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PLAN RESTATEMENTS

The Internal Revenue Service (“IRS”) requires that all pre-approved qualified retirement plan documents be restated in their entirety every six (6) years (this period is often referred to as the “Restatement Cycle”). Pre-approved plans subject to this mandate consist of prototype plan documents.  A prototype plan document is an IRS pre-approved document sponsored by a third party such as a financial institution that outlines the key terms and conditions of a retirement plan, acting as a “ready-made” template that employers can use to set up their qualified retirement plan without needing to create a completely customized document.  This option is often chosen for its cost-effectiveness and streamlined process.  Prototype plans are now the primary method employers use to adhere to the requirement that the employer maintain a written plan document that is current with existing laws.  Once adopted, restatements are required to incorporate any changes in laws or IRS regulations, as well as any voluntary amendments that the plan may have adopted since the last time the document was re-written, into a single new plan document.  There is a different 6-year restatement cycle for defined contribution plans (401(k), profit sharing, money purchase, and target benefit plans) and for defined benefit plans (including cash balance plans).

DEFINED BENEFIT PLANS

The current Restatement Cycle for defined benefit plans began on April 1, 2023 and ends on March 31, 2025.   Announcement 2023-6.  Employers who sponsor a defined benefit plan that does not restate their plan by March 31, 2025, will no longer be in compliance with the law and risk significant penalties.  Since this is the third time plans have had to be restated under the 6-year cycle this restatement is often referred to as the “Cycle 3” restatement.  The Cycle 3 restatement incorporates items listed on the IRS 2020 Cumulative List plan for legislative and regulatory changes effective after the “EGTRRA” and “PPA” restatement cycles in 2018.

Unlike with the Cycle 3 restatement for 401(k) plans which ended in 2022, there are not a lot of changes for defined benefit plans in the Cycle 3 restatement as there was no specific legislation affecting defined benefit plans since the last required restatement 2018.  Some notable changes incorporated into the Cycle 3 document include:

• Expansion of the definition of “spouse” to include those of the same gender.
• IRC 401(a)(26) fail-safe provision which automatically minimizes the cost of compliance to the lowest possible amount.
• A method for matching pay credits to the IRC 415 limit.
• New death benefit options to better accommodate insurance in plans.

DEFINED CONTRIBUTION PLANS

The current Restatement Cycle for defined contribution plans ended on July 31, 2022 and is referred to as the “Cycle 3” Restatement.  Employers who sponsor a defined contribution plan that did not restate their plan by July 31, 2022, will no longer be in compliance with the law and risk significant penalties.

Plans sponsors should review their plan documents to ensure they are compliant with the restatement cycle. If plans have not been timely amended and restated, under the Employee Plans Compliance Resolution System (EPCRS) Voluntary Compliance Program (VCP), plan sponsors can submit late adoptions and pay a reduced penalty than if the failure is discovered upon audit of the plan.  Information of the EPCRS and VCP can be found at https://www.irs.gov/retirement-plans/epcrs-overview.