Compliance June 10, 2019

PSNC 2019: 403(b) Plan Remedial Amendment Period

The last day of the remedial amendment period for 403(b) plans is March 31, 2020. What does the remedial amendment period offer 403(b) plan sponsors?

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From left to right: Kevin Kidwell of OneAmerica, Kimberly Boberg of Groom Law Group, and Michelle Zevola of Lockton Retirement Services. Photograph by Matt Kalinowski


The final day of the 2019 PLANSPONSOR National Conference in Washington, D.C., included an in-depth panel discussion of the Internal Revenue Service’s ongoing 403(b) plan remedial amendment period, featuring Michelle Zevola, client advocate and vice president at Lockton Retirement Servcies; Kevin Kidwell, vice president, national tax exempt sales for OneAmerica; and Kimberly Boberg, of counsel, Groom Law Group.

Right from the start of the session, the panelists emphasized that the last day of the 403(b) plan remedial amendment period may seem far off—at the end of March 2020—but in reality this date will approach very quickly from the perspective of managing and amending retirement plans. It always takes more time than expected to make changes to plan documents and designs, the panel noted, and for this reason, both Employee Retirement Income Security Act (ERISA)-governed and non-ERISA 403(b) plan sponsors should start working on any plan restatements now.

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Kidwell noted that the roots of the remedial amendment period go back to IRS regulations that were put into place in 2007, which stated that all 403(b) plan sponsors (other than certain church plan sponsors) had to adopt a written plan document no later than December 31, 2009—a new requirement for non-ERISA plans.

At that time, Kidwell said, the IRS did not offer a lot more guidance about what the document needed to say or include. In fact, the IRS indicated that the plan document requirement could potentially be satisfied with a collection of documents, sometimes referred to as the “paper-clip” approach, with one centralized document and additional provisions found in a variety of documents, including underlying investment product contracts, administrative and service agreements, procedures, and if applicable, state statutes and regulations.

Fast-forwarding to April 2013, the IRS issued Revenue Procedure 2013-22, establishing a pre-approved plan program for 403(b)s and offering a “remedial amendment period for 403(b) plan documents.” Again, the last day of the remedial amendment period for 403(b) plans is March 31, 2020.

As Boberg laid out, the remedial amendment period allows 403(b) plan sponsors to restate their plans to adopt one of the prototype or volume submitter plan documents pre-approved by the IRS, retroactively effective January 1, 2010. Another practical upshot for plan sponsors is that the remedial amendment cycle offers a period of time in which plan sponsors can go back and fix their plan document so it reflects how the plan has been operating.

The panel shared some theoretical examples of how a plan could take advantage of this amendment program. Consider a nonprofit that adopted a 403(b) document effective January 1, 2009, and the document said the plan only accepts employee deferral contributions, but around 2015 the plan sponsor decided it would match employee deferrals and never amended its plan to reflect that. In this case, the IRS says if the plan sponsor had a good document in place at the end of 2009 and adopts a prototype as of March 31, 2020, it can add an amendment reflecting the effective date of the match with no penalty for not operating in technical accordance with the plan.

According to Kidwell and Boberg, one of the most common problem areas that plan sponsors should review is the definition of compensation. Both also agreed that, if a 403(b) plan sponsor thinks they have no issues whatsoever, they probably haven’t looked closely enough.

“The application of universal availability rules is another big area where there are common mistakes,” Kidwell said. “You can’t just make people eligible. You actually need to let people know at least annually that they are eligible. Often this second part is missed, and there is no regular eligibility notice going out.”

Administration June 10, 2019

PSNC 2019: Discouraging Plan Leakage

Speakers on a panel at the 2019 PLANSPONSOR National Conference offered new ideas for reducing leakage from defined contribution (DC) retirement plans.

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from left: Marianne W. Marvez, Innovest Portfolio Solutions LLC; Beth Pattillo and Jeff Fister, Photograph by Matt Kalinowski


“Plan leakage” is part of the lexicon of the retirement plan industry, but there is no standard definition for it, Jeff Fister, senior relationship manager at ADP, told attendees of the 2019 PLANSPONSOR National Conference.

He cited a Government Accountability Office (GAO) study which defined leakage as tapping into retirement savings prior to retirement. The GAO included in this definition hardship withdrawals, lump-sum payments made at job separation and loan balances that were not repaid. But, Fister said he believes current participant loans should be included since they pose a missed rate of return opportunity. In addition, his firm finds that participants with loans are saving considerably less in defined contribution (DC) plans than those without loans. “With one client, it’s about 30% less,” he says.

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Fister noted that plan sponsors have a fiduciary duty to monitor loans just as with any other investment. He said the fact that the IRS is changing Form 1099 to capture data about loan offsets and that the GAO is recommending Form 5500 changes for loan reporting shows “Big Brother is watching, and plan sponsors should be mindful.”

However, Beth Pattillo, director of retirement programs at Leidos, a 2019 PLANSPONSOR Plan Sponsor of the Year finalist, said her firm believes “loans are not evil.” She said, “We believe loans serve a purpose, but we give participants strong education about what taking a loan can do to their retirement savings and why they really want to pay it off.” The firm also allows terminated participants to continuing making loan repayments after termination, to help avoid plan leakage.

Pattillo said 54% of the company’s 401(k) plan assets are in terminated participants’ accounts. In addition to installment payments and partial withdrawals, terminated participants are allowed to take a loan from their accounts, with strong education about paying it back. “It allows them to have access to money they would have in other ways, such as from an IRA,” she said.

Speaking about other forms of plan leakage, Fister said plan sponsors may want to re-consider cashing out employees with small balances and educating employees about not cashing out their accounts when terminating. “Especially if a company often rehires employees that terminate, the plan sponsor wants the employee to come back in a better position rather than starting from scratch,” he said.

Pattillo said Leidos this year added an after-tax deferral option to its 401(k) plan. “We educate employees that their after-tax savings can grow and be used for emergencies, but they first need to defer enough compensation on a pre-tax basis to get the full company match,” she told conference attendees.

Leidos has also created a relief foundation funded by employees. “For example, if there is a natural disaster and a participant goes to our recoredkeeper to request a hardship withdrawal, the recordkeeper can tell him about this free, no-payback option,” she explained.

Pattillo noted that sometimes participants just cash out their accounts upon termination from the plan because the rollover process can be time-consuming and confusing. Leidos is working with Vanguard and the Depository Trust & Clearing Corporation (DTCC) to establish an electronic rollover solution. Leidos also allows terminated participants to roll money from other retirement plan savings accounts into the Leidos plan.

Fister concluded that there is no one solution to discouraging plan leakage; it requires a handful of solutions. He said knowing plan metrics can help plan sponsors determine what to do, and getting anecdotal information from participants can help with communications. “Plan sponsors should use various methods of communication to reach participants where they are,” he said.

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