeepers, the Principal research found those with a single recordkeeper are slightly more likely to say their experience across plans is consistent (93% vs. 88%), plan compliance non-discrimination testing and Form 5500 filing are efficient (93% vs. 89%), and that they have access to integrated reporting on plan performance metrics (86% vs. 80%).

Principal also found that sponsors working with multiple recordkeepers report their plans have complex or specialized plan design provisions that require the expertise of a specialist recordkeeper and subject matter experts. In fact, sponsors that work with multiple providers reported this is one of their biggest concerns when working with a single recordkeeper. However, this fear might be misplaced, as the survey determined those that work with one recordkeeper reported access to those same capabilities.

Employers also say they appreciate the ease of having one point of contact to evaluate overall retirement plan strategy, measure how well the plan is working and make suggestions for plan improvements. Among plan sponsors that don’t have a single, strategic point of contact, 69% said they would value that form of communication.

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