It’s Almost Time to Restate Retirement Plans

By Randy Cook & Christine Moehl

IRS rules state that qualified retirement plans (e.g., 401(k) plans, defined benefit plans, etc.) must be updated periodically to reflect legislative and regulatory changes. Historically, retirement plan amendments were required whenever Congress or the Department of Treasury changed the tax laws affecting retirement plans. During years of heavy legislation, this sometimes meant multiple amendments in a single year, which of course can be costly to the employer. In addition, every few years the IRS would require that all retirement plans be “restated.” A plan restatement is basically a complete re-write of the plan document to incorporate all of the individual plan amendments (both optional and required) that have occurred since the plan’s last restatement.

Beginning in 2006, the IRS implemented a new, 6-year “restatement cycle” for most retirement plans. The new restatement cycle assures plan sponsors that they will only have to restate their plan documents once every six years, regardless of how active Congress and the Department of Treasury have been. Although interim “good faith” amendments to the plans are still sometimes required, the interim amendment process has been streamlined. There are two separate 6-year restatement cycles. One cycle is for “defined contribution” plans, which include profit sharing, 401(k), and money purchase pension plans. The other cycle is for “defined benefit” plans, which include traditional pension plans and cash balance plans.

We are now on the eve of the next restatement cycle for defined contribution plans. This restatement is called the “PPA Restatement”. PPA is short for the “Pension Protection Act of 2006”. Although this is referred to as the PPA Restatement, a whole host of other regulatory changes are also included in the restatement. In all likelihood, your retirement plan is already operating in compliance with PPA and the other regulatory changes. The PPA restatement will be a complete re-write of your plan document to incorporate the 100+ changes that have occurred since the last restatement. The PPA Restatement cycle is scheduled to begin on May 1, 2014.

Although plan restatements can be cumbersome, we like to think of them as presenting an ideal opportunity for plan sponsors to revisit plan design issues. Since the entire plan document is being re-written anyhow, why not examine optional plan provisions that may not be in your current plan? For example, during the last plan restatement cycle, several of our clients requested that “Roth” (i.e, post-tax) deferrals be added to the plan during restatement. Several others requested that participant loan provisions and/or hardship withdrawal provisions be added to the document. Still others asked that we include automatic enrollment. The list of options is endless. Actually, it’s not endless, but there are a lot of options on the list! All plan sponsors should take this opportunity to review their plan provisions to ensure the plan is meeting their needs.

If you are already in our “corral” of clients, you will receive a letter from us soon explaining the restatement process in greater detail. If you have questions in the interim, or if you are not in our corral of clients but would like to discuss using Saalfeld Griggs as your plan document provider, please contact a member of our Employee Benefits Practice Group.