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IRS Extends Deadline for Hardship Amendments to Pre-approved Plans

Government Affairs

The IRS has extended by 2 years the deadline for amending pre-approved plans to adopt provisions allowed in last September’s final hardship withdrawal regulations. The extension is set forth in IRS Rev. Proc. 2020-09, issued Dec. 12.

The final regulations on hardship withdrawals specified that interim amendments to reflect adoption of the new rules must be made by the due date of the employer’s tax return that includes Jan. 1, 2020, even if the amendment is effective before that date. Practitioners had been concerned that if plans changed their hardship withdrawal policies and procedures to follow the new final rules before the end of 2019, they might be faced with an unreasonably short period of time in which to amend the plan to reflect those new policies and procedures – such as the due date for the 2019 tax return.

In an Oct. 8 letter to IRS Employee Plans Division Director Robert Choi, the American Retirement Association expressed its concern about this issue. Terming it an “urgent matter,” the ARA told Choi that “the current rules concerning the timing of interim amendments for pre-approved plans present major challenges to the retirement plan community.” This was not the first time that the ARA raised this concern with the IRS; it also had done so in a Jan. 14, 2019, comment letter on the regulations when they were in proposed form. 

In its Oct. 8 letter, the ARA warned of the possible effect of the final regulations regarding interim amendment deadlines: 

“The preamble to the Final Regulations explains that the discretionary provisions of the Final Regulations are integrally related to the changes required under the Final Regulation. The preamble then summarizes the interim amendment deadlines set forth in section 15 of Rev. Proc. 2016-37. Applied in the context of these Final Regulations, these interim amendment rules result in deadlines that, for some adopting employers, may only be months away.”

Subsequently, Carol Weiser, Benefits Tax Counsel at the Treasury Department, told attendees at the ASPPA Annual Conference on Oct. 22 that the deadline for amending preapproved plans would be extended, but did not offer any specifics on the duration of such an extension. Now we know: the new deadline is Dec. 31, 2021.