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We're Off To The Races: Restatement Period Opens for Pre-Approved Defined Contribution Plans

In June, the IRS announced that they were issuing opinion letters for pre-approved defined contribution plan documents. Now that it is late October, this means it is time to start the process to restate defined contribution plans such as 401(k), profit sharing, and money purchase pension plans. Restatements must be adopted no later than July 31, 2022.

While that may seem like a long time away, and the terrifying flashbacks from the last restatement cycle may be the stuff of your nightmares, keep in mind that in order to preserve reliance [See, FAQ “What is Reliance”]on their tax-exempt status, ALL pre-approved defined contribution plans must be restated by that deadline, so document vendors will be very busy, particularly in the later portion of the restatement period. Starting the process as soon as possible will enable your plan to be restated by the deadline and with enough time to allow for careful review to ensure no errors are made in the restatement process. Don’t let it sneak up on you!

Document vendors will generally direct the restatement process: setting up timelines and deadlines, holding progress calls, and drafting (at least the first draft) of the documents themselves. But the plan sponsor has a vital role to play in the process. Plans sponsors should:

  • Take some time to review their current plan and consider any beneficial plan design changes that can be implemented during this process.

  • Be aware of changes to pre-approved plan documents that could affect administration, e.g., use of discretionary matching contributions (see below)

  • Carefully review all documents, including the new draft SPD internally

  • Communicate clearly with the document vendor regarding changes

  • Be mindful of, and responsive to, deadlines set by the document vendor

  • Have legal counsel review the documents prior to finalization

Changes to Pre-Approved Plans

Document vendors have just begun to make their documents available for adoption. In addition to updates for changes in law, we are seeing other changes to the documents from the prior PPA cycle documents. In part, these changes are updates and “improvements” initiated by the document vendors and will vary from vendor to vendor. However, there are also global changes required by the IRS in all pre-approved documents, including:

  • Trust/and custodial provisions must now be in a separate document

  • Discretionary matching contributions must now specify that the match will be a uniform percentage, a fixed dollar amount, or will vary from year to year. If the last option is chosen, an annual notice to participants will be required. In addition, the period for determining matching contribution must be specified and is not at the discretion of the employer. Some employers may delay restating their plan in order to delay the notice requirement as much as possible.

  • References to domestic partners have been removed. This could be problematic in states, such as California, that require domestic partners be treated the same as a spouse. While state laws are generally pre-empted by ERISA, choice of law provisions may bring state laws back into play and non-ERISA plans such as governmental plans are subject to state laws.

  • Incorporating outside documents such as collective bargaining agreements is no longer permitted, and specific provisions must be set out in the plan document.

  • Arbitration clauses have been removed from pre-approved documents.

  • The only event which may automatically revoke a spousal beneficiary designation is a legal divorce.

  • Effective dates of restatements cannot be earlier than the first day of the plan year in which the restatement is adopted.

Plan sponsors may choose to modify their plans to add back some of the changes the IRS mandated, or make other changes to a pre-approved document but if that is done, the plan may need to seek its own determination letter on Form 5307 as it may not have “reliance” on the document vendor’s opinion letter.

IRS and vendor changes may result in plan provisions being automatically “mapped” to a default provision, so plan sponsors should pay attention to these defaults and make sure that they agree with the them.

Interim Amendments

Pre-approved plans were submitted to the IRS for review prior to the enactment of the Final Hardship Regulations, the SECURE Act, and the CARES Act. This means that the IRS has not reviewed and approved specific language for these laws. The amendments for these changes in laws are due by December 31, 2021 (hardship rules) and December 31, 2022 (SECURE and CARES Act). Vendors will generally deal with this (and any additional legal changes) by providing separate amendments that will need be adopted by their respective deadlines in addition to the restatement.

Plan Sponsor Review

Plan sponsors should carefully review the draft restated plan document prior to adoption. This means verify that the restated document accurately reflects continuing plan provisions as well as new plan provisions, if any and the plan sponsor’s intent. A careful review can also identify provisions which the plan sponsor was not familiar and raises possible opportunities to make further revisions and/or correct past plan mistakes.

Legal Counsel Review

In addition to working with the document vendor to restate the plan onto the newly-approved document, review by legal benefits counsel is essential to verify that:

  • All amendments since the previous restatement have been incorporated,

  • Any desired plan provision changes are made and that those changes do not create any impermissible cut back issues,

  • No unintended changes are made to the terms of the plan by the document preparer, leading to potential qualification failures,

  • Any qualification failures are corrected quickly, and

  • New service agreements are reviewed (see our article on service agreements for a discussion of this process).

Don’t Forget the Finishing Touches!

Once all of the plan documents have been finalized, the plan sponsor must make sure to carry out all of the necessary actions:

  • Adopt all plan documents prior to July 31, 2022

  • Sign and date all required pages

  • Determine whether this requires board or committee approval and follow applicable procedures/corporate requirements

  • Retain all copies of signed and dated plan documents for the life of the plan and for at least 7 years after the plan is terminated

  • Distribute new summary plan documents to participants and beneficiaries

  • Correct any qualification failures discovered during the restatement process

Correcting Plan Failures

The restatement process can result in plan qualification failures if the documents are not carefully reviewed by both the plan sponsor and legal benefits counsel, requiring corrections down the road that can be expensive and time consuming. Examples of qualification failures that can result from a careless review are:

  • Failure to use the correct definition of compensation for contributions, resulting in excess or insufficient contributions

  • Eligibility requirements mistakenly broadened or narrowed, resulting in the unintended exclusion or inclusion of an employee

  • Discontinuance of a protected benefit that has already accrued to the participants, resulting in an impermissible cutback

  • Failure to carry over an amendment, resulting in a failure to operate the plan consistent with its terms

For a more detailed discussion of plan corrections,see our article on corrections here.

IRS Letters

The IRS indicates² that they will accept applications for individual determination letters from August 1, 2010 to July 31, 2022. Generally speaking, an adopter of a pre-approved plan may rely upon the opinion letter issued on the form of the plan document. However, some plans may be eligible to apply for an individual determination letter, including where the plan is:

  • restated onto a non-standardized document and changes to the approved language are not “extensive,” or

  • a new plan that has not received a prior determination letter.

We are planning a webinar in January on this topic –see Webinar below.

Please contact a Boutwell Fay attorney for guidance on the restatement and/or determination letter process. We are available to assist with restatement review, plan design considerations, and determination letter submissions, as well as other plan issues that may arise in the process.


© Boutwell Fay LLP 2020, All Rights Reserved. This handout is for information purposes only and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of October 2020.

We're Off to the Races_Restatement Period Opens for Pre-Approved Defined Contribution Plan
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