The deadline for employers that use pre-approved retirement plan documents to sign an updated version of their 401(k), profit-sharing, money purchase, or other defined contribution plan, is drawing near.
The IRS requires all pre-approved plans to be updated or “restated” in their entirety every six years to incorporate legislation that was enacted since the last update and to receive the IRS’s approval for another six years. The latest six-year cycle, generally known as the “PPA restatement cycle,” ends on April 30, 2016 and takes into account such legislation (and related IRS guidance) as the Pension Protection Act (PPA), the final Section 415 regulations, the Heroes Earnings Assistance and Relief Tax Act (HEART), and the Worker, Retiree, and Employer Recovery Act (WRERA). The cost of restating the plan can be paid out of plan assets since the restatement is required to maintain the plan’s tax-qualified status. Further, since the plan will already be undergoing a restatement, this is a good time for employers to review their plan document and the plan’s operation to determine if any discretionary changes should be made at the same time.
An employer’s failure to adopt a restated plan by April 30, 2016 could result in the plan’s disqualification, taxation for participants, and the loss of deductions and penalties for the employer. Employers who have not heard from their service providers regarding the restatement of their plan(s) should contact them immediately.