The deadlines for amending many retirement plans for recent changes in the law under the CARES Act and SECURE Act have been extended to December 31, 2025 (governmental qualified or 457(b) plans or a 403(b) plan for public school employees deadline is generally within 90 days after the legislative body with authority to amend the plan closes the third regular legislative session that begins after Dec. 31, 2023). IRS Notice 2022-33 first extended the deadlines for many, but not all, provisions in both Acts. See Notice 2022-33 Does Not Extend Deadline For Adopting Amendments to Plans for All CARES Act Provisions: Loan and In-Service Withdrawal Provisions Excluded. Additionally, Notice 2022-45 extended the deadline for amendments for loan and in-service withdrawal provisions to the same date. However, importantly, these Notices do not extend the deadline for 457(b) plans sponsored by tax exempt organizations. Thus, those plans must be amended by December 31, 2022.
Tax Exempt Organization 457(b) Plans Are Different. Internal Revenue Code (Code) Section 457 governs the taxation of unfunded deferred compensation plans of state or local governments or tax exempt organizations. Generally, Code section 457(b) provides that benefits of an eligible deferred compensation plan are not taxable to the participant until received and sets forth the requirements to be an eligible deferred compensation plans. The requirements are different depending on whether the employer is a state or local governmental entity or a tax exempt organization. Governmental 457(b) plans are similar to 401(k) plans. For example, the assets must be held in a trust for the exclusive benefit of participants. However, the assets of a 457(b) plan sponsored by a tax exempt organization must remain the employers and subject to its creditors. Thus, to avoid violating ERISA, the tax exempt organization 457(b) plan must be a “top hat” plan for a select group of management and highly compensated employees.
Required Minimum Distributions Amendment. The SECURE Act increased the age when participants must begin taking required minimum distributions (RMDs) from age 70 1/2 to age 72. Section 457(b) plans are subject to the RMD rules. Therefore, 457(b) plans of tax exempt organizations must be amended by the end of the year for the changes to these rules unless the IRS issues another Notice extending the deadline.