- What is a plan restatement?
A restatement is a complete re-writing of the plan document. It incorporates changes from any plan amendments that may have been adopted since the last time the document was re-written. Back to top
- Which types of plans must be restated?
While some plan sponsors choose to restate their plans for various reasons, the current plan restatement is mandatory. Failure to complete the restatement by the April 30, 2016, deadline will jeopardize a plan's tax-qualified status Back to top
- Is the current plan restatement mandatory or voluntary?
All qualified retirement plans must be restated from time to time; however, they are divided into various cycles depending on plan type and document type. For example, there are different restatement cycles for defined benefit plans and defined contribution plans. There are also different cycles for individually designed (attorney-drafted) plan documents and pre-approved (prototype and volume submitter plans) plan documents.
403b plans do not have to restated. Back to top
- What is a pre-approved plan?
A pre-approved plan is one the IRS has reviewed and approved all of the options that are available. They issue an advisory or opinion letter as evidence of the pre-approved status. All employers who adopt a pre-approved plan covered by such a letter are entitled to rely on the approval letter issued at the "global" level without applying for their own, individual determination letter. In order to create a "level playing field," the IRS sends out the new approval letters for all pre-approved plan documents at the same time. The PPA approval letters were issued on March 31, 2014. Back to top
- Why do we have to restate our plan?
Plan documents are drafted based on laws and regulations set forth by Congress, the Internal Revenue Service 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, 2010, but it was based on documents approved by the IRS in early 2006. Since then, there have been a number of regulatory and legislative changes impacting retirement plans, including the following:
Regulations dealing with post-severance compensation (Section 415 regulations)
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Pension Protection Act of 2006 ("PPA")
Heroes' Earnings Assistance and Relief Tax Act of 2008 ("HEART")
Worker' Retiree and Employer Recovery Act of 2008 ("WRERA")
- Don't we already have amendments addressing these changes?
Yes. The IRS recognizes that if plans had to be restated every time a regulation changes, we would be continuously re-writing plan documents. Thus, they created cycles during which plans simply adopt so-called "good-faith" or "snap-on" amendments addressing new laws instead of going through a full restatement; however, those amendments are similar to summaries of the language that is otherwise required. At the end of a given cycle, the plan document is re-written to incorporate the full text of the language that the good-faith amendments summarized. Back to top
- 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 PPA 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. Back to top
- 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 PPA 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. Back to top
- We are considering terminating our plan. If we terminate before April 2016, do we still have to restate?
The answer is a definite maybe. If you intend to seek the IRS' blessing for your plan termination, a full restatement is required as part of that process. If you will forego the determination letter but you have timely adopted all previously required interim amendments (described above), then the PPA restatement is not strictly mandatory as long as the plan is terminated prior to April 30, 2016. However, in that event, the IRS pre-approval letter for the plan document will not cover those interim amendments. That means, theoretcially at least, that the IRS could challenge the validity of those amendments on audit (yes, the IRS can audit terminated plans). As a result, we suggest that you strongly consider restating your plan as part of the termination process. Back to top
- Does this restatement mean we won't have any more good-faith amendments?
For the time being, that is generally correct. However, plans that choose to include the recently enacted in-plan Roth conversion option will need a separate amendment since that law was passed after the IRS started reviewing the new documents. In addition, Congress is considering several pieces of legislation that include retirement plan provisions. If enacted, good-faith amendments will most likely be required at that time. Back to top
- What is the restatement deadline?
All pre-approved defined contribution plans must be restated within 2 years of the date the IRS issues the approval letters. The IRS has announced that the PPA restatement window will begin on May 1, 2014. If all goes as planned, the final deadline to complete the restatements will be April 30, 2016. Back to top
- We have a safe harbor 401(k) plan, and we've been told we can only amend it at the beginning of a year. Does that impact when we restate our plan?
Yes. Although the IRS has said they are reviewing the limitation on amending safe harbor plans, they have not yet given any indication that the timing restriction will be relaxed for PPA restatements. For now, that means we must generally act on the assumption that safe harbor plans will need to make their restatements effective as of the January 1, 2015 or January 1, 2016 (assuming calendar year plans) in order to complete the process within the 2-year window. Of course, if you want to get the restatement out of the way, we can prepare it anytime and simply include a delayed effective date of the first of the next year. Back to top
- Can the plan pay for the restatement?
Yes. Since the current plan document restatement is required to maintain the plan's tax-qualified status, the Department of Labor allows the fee to be paid out of plan assets Back to top