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Retirement Plan Restatements

One of the requirements of maintaining a qualified retirement plan is that the plan is formally written and presented to employees. Having a written document is required because it outlines the plan’s terms, its description of benefits, and the criteria to be followed throughout the life of the plan. If the plan or any regulations surrounding the plan change, then the plan document needs to be updated to reflect those changes.

An amendment to the plan is required if an employer wishes to change any aspect of the plan’s terms and benefits. Sometimes amendments are implemented because the employer wants to voluntarily change items in the plan, this is known as a “discretionary” amendment. In other instances, amendments are mandatory and must be updated to reflect the changes in the laws or regulations that govern retirement plans. Discretionary, or optional changes, have to be adopted no later than the end of the plan year in which the change is effective. Mandatory amendments are typically required to be adopted by the due date of the plan sponsor’s tax return for the calendar year in which the change is effective.

The frequency of the restatements will be dependent upon a few variables such as the type of plan document used by the plan. A defined contribution plan using a pre-approved document such as a prototype document or volume submitter document, must generally be restated every 6 years. A plan using a custom, individually designed document must generally be restated every 5 years based on the company’s federal identification number. No matter the plan type, most restatement changes are made retroactively on a 5-6 year cycle. This cycle is known as a “restatement cycle” because the retirement plan document is “restated” or completely re-written to reflect regulatory and legislative updates. Inevitably, every qualified retirement plan will have to be restated over time and on an ongoing 5 or 6 year cycle.  Defined benefit plans are on a different cycle. TriStar will help you to determine which cycle you are on and when your plan must be restated. Most plans use pre-approved documents and therefore most plans will follow the 6 year cycle.

In the event of an audit, the IRS will request to see the signed plan documents, checking for all remedial amendments and restatements. Should an employer fail to timely restate the plan or fail to provide a copy of the signed document, the IRS can disqualify the plan and take away all of its tax benefits retroactively. In addition to the tax ramifications of having a disqualified plan, the employer will also be assessed large penalties. For this reason, restating your plan by the required deadline is a top priority.

The new required restatement cycle is referred to as the PPA Restatement. The new cycle began in April of 2014 and will end in May 2016.

We will continue to provide additional restatement information as it comes available. In the meantime, please read our newsletter ‘Ready or Not, Here it Comes, The PPA Plan Restatement’.

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