Posted on Dec 18, 2020

Every six years, the IRS requires employers to restate their qualified retirement plan documents to incorporate any recent legislative and regulatory changes that occurred since the documents were last rewritten. “Restating” is a complete rewrite of plan documents.

In Announcement 2020-7, the IRS confirmed that the next restatement cycle for pre-approved defined contribution plans is the two-year period that began on August 1, 2020, and closes on July 31, 2022. (The IRS has separate cycles for defined benefit plans and 403(b) plans.) It’s important to note that even if you are an employer that just established a new retirement plan, it will still need to be restated within the two-year time frame.

This “Cycle 3” restatement means that all qualified pre-approved 401(k) plan documents will need to be amended, certified by the IRS, and adopted by the plan sponsor by the deadline of July 31, 2022. This is a mandatory IRS requirement with penalties for non-compliance. Employers should look for communication from their Third Party Administrators (TPAs) regarding the upcoming restatement and their process for completing it. Many TPAs will start preparing the required documents in 2021.

During this Cycle 3 Restatement period, a number of new laws affecting retirement plans have been voted into law, including the SECURE Act and the CARES Act that have impacted the operation of qualified plans. However, IRS approval letters for Cycle 3 plan documents only consider the legislative and statutory changes made prior to February 1, 2017. This means that regulations concerning hardship distributions effective in January 2019, the SECURE Act, and CARES Act regulations still need to be addressed in separate, good-faith amendments and not in the plan documents.

Restatement provides employers with the opportunity to update their plans with mandatory statutory changes, voluntary discretionary changes, and even possible enhancements. Your TPA can advise you of changes that can make the plan operate more efficiently and/or make it more valuable to you and to employees.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.

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