It’s that time again! About every six (6) years, the Internal Revenue Service (IRS) requires certain qualified retirement plans be fully amended and restated to comply with law changes to maintain their tax qualified status. The restatement cycle has started, and plan sponsors of defined contribution plans (401(k), profit sharing, and money purchase pension plans) will have until mid-2022 to comply. 403(b)s were required to be restated by end of March 2020 (for the first time ever, by the way), so the next restatement won’t likely take place until 2026 for these plans.

NESA has prepared this list of frequently asked questions (FAQs) to acquaint you with the upcoming plan document restatement requirement. If you have any questions that are not addressed here, do not hesitate to call or e-mail us.

FAQs

Why do we have to restate our plan?

Plan documents are drafted based on laws and regulations set forth by Congress, the Treasury Department (IRS), and the Department of Labor. As those laws and regulations change, documents must be updated to reflect those changes. The deadline for the last mandatory restatement was April 30, 2016, but it was based on documents approved by the IRS in 2014 and only considered legislative/regulatory updates through 2010. Since then, there have been a number of regulatory and legislative changes impacting retirement plans. This required restatement incorporates those changes for the past six years.

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.

Which types of plans must be restated?

All qualified retirement plans that use an IRS-pre-approved plan document must be restated approximately every six years; however, they are divided into various cycles depending on plan type. For example, defined contribution plans (such as 403(b)) and 401(k) plans each have a different six-year restatement cycle. This upcoming mandatory restatement period for defined contribution plans is referred to as “Cycle 3” because it is the third required restatement that follows this six-year cycle

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.

Next Steps

A restatement is also a good opportunity to review any plan design changes. Your TPA or service provider should be going over the plan features with you. Typically changes require amending the plan, and there’s a small fee associated with those changes. However, most design changes made with this restatement is generally covered in the fee. You should expect to hear, if not already, from your document provider about this requirement and their process for completing the restatement.