Every six years the IRS requires plan sponsors to restate their plan document that governs how their plan operates, including eligibility, contributions, vesting, distributions and much more. The plan document dictates the operation of the plan through these selected plan features. Most importantly, it is written to comply with the many IRS regulations and rules.
This periodic restatement is the IRS’s method to get your plan document back on track with the current legal requirements as laws have been added or rewritten over this six-year period. Any required plan amendments over this time frame get wrapped into the restatement plan document.
Related Read: IRS Compliance Checklist: Keep Your Plan Running Smoothly and Legally
Now is the time
All defined contribution plan documents must be restated now. This includes all volume submitter and prototype plan documents. This is typically an adoption agreement, which is part of your plan documents that require updating. The far majority of defined contributions plans, such as a 401(k) or profit-sharing plan, are volume submitter or prototype plans, which must be restated. Individually designed defined contributions plans are the exception and are not required to be restated at this time.
July 31, 2022 is the last day to restate and execute your plan document. The restatement cycle began last year, so many plans have already been restated. For those plans that have not yet been restated, now is the time to get started before the deadline gets close.
Along with the restatement, there is a multitude of reasons to reassess your plan and consider whether it meets your objectives and needs. Some of these reasons are:
- Retirement savings sufficiency;
- Industry competitiveness;
- Attractiveness in employment and retention;
- Plan administrative costs;
- Tax deduction effectiveness;
- Employer contribution formulas;
- Employee participation;
- Compliance with laws; and
- Flexibility in design.
With the restatement period in progress, it is a great time to take a look at your plan and consider changes in plan features to make the plan work better for you and your employees. The way to do this is to review the major features, which impact your plan the most. Four of those features were listed at the beginning of this article. In addition, a fifth and important item to review is plan compensation rules and how you are meeting them.
Before reviewing these five central plan features, first, stop and take a look at how well each of them has worked for the plan. Do this by taking a holistic assessment and noting any compliance issues you may have experienced with the plan in the recent five or fewer years. For example, have there been any eligibility issues where employees may have been inadvertently excluded from participation? You may find it beneficial to change your eligibility requirements in such instances to help alleviate this situation.
Related Read: SECURE Act: Changes to 401(k) Plan Eligibility and Vesting for Part-Time Employees
It is also a good time to review the plan’s contribution formula as business may have changed significantly since the pandemic. Are you and your employees saving enough for retirement?
Also, is your safe harbor plan too expensive due to economic, business and employment changes as a result of the pandemic? There are many ways contributions may be changed to better meet your needs, so take a step back and do a quick review.
These are just a few examples. The point here is to take the opportunity to review and update any plan features that help you with the plan operation and align with your objectives.
Taking a fresh look at your plan design
It may also be the time to see what other features may be added to the plan to help increase plan participation or to keep it competitive in your industry. Some features you might consider adding are:
- Roth contributions;
- In-plan Roth conversions; and
- Lifetime income options.
Many plan sponsors have not yet considered adding some of these features to their plan. Now is the time to consider these and other features, which may help attract and retain employees or help the plan sponsor meet their objectives.
Stay ahead of the game
With the restatement deadline months away, you need to start your assessment before it gets too late to complete it. Now is the time if you have not yet restated. Get started by contacting your benefits consultant or ERISA attorney for assistance.
For more information or assistance with your plan document restatement, contact Larry Ruff at [email protected] or call him at 312.670.7444. Visit ORBA.com to learn more about our Employee Benefit Plans Services.