About every six years, the Internal Revenue Service (IRS) mandates businesses and organizations with qualified, pre-approved plans to restate (or re-write) their plan documents. The goal is to memorialize changes that have occurred since the plan documents were created or last restated. For defined contribution plans, such as 401(k)s, the current restatement cycle – dubbed “Cycle 3” – opened on Aug. 1, 2020 and will close on July 31, 2022. This means all plan documents need to be not only restated by then, but also certified by the IRS, and adopted by employers. Missing this deadline may result in IRS penalties or worse disqualification of the plan.

The restatement process involves plan sponsors working with document providers such as third-party administrators and ERISA attorneys to re-write plan documents to include changes from all mandatory (changes made by the government or Congress) and discretionary (changes you optionally made) amendments.

Cycle 3 reflects all legislative and regulatory changes passed before Feb. 1, 2017. Changes that were a result of the 2019 hardship distribution regulations, the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act, and the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act are not part of the restatement but need to be addressed in separate, good faith amendments often called “snap on” amendments.

You may be wondering why restatement is needed when your plan has been recently amended to reflect these recent changes. Those revisions are good faith, interim amendments; after a six-year cycle, the IRS requires that all pre-approved plans be restated to comprehensively address changes made by interim amendments.

Here are some common questions we receive on this topic:

What exactly is a plan restatement?
A restatement is a complete re-writing of the plan document. It incorporates changes from any plan mandatory or voluntary amendments that may have been adopted since the last time the document was re-written.

Is the plan restatement required or optional?
While some employers may choose to voluntarily restate their plans from time to time for various reasons, the impending plan restatement is required. Plans that do not restate their document by July 31, 2022, will be subject to IRS-imposed penalties, which in extreme circumstances, could jeopardize plan’s tax-favored status.

We just restated our plan. Do we really have to do it again?
Yes. Regardless of how recently you may have restated your plan, if you used a pre-approved document, it could not have satisfied the new requirements since the IRS had not yet issued any new approval letters. As a result, you must restate again. The good news is that there is a 2-year window for completing the restatement, and you have flexibility within that window as to when your plan is restated. Keep in mind, however, that two years can pass quickly and certain plan provisions may impose other timing restrictions necessitating earlier restatement.

Our plan is brand new – we just set it up. Do we need a new plan document already?
Yes. As noted above with respect to plans that recently restated, newly created plans could not have satisfied the Cycle 3 restatement requirement since the IRS had not yet issued the approval letters. As a result, even plans that were only recently established must restate. Again, the 2-year window offers timing flexibility.

What is the restatement deadline?
The IRS has announced that the Cycle 3 restatement window will begin on August 1, 2020 and have a final deadline of July 31, 2022.

Can we pay for the restatement fee from plan assets?
Yes. Since this restatement is mandatory, the expense is eligible to be paid from plan assets.

What are my next steps?
By now, your plan restatement should have been completed or in the process of being wrapped up. But if not, reach out to your trusted third-party administrator or financial advisor. This is also an excellent opportunity to review your plan features to ensure they are meeting your goals and objectives and make necessary changes.

Final words
We hope you found this article and FAQs resourceful. If you have questions or need assistance, feel free to reach out to us.