We recently wrote about Rev. Proc. 2019-39, which provides for remedial amendment periods for 403(b) plans and establishes deadlines for 403(b) plans to adopt discretionary amendments and amendments that correct form defects. Rev. Proc. 2019-39 also announced the IRS’s intent to include changes to § 403(b) requirements on its annual Required Amendments List (the “List”). The List is issued annually and includes statutory and regulatory changes that become effective during the year in which it is published, or which became effective after publication of the previous year’s List.
The Service has kept its promise, issuing IRS Notice 2019-64 on December 4, 2019. Notice 2019-64 contains the 2019 Required Amendments List, which applies to 403(b) plans as well as qualified plans, and is the first Required Amendments List to include changes to § 403(b) requirements. Only one change affecting 403(b) plans (as well as qualified defined contribution plans) is included on the 2019 List: sponsors must amend 403(b) plan documents to comply with two of the provisions of the final hardship distribution regulations. (The List also covers certain amendments to cash balance and other hybrid defined benefit plans.)
As discussed in an previous post, final regulations relating to hardship distributions were published in September 2019. Among other things, the regulations provide that, for hardship distributions made on or after January 1, 2020: (i) all of an employer’s plans, including the employer’s qualified plans, 403(b) plans and governmental 457(b) plans—not just the plan from which the hardship distribution will be made—may not suspend elective deferrals or employee contributions as a condition of obtaining a hardship distribution; and (ii) plans must obtain a written representation from employees requesting hardship distributions that they do not have enough cash or liquid assets reasonably available to satisfy their need. The 2019 List requires sponsors to amend nonconforming plan documents to comply with these two provisions of the final hardship distribution regulations.
Plans must comply with these provisions in operation on and after January 1, 2020. Plan sponsors have until the end of the second calendar year following the appearance of a changed requirement on an annual Required Amendments List to adopt necessary remedial amendments without jeopardizing a plan’s 403(b) status, however. This means that December 31, 2021 is the deadline to amend 403(b) plan documents to correct any plan document defects arising from the changed requirements discussed above. Normally, retroactively amending a plan document after an operational change could trigger the anti-cutback rule, even if the IRS provides additional time to adopt the amendments. In this circumstance, however, plan sponsors likely do not need to worry. Under Treasury regulation § 1.411(d)-4, amendments to a plan’s hardship distribution standards that “specify or modify nondiscriminatory and objective standards for determining the existence of an immediate and heavy financial need, the amount necessary to meet the need, or other conditions relating to eligibility to receive a hardship distribution” generally do not violate the anti-cutback rule.