Take Advantage of Required Retirement Plan Restatements
Take Advantage of Required Retirement Plan Restatements

Take Advantage of Required Retirement Plan Restatements



Tami Bowman
Tami Bowman

Retirement Plan Services Administration & Compliance Director
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Take Advantage of Required Retirement Plan Restatements

Alphabet soup for the plan sponsor’s soul.

The lingo retirement plan services providers use often sounds a lot like alphabet soup.

TRA86, GUST, EGTRRA—these retirement plan acronyms can be befuddling.

However overwhelming the acronyms can be, restatement season is the best time to work with an advisor to ensure you understand another retirement plan acronym---the PPA (the Pension Protection Act of 2006)—and what you need to do to amend your qualified retirement plan.

The Pension Protection Act of 2006, or PPA, requires plan sponsors to amend plan documents. Every qualified retirement plan must be restated to include changes made by PPA as well as other legislative and regulatory changes. Most defined contribution plans need to be restated by April 30, 2016.

Now is the time to assess if your qualified retirement plan still meets your needs as a business owner as well as your company’s and plan participants’ needs. Here’s how it works, what to be aware of, and why you don’t want to miss the deadline.

How Restatement Works

Restatements follow a cycle like the Olympics, except it’s a 6-year cycle for most plans. The IRS has decided that the best way to incorporate the various legal changes surrounding retirement plans is to allow the plan sponsor to make periodic “interim” amendments to their plans to comply with the required changes. Then, every six years, plan sponsors follow a set time frame to fully rewrite – or “restate” – their plan document to incorporate the amendments. Be aware that individually designed plans are on a five-year schedule.

The April 30 PPA restatement deadline applies to most “Defined Contribution” retirement plans, including profit sharing, 401(k) plans, and money purchase pension plans. Other types of retirement plans will have their own deadlines in the future, but not before 2018.

What’s Included in the PPA Restatement

PPA restatement requirements were defined under IRS Revenue Procedure 2005-66 (as modified by Rev. Proc. 2007-44), and restatements must include items in the current Cumulative List of Changes in Plan Qualification Requirements (“Cumulative List”), which sets forth other legislative and regulatory changes. Highlights of the PPA affecting qualified retirement plans include:

  • New automatic enrollment provisions
  • Accelerated vesting schedules for profit sharing plans
  • Expanded rollover options for Roth accounts
  • Simplified IRS filings for 5500-EZ filers
  • Enhanced benefit statement requirements for participants

Other law changes that have affected qualified retirement plans since PPA include:

  • Final Code Section 415 (plan compensation limit) regulations in 2007
  • The Heroes Earnings Assistance and Relief Tax Act of 2008 or “HEART Act” – which made important provisions for members of the military who participate in qualified retirement plans
  • Worker, Retiree, and Employer Recovery Act of 2008 or “WRERA” - which waived required minimum distributions for 2009 and clarified the rules allowing non-spouse beneficiaries to roll over inherited plan assets to inherited IRAs

What If You Miss The Deadline?

The penalties are serious: plan contributions will no longer be tax deductible; plan earnings will be taxable; and plan benefits distributed will not be permitted to roll over to other tax-deferred retirement accounts. In addition, if the IRS discovers the plan has not been restated before the deadline, it can impose significant sanctions upon the plan sponsor.

Take Advantage!

Because the plan document must be amended and restated anyway, now is a good time to consider any plan design changes that you wish to make to your qualified retirement plan. For example, you may be interested in adding Roth deferrals, in-service distribution options, or plan loans. It may be possible for owners to dramatically increase their own share of contributions and/or reduce the cost of funding the plan for employees. Or perhaps you want to consider different eligibility requirements, alternative matching formulas, or self-directed brokerage accounts.

Thankfully, on January 29, 2016, the IRS released Notice 2016-16, permitting sponsors of safe harbor plans to amend their plans mid-year for most any reason save for a few reasonable prohibitions. Prior to this welcome relief, sponsors of safe harbor plans couldn’t make mid-year changes except for a very short list of exceptions, a restriction that most in the industry abhorred.

If your plan has not yet been restated, we’d welcome a conversation to see if there’s an opportunity to improve it. But please call us soon! Even if you have already restated your plan, if you did not fully review your plan design, it might be worth a second look. Our Retirement Plan Services team of experts is available to consult with you regarding any changes that you may wish to make at this time. We eat the alphabet soup every day.

Tags:  Defined Contribution Plan, Plan Sponsors, PPA, Qualified Retirement Plan, Required Retirement Plan Restatements, Retirement Planning

Note:  The content of this article is for guidance and information purposes only and is not intended to be construed as advice. Information provided is not intended to provide investment, tax, or legal advice.

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