401(k): IRS Extends Interim Amendment Deadline for Preapproved 401(k) Plans

On September 1, 2021, the IRS issued Revenue Procedure (“Rev. Proc.”) 2021-38 which revises and updates the procedure for amending preapproved 401(k) plans to comply with changes in applicable law. In particular, the revised guidance changes and effectively extends the deadline for adopting so-called “interim amendments,” which are written plan amendments required to be adopted to keep the plan document current between regular amendment cycles.

KEY TAKE-AWAY: For adopters of preapproved plans, a sponsoring employer’s tax-filing deadline is no longer relevant in determining the date by which an interim amendment must be adopted. Instead, the key date is the end of the second calendar year following the calendar year in which the new law change became effective for the preapproved plan.

DISCLAIMER: This article is intended as a general overview of Rev. Proc. 2021-38 as it affects preapproved 401(k) plans and is not meant to address the details of plan qualification, plan amendments, the rules for amending individually designed 401(k) plan documents, or previous IRS guidance on this topic. As always, be sure to consult with your own ERISA attorney or other professional advisor for individualized advice with respect to your plan’s unique situation.

Background. Under the present system, which was last updated by Rev. Proc. 2016-17 (see our blog entitled “401(k): IRS Revamps Plan Document Approval Process” for details), preapproved plans must adopt “interim amendments” when changes in the law occur that would cause a plan document to contain “disqualifying provisions” – provisions that would cause the plan to lose its special tax qualified status under the Internal Revenue Code (see “Tax Qualification in a Nutshell,” below). Interim amendments generally must be adopted in between the more rigidly set six-year plan amendment cycles set forth in the guidance.

What are Preapproved Plans? Generally stated, preapproved plans are retirement plans (most often 401(k) plans) that have been prepared by various vendors (including banks, financial services companies, and consulting firms) that are sold to employers wishing to adopt the retirement plans for their employees. (See our Compliance Task entitled “Preapproved Plan Documents” for more information.) The vendors generally perform many of the administrative tasks required to keep the plans operational. In addition, they are usually responsible for maintaining the plan document, a responsibility which includes amending the document from time to time to keep it in compliance with changes in the law, and to maintain its tax qualification (see below). Preapproved plans differ from individually designed plans (see our Compliance Task entitled “Individually Designed Plan Document” for more information), which are generally unique to one or more employers, and are usually drafted specifically for such employer(s) by an ERISA attorney or other qualified professional.

Tax-Qualification in a Nutshell. The crowning feature of most retirement plans, including 401(k) plans, is that earnings on the money that is put into the plan each year are generally not taxed until it is taken out of the plan at retirement (or upon certain other stated events). This feature enables the money in the plan to take maximum advantage of compound interest over time – an effect which would be diminished if the plan had to pay tax each year on the earnings. Over a period of several decades, the difference in the amount of accumulated plan assets can be enormous. The trade-off for this huge tax advantage is that plans have to follow, to the letter, a large number of strict rules contained in the Internal Revenue Code – rules largely designed to keep the plans nondiscriminatory in operation. If the plan meets these rules, it is said to be “qualified.”

Over the years, the laws regarding plan qualification have changed dozens of times. The majority of the new laws have required plan documents to be amended, usually by a certain statutory deadline, in order to maintain the plan’s qualified status. The rules regarding when and how plans must be amended to respond to new law in order to remain qualified are complex, and – as previously mentioned — were last updated in Rev. Proc. 2016-17. Among other things, that guidance modified and restated the longstanding six-year adoption and submission cycles for preapproved plans, and included rules for making interim amendments.

Changes Made by Rev. Proc. 2021-38. In the most significant change from the 2016 guidance for preapproved plans, Rev. Proc. 2021-38 eliminates the previous measuring period for making interim amendments, which was linked to the end of the “remedial amendment period.” The “remedial amendment period,” in turn, was linked to the sponsoring employer’s tax-filing deadline.

New Deadline. Under the revised deadline, interim amendments for preapproved plans must now be adopted by the end of the second calendar year following the calendar year in which the change in qualification requirements is effective for the plan.

Effective Date. This change is effective after December 31, 2020.

EXAMPLE: The SECURE Act provision that increased the age at which 401(k) plan participants generally must begin receiving “required minimum distributions” from age 70 ½ to age 72 (see How Will The SECURE Act Affect Me? Hightlights of Some of the Top New Provisions Affecting 401(k) Plans (PART ONE) – ComplianceDashboard for details) is effective for distributions made after December 31, 2019. Under Rev. Proc. 2021-38, the deadline for a preapproved plan to adopt an interim amendment reflecting this SECURE ACT change is the second calendar year following the calendar year in which the change is effective for the plan, or December 31, 2021.

As a practical matter, most preapproved plan amendments are actually prepared by the vendor and/or third-party administrator of the plan, although, once prepared, they generally must be adopted by way of corporate action of the sponsoring employer.

NOTE: The rule for individually designed plans is slightly different, as these plans generally must be amended in response to law changes after they have been published in the IRS’ annual “Required Amendment List,” which is beyond the scope of this article, and which has not been affected by Rev. Proc. 2021-38.


The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k) retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.

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