“Our 403(b) plan did not allow for loans until the Coronavirus Aid, Relief and Economic Security (CARES) Act was passed and we decided to allow employees to take advantage of the CARES Act loan expansion by allowing loans under that provision. I thought that we had to amend our plan by the end of the 2022 plan year (12/31/2022 in our case), but our recordkeeper insists that we must amend the plan by the end of this year. Is our recordkeeper correct?”
Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Unfortunately, the IRS has not provided clear guidance in this situation. Therefore, on matters of plan amendment and timing, you should always consult with outside retirement plan counsel who is well-versed in the provisions of your particular plan.
The CARES Act seems to give broad discretion, providing that the deadline for plan amendments “pursuant to any provision of [the Retirement Funds] section,” which includes the loan changes, is the last day of the 2022 plan year (2024 plan year, for governmental plans). If your plan already had a loan provision, your amendment deadline to take advantage of the CARES Act loan expansion would clearly be 12/31/2022 as you stated, presuming your plan is not a governmental plan. However, that is technically not the only amendment that your plan is making, as you are adding the loan provision itself.
In light of the Act’s broad language, arguably this amendment could be treated as “pursuant to” provisions of the Act (IF you are limiting the amendment to the expanded loan provisions included under the CARES Act (e.g., the $100,000 limit) and limiting the effective dates to the permissible dates under the Act). Pursuant to such conclusion, it would be reasonable to rely on the delayed CARES Act amendment deadline. (If you then continued your loan program into 2021, with the reduced limits otherwise permitted under the Internal Revenue Code, you would likely need to amend your plan in 2021 to reflect the program.)
All of this said, as adding a loan provision is typically a discretionary action, the conservative approach would be to amend your plan by the end of this year (i.e., by the end of the plan year in which the change was operationally put into effect, consistent with the discretionary amendment deadline rules). In your case, that would be 12/31/2020 as your recordkeeper stated. This is particularly true if you are on a pre-approved plan and the document provider treats these amendments separately. But again, you should confirm any amendment timing with outside retirement plan counsel, especially if you made other plan changes.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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