Many retirement plans are written using Internal Revenue Service (IRS) pre-approved documents. Pre-approved plans must be restated every six years to update their plan documents to reflect recent legislative and regulatory changes since the previous restatement, to maintain their tax qualified status. The six-year restatement period is known as a “cycle”. The last restatement cycle was referred to as the PPA cycle, for the Pension Protection Act of 2006. That restatement cycle ended on April 30, 2016, meaning that was the deadline by which all plans had to be restated.
IRS Announcement 2020-07 recently confirmed that the next required amendment and restatement cycle, referred to as “Cycle 3”, for defined contribution plans opened August 1, 2020. This means that every 401(k), profit sharing, and money purchase pension plan will need to be amended and restated during the two year period from August 1, 2020 to July 31, 2022. Plan restatements are required by the IRS and are not optional. Failure to comply could result in significant IRS penalties, including loss of tax-favored status (meaning contributions would not be deductible and would be counted as income to employees). Note: It does NOT apply to non-qualified plans, defined benefit plans, nor to any IRA plans, including SIMPLE IRA, SEP and SARSEP.
If JamisonMoneyFarmer PC provides plan administration services for a required restatement plan, you will hear from us according to a schedule that will allow the completion of all required restatements on a timely basis. We expect to restate most of our clients’ plans during 2021.
Plans will be restated onto the new Cycle 3 document by carrying over the provisions of the current PPA document to the new Cycle 3 document. As a plan sponsor, you may request discretionary changes to your plan design as part of the restatement process.
Because of the timeline that the IRS uses to review and approve pre-approved plan documents, it is important to note that the Cycle 3 documents for all document providers will not reflect any legislative changes that have taken place since 2017. Therefore, they will not include the recent changes to hardship withdrawals, the SECURE Act, or the CARES Act. (For more information on all of these recent legislative changes related to COVID, please visit the JMF COVID19 Tax Resources Page).
A plan sponsor may decide to utilize these provisions currently but the deadline to amend plans retroactively for these changes is as follows:
- Hardship Withdrawals: For pre-approved plans other than 403(b) plans, the applicable deadline is the employer plan sponsor’s tax filing deadline, plus extensions, for 2020.
- SECURE Act: Last Day of the Plan Year beginning in 2022
- CARES Act: Last Day of the Plan Year beginning in 2022
Some of our clients have already amended their plans for the hardship withdrawal changes. For the SECURE Act and CARES Act provisions, most document providers will wait to add these amendments until the IRS provides model language for these changes.
Another issue to be aware of is the restatement requirement for a plan termination. When a plan is terminated, it must be updated with all required law changes. For plans that terminate after August 1, 2020, the restatement will become part of the legal plan documentation required for the plan termination process.
Plans that are not on a pre-approved document, but instead use an attorney-drafted individually designed document, are subject to different restatement rules. Check with your attorney or other document provider as to the due date for the restatement of any individually designed plans.
As always, your JMF PC team is here to provide support for you however we can during these rapidly changing times. If you have questions about IRS Announcement 2020-07 or plan restatement, please do not hesitate to contact your JMF accountant or our Pension Consulting Group.