The IRS is giving retirement plan sponsors three more years to make plan amendments under the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Sponsors of defined contribution plans generally now have until Dec. 31, 2025, to amend their plans if they took advantage of benefit changes permitted by these laws, including changes allowed by the CARES Act as part of COVID-19 relief that were temporary and have already expired.
The IRS announced the extension on Aug. 3 in Notice 2022-33. The end-of-2025 extension applies to both calendar-year and noncalendar-year plans.
Without this extension, amendments for private-sector calendar-year plans would have been due by Dec. 31, 2022. For noncalendar-year plans, the deadline was the last day of the first plan year beginning on or after Jan. 1, 2022. An exception had been made for collectively bargained plans, which had until the last day of the first plan after the start of 2024 to adopt amendments.
“Affected plans will still need to ensure operational compliance with the law changes prior to the amendment deadline,” wrote Ben Josselsohn, senior counsel at law firm Cohen & Buckmann in New York City.
“The longer plan sponsors wait to adopt these amendments, the greater the chance for compliance errors,” Josselsohn cautioned. “And extending the deadline also doesn’t provide additional help for plans terminating before 2025, which may not have the benefit of the additional IRS guidance.”
The SECURE Act altered retirement plan compliance by, for instance, permanently increasing the required beginning date for required minimum distributions from 401(k) and similar plans from age 70 1/2 to age 72, requiring retirement plan eligibility for certain part-time employees starting in 2024, and easing withdrawals from retirement plans by new parents for birth or adoption expenses.
In response to the COVID-19 pandemic, the CARES Act altered the rules for employee benefits including retirement saving. Among the most significant changes were suspending minimal required distributions from retirement plans in 2020 and easing withdrawals from retirement plans by new parents for birth or adoption expenses.
The CARES Act also doubled retirement plan loan limits to the lesser of $100,000 or 100 percent of the participant’s vested account balance, through 2020. However, wrote Brenda Berg, a partner in the Denver office of law firm Holland & Hart, in Notice 2022-33 the IRS “apparently did not extend the deadline to amend plans for changes to loans and in-service withdrawals” under the CARES Act.
“Assuming this omission was intentional, and the IRS doesn’t issue a revised Notice extending that deadline,” Berg wrote, plan amendments for all CARES Act retirement plan provisions other than the suspension of required minimum distributions “still need to be adopted by the previous deadlines.”
The extended deadline of Dec. 31, 2025, “is a fixed date, which does not depend on the plan year or the employer’s tax year,” both for union and nonunion retirement plans, according to S. Derrin Watson, an independent ERISA [Employee Retirement Income Security Act] attorney and educator in Santa Barbara, Calif., writing for the Ferenczy Benefits Law Center.
Employers making use of the extension should follow “a simple, three-step process,” he advised:
- Adopt the amendment by the new deadline.
- Make the effective date retroactive to the effective date of the legislation (or, in the case of an amendment that is not mandated, the effective date specified by the plan).
- Operate the plan as if the amendment were in effect.
With regard to the SECURE Act, “we are still waiting for guidance on some very key issues, including long-term part-time employees, the final required minimum distribution regulations, and qualified birth and adoption distributions,” Watson wrote.
For plan sponsors who may have already amended their plans, “it is entirely possible after that guidance is issued, you may wish to modify your SECURE amendment,” he noted. “Fortunately, you will be able to do so by the extended deadline.”