Two pieces of recent IRS guidance address amendments for retirement plans. The 2019 Required Amendments (RA) List in Notice 2019-64 for individually designed qualified retirement and 403(b) plans includes changes relating to the final hardship distribution rules for defined contribution plans, as well as one item for certain collectively bargained cash balance and other hybrid plans. Rev. Proc. 2020-9 clarifies the deadline for sponsors to make certain optional hardship distribution amendments and extends the deadline to amend preapproved plans for the final hardship rules.
This is the first time that the RA List applies to 403(b) plans (prior lists applied only to qualified plans). Sponsors generally have until Dec. 31, 2021, to adopt the amendments identified on the list, but plans must comply with revised requirements in the meantime. The same deadline applies to calendar-year and noncalendar-year plans. (Sponsors of governmental plans may have later deadlines.)
In September, IRS issued final regulations updating the hardship distribution rules for 401(k) and 403(b) plans. The RA List includes two changes made by the final regulations that plans must follow for hardship distributions made on or after Jan. 1, 2020 (and could opt to use for distributions made in the 2019 plan year).
Deadline for optional hardship changes. The year-end 2021 deadline also applies to optional amendments to a plan’s hardship provisions that are integrally related to the required amendments — which means sponsors can adopt their required and integral amendments at the same time. These optional amendments include, for example, amendments disregarding the new limits on deductible casualty losses under Section 165 and adding the new expense safe harbor for losses incurred in federally declared disasters.
Rev. Proc. 2020-9 clarifies that this treatment extends to “all amendments that relate to a plan’s hardship distribution provisions and that are effective no later than Jan. 1, 2020” — even if a sponsor chose to make the required amendments effective earlier. This broad language appears to have two implications:
For instance, if the sponsor of a calendar-year plan implemented the required amendments in 2019 but didn’t apply the new expense safe harbor until Jan. 1, 2020, the sponsor would have until Dec. 31, 2021, to amend the plan for that optional change (rather than Dec. 31, 2020, as would ordinarily be required).
Collectively Bargained Hybrid Plans
Some collectively bargained plans first became subject to the final hybrid plan rules in 2018 or 2019. Those plans generally had to adopt amendments requiring anti-cutback relief before the beginning of the applicable plan year (e.g., by 2018 plan year-end for plans with 2019 effective dates). But until now, IRS hadn’t specified a deadline for adopting other conforming amendments. The 2019 RA List gives affected sponsors two years to incorporate those changes.
For reference, the final regulations apply to collectively bargained plans as of the first plan year beginning on or after the later of:
Certain Periodic Updates Automatically on RA List
In addition to the identified amendments, each RA List automatically includes certain periodic updates —changes in cost-of-living adjustments, spot segment rates used to determine the 417(e)(3) applicable interest rate, and 417(e)(3) applicable mortality tables for the year in which such changes are effective. IRS anticipates that few plans will need amendments for these updates, which are typically incorporated by reference to a Code section or index. Plans that don't incorporate these updates by reference will need to be amended by the end of 2021 for the 2019 changes.
Rev. Proc. 2020-9 also extends until Dec. 31, 2021, the deadline for preapproved plan sponsors to adopt interim amendments to comply with the final hardship distribution regulations. Under the final regulations, the interim deadline was the sponsor’s tax-filing deadline for the tax year that includes Jan. 1, 2020. The extended deadline applies to both the required amendments and any integral amendments adopted by the employer.