As a result of the Pension Protection Act (“PPA”) of 2006 and legislation thereafter, tax-qualified retirement plans have undergone many changes. Rules, as established by the Internal Revenue Service, mandate that qualified defined contribution plans (profit sharing plans, 401(k) plans, and money purchase pension plans) be completely restated to reflect the recent changes in legislation and regulation. The restatement is also meant to capture any amendments made to the plan subsequent to the previous plan restatement. It is important to note that even if interim amendments were adopted by the plan to conform to the latest legislative changes, the plan is still required for the PPA Restatement.
The deadline with which to comply depends upon the type of plan and plan document a company sponsors. Pre-approved plans (volume submitter plans and prototype plans), which many sponsors favor, are required to be restated every six years. Failure to successfully restate the plan by April 30, 2016, could jeopardize the qualified tax status of the plan and result in its disqualification. The effects of non-compliance could result in possible taxation to plan participants, loss of deductions on the sponsor’s annual tax filing, and imposition of penalties to the employer.
After careful consideration is taken, the restated plan document should be reviewed to ensure that what is included accurately reflects the operations of the plan. Plan Sponsors should be cognizant of the Department of Labor’s intent to investigate more plans in the coming year to determine a plan’s compliance, or lack thereof, with its plan document. The restated document should be approved at the appropriate organizational level (e.g. partners in a partnership, approval by the Board of Directors, consideration by a retirement committee, etc.) and most importantly, in order for the restatement to be binding, the document must be signed by the authorized officer of the plan sponsor. Once complete, a new Summary Plan Description should be drafted and distributed to all plan participants.
While this restatement process may be news to some employers, providers who sell such pre-approved plans will generally update the plan in its entirety as the restatement deadlines approach. At the same time, these providers will also request a new advisory/opinion letter from the IRS for the official stamp of approval. The IRS commonly approves all restated defined contribution plans at the same time. The latest of these letters were issued on March 31, 2014.
For a complete listing of legislative changes, please visit the following link: 2010 Cumulative List of Changes in Retirement Plan Qualification Requirements
Kenneth R. Cerini, CPA, CFP, FABFA