Document Restatements Coming to a Plan Near You
For all qualified defined contribution plans in the Internal Revenue Service (“IRS”) third cycle for plan restatements, the restatement period begins on August 1, 2020 and continues through July 31, 2022.
Under the Employee Retirement Income Security Act, as amended (“ERISA”), all plans are required to have a written plan document. Plans may either utilize a pre-approved plan document or an individually designed document. Either way, plan sponsors need to take note of the upcoming deadline from the IRS, which was announced in Announcement 2020-07.[1]
For individually designed plans, if the plan wishes to move to a pre-approved document, the plan has until July 31, 2022 to make the change. One reason a plan might choose to make that shift is if a service provider (such as a recordkeeper) includes a pre-approved document as a part of the recordkeeping fee. Making this change may be optimal for a plan in order to save on the fees paid to an outside document provider or to create efficiencies with a recordkeeper.
On the other hand, pre-approved documents have limitations during times of quick changes such as COVID-19 when many employers desired agility; however, pre-approved document providers had limitations and time constraints.
The restatement cycle means that it is time to incorporate everything from the IRS’s cumulative list of regulation changes since the last restatement period. Unfortunately, even if the plan has been recently restated or amended, it will still be required to restate again on the IRS approved template. Keep in mind that the IRS’s cumulative list does not include the very recent changes to hardships, the SECURE Act, or the CARES Act. However, these changes may still be added to the plan through other good faith amendments (for now).
Suggested Action Steps:
Determine who provides the plan document.
Check with the document provider to better understand the process for restatement.
Plan ahead and use this as an opportunity to review other plan provisions that may be optimal. For example, if there are ways to simplify the plan and make it easier to administer, now’s the time to incorporate those simplified provisions into the plan at the same time as the plan restatement.
Don’t forget to send out the updated Summary Plan Description after the plan restatement (and consider using the Department of Labor’s new electronic disclosure rules, learn more here).
[1] IRS Notice 2020-07, available here: https://www.irs.gov/pub/irs-drop/a-20-07.pdf.