In order for a retirement plan to maintain its tax-exempt status, every six years the IRS requires retirement plan documents to be updated, then resubmitted for review and approval. This “plan restatement” process ensures that any changes in the laws and regulations established by Congress, the IRS and the Department of Labor are incorporated.
But if plans had to be restated each time a regulation changed, they would be continuously rewritten. With this in mind, the IRS allows for cycles during which retirement plans adopt amendments that address new laws, instead of going through a full plan restatement process. At the end of a specified cycle, the plan document is rewritten, incorporating the complete language that those amendments summarized.
Deadline of April 30, 2016 Approaching
As a reminder, the current plan restatement cycle that started on May 1, 2014 ends on April 30, 2016. To incorporate the provisions from the Pension Protection Act and various other required amendments that took effect between 2007 and 2011, all defined contribution plan documents need to be restated no later than April 30, 2016.
The IRS may disqualify a plan that does not comply with the plan restatement requirements, which could result in taxation for the participants and loss of deductions and penalties for the employer. The final plan restatement documents typically consist of the following:
- A restated Plan Document or Adoption Agreement
- A resolution adopting the restated document
- A separate trust document if appropriate
- A restated Summary Plan Description that must be distributed to all participants and beneficiaries.
Provisions of the Pension Protection Act of 2006
Some highlights of the changes introduced by the Pension Protection Act of 2006 as it relates to retirement plans include the following:
- Automatic enrollment provisions – enabling employers to enroll employees in 401(k) and 403(b) plans
- Investment advice rules – removing the conflict of interest for providing certain types of investment advice to plan participants
- Contribution limits extension – extending the Economic Growth and Tax Relief Reconciliation Act of 2001’s contribution limits for 401(k)s
- Qualified Default Investment Arrangements – establishing safe harbor investments to protect employers from liability of losses suffered by automatically enrolled employees
Opportunity to Incorporate Plan Enhancements
While the restatement process is well underway, it is still important to note that the restatement time provides the opportunity to incorporate any design enhancements you may be considering for your plan. ABG is performing a general due diligence review as plans are being restated to help ensure your plan is current and complies with all plan restatement requirements. But if you have been considering other discretionary changes, contact your ABG representative to help think through these changes.