Calling Plan Sponsors: Mandatory Plan Restatements Loom

The Internal Revenue Service (IRS) requires pre-approved plan documents be restated on a uniform six-year cycle. As we approach completion of the latest cycle, mandatory plan restatements loom. Here we review the purpose of plan restatements, the basic parts of pre-approved plans, and why plan sponsors must comply.

Calling Plan Sponsors: Mandatory Plan Restatements Loom

Keeping pace with a dynamic regulatory landscape is a challenge all plan sponsors face. As mandatory plan restatements fast approach, it’s important to understand why your plan document needs to be restated, the need for compliance, and how plan sponsors can use the plan restatement process to thoroughly review their plans.

What is a Pre-Approved Plan?

If your company sponsors a qualified retirement plan, it has a plan document. Generally speaking, the document was either individually designed by legal counsel or it was written by a document provider and ‘pre-approved’ by the IRS.

Most plans use a pre-approved plan document, also referred to as a volume submitter document, which is provided by the company assisting in the recordkeeping or administration of the plan.

Each recordkeeper has obtained approval from the IRS recognizing their document satisfies the code requirements. This document allows plan sponsor clients to adopt the document and thereby secure IRS approval for their plans. These pre-approved plans have a base document and an adoption agreement.

The base document includes all required terms and provisions the plan could possibly allow.

The adoption agreement resembles a check-box approach to allow you to elect the provisions that design your unique plan.  Once the adoption agreement is complete, a Summary Plan Description is prepared to help communicate these provisions and benefits to the plan’s participants.

Why Pre-Approved Plans Require Restatement

Qualified retirement plans (401(k), Profit Sharing, Money Purchase) must have a written plan document that meets the requirements set forth by Congress, the IRS, and the Department of Labor (DOL).  Over time, plans are subject to frequent regulatory, voluntary, and statutory changes requiring amendments to the plan document.

To help keep plans from becoming too burdened with all the amendments required to keep up with these changes, the IRS requires pre-approved plan documents to be restated on a uniform six-year cycle.  This restatement will incorporate changes from any mandatory or voluntary amendments that may have been adopted since the last time the document was written.

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Pre-Approved Plan Compliance Deadlines

Plan sponsors have until July 31, 2022, to complete and sign the restated plan document. Failure to do so could result in penalties or worse – a disqualification of your plan’s tax favored status.

Recordkeepers are reaching out to their plan sponsor clients now to schedule the process of updating each client’s plan to the new, approved document.  This process forces review of current plan design features and confirmation that the plan remains in compliance. It also offers plan sponsors an opportunity to revisit any specific features or operations they may wish to change.

It is worth noting that the current plan document restatement process only considers legislative and regulatory changes enacted prior to February 1, 2017.  That may leave you wondering about plan changes you’ve made after this date – can you include them in your newly restated document?

“Good-faith” or “snap on” amendments may still be required by law in any year that significant retirement plan changes become effective during a restatement cycle.  This means that required changes as a result of the SECURE Act, CARES Act, and others will need to be ‘snapped on’ to this restatement.  Your document providers will help you prepare and attach these amendments.

Maximize Plan Restatement with a Formal Plan Review

If you have not sat down with your internal team and vendor partners to review and understand the plan’s current provisions and operational procedures, now is a great time to do so.

While all plan sponsors have a plan document to follow, that document doesn’t typically cover or define all operational aspects of plan administration. A formal review will help you identify errors, implement improvements, and adopt best practices.

The DOL and the IRS randomly audit retirement plans each year uncovering these errors, requiring a significant amount of time and dollars to be spent by plan sponsors to correct.  Be proactive and use this time to gain some peace of mind.

Tags: plan restatements, pre-approved plan, compliance, Internal Revenue Service, IRS

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