Despite an extension granted to qualified plans, Section 403(b) plans, and governmental Section 457(b) plans to make necessary amendments under the SECURE Act, no extension past December 31, 2022 currently applies for Section 457(b) plans maintained by private tax-exempt organizations. That means that, absent future guidance from IRS, these plans must be amended by the end of this year to incorporate the SECURE Act’s changes to required minimum distribution provisions. Prompt action by those responsible for Section 457(b) benefits is required in order to meet the fast-approaching deadline.
By way of background, Section 457(b) permits private, tax-exempt organizations to offer deferred compensation plans to a “top-hat” group, consisting of a “select group of management or highly compensated employees.” Such plans are exempt from most provisions of Title I of ERISA and permit covered participants to defer up to the 457(e)(15) annual dollar limit annually ($22,500 in 2023) in addition to whatever they defer under the tax-exempt employer’s Section 403(b) or other retirement plan. Governmental employers may also sponsor plans under Section 457(b) without limiting participation to a top-hat group. Section 457(b) plans, whether sponsored by private tax-exempt employers or governmental entities, are subject to the required minimum distribution rules under Internal Revenue Code Section 401(a)(9). Those rules require that accounts begin to be distributed to participants by their “required beginning date” or RBD, as defined under Section 401(a)(9)(C), and also govern subsequent distributions to account holders and their beneficiaries.
Enter the SECURE Act in 2019. The SECURE Act moved the RBD for non-owners out to the later of retirement or April following the year in which a participant reaches age 72, rather than 70 ½, which has been the prior rule, and also required annual required minimum distributions following the death of an account holder to be made over a period not exceeding 10 years for most designated beneficiaries, rather than over a period covering their life expectancy, which had been the case previously. This is a mandatory change under the SECURE Act; the Act also contains discretionary provisions such as qualified birth and adoption withdrawals.
The original deadline to amend non-governmental plans under the SECURE Act was the last day of the first plan year beginning on or after January 1, 2022 (December 31, 2022 for a calendar plan year). Governmental employers and multiemployer plans had until the end of 2024, however, as did 403(b) plans maintained by public schools. In recent months, the IRS extended the SECURE Act amendment deadlines for all types of plans other than Section 457(b) plans maintained by tax-exempt employers. This was announced in Notice 2022-33, issued in September 2022, whic was followed up by guidance in October of 2022 (Notice 2022-45) that extended the deadline to adopt amendments under applicable provisions of other laws (the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and Bipartisan American Miners Act of 2019 (Miners Act) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act)). (More precisely, the deadline extended under Notice 2022-33 included amendments under the CARES Act related to the 2020 waiver of RMDs and Notice 2022-45 covered amendments under other applicable provisions of the CARES Act.)
December 31, 2025 is the new amendment deadline under applicable provisions of SECURE and these other laws for qualified retirement plans, including 401(k) plans, and 403(b) plans. For governmental pension plans and governmental Section 457(b) plans it is generally 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.
In the absence of further guidance from IRS, December 31, 2022 remains the deadline to amend Section 457(b) plans maintained by private tax-exempt employers to conform to the RMD provisions of the SECURE Act. It is not unheard of for IRS to issue late-in-the-year deadline extensions, but in this instance, it has been silent on this category of plan twice in close succession. Employers who maintain such plans should connect with their third-party administrators or benefit attorneys to arrange for timely adoption of the necessary amendment to their plan document, and an update of plan summary information provided to participants.
The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation. © 2022 Christine P. Roberts, all rights reserved.
Photo credit: Markus Winkler, Unsplash
The last day of the first year beginning on or after December 31, 2022 would be December 31, 2023 for a calendar year plan.
Typo corrected, thank you for your comment.