Focus Article: FAQs for Post-PPA Restatements. Qualified retirement plans are required to be restated in full every 6 years. These restatement "cycles" are necessary to maintain document compliance with applicable laws.
Defined Contribution Pre-Approved Plan Documents
Chances are your qualified retirement plan (401(k) plan for example) is using a pre-approved plan document. If so, the law states that the employer must adopt a new plan at least once every six years. These 6-year periods are called "cycles" and we've just entered Cycle 3, Post-PPA.
Uniglobal and its document providers must completely update all pre-approved plan documents and request new approval letters from the IRS every six (6) years. Generally, employers using our pre-approved documents must adopt the updated pre-approved plan within two (2) years after the IRS issues its letter.
What's Changed For Cycle 3?
The naming convention and specific terminology used to previously identify types of plans has changed for Cycle 3. In the past, words like Master, Prototype, and Volume Submitter were used to delineate between differing plan types. Those terms have been eliminated. They have all been replaced with one single term: "Pre-Approved Plan."
Under this new convention, there are two types of pre-approved plans: standardized and non-standardized.
Standardized Pre-Approved Plan
Standardized Pre-Approved Plans are limited in many ways due to the provisions having to be safe harbor. The limitations impact what changes the employer may make during the design of the plan.
Non-Standardized Pre-Approved Plan
Unlike the Standardized Pre-Approved Plan, the provisions within the Non-Standardized Pre-Approved Plan do not have to be safe harbor. This provides greater flexibility for the employer during the plan design phase.
Format
The structure of Cycle 3's Pre-Approved Plans have been adjusted slightly. While prior versions could maintain the Adoption Agreement and Single Document formats the Trust Document has been extracted and is now separate from the Base Plan Document.
Adoption Agreement Plan Format
The adoption agreement format contains two components: a basic plan document and an adoption agreement. The basic plan document houses all the provisions the plan can utilize. As such, it cannot be modified by the employer. The adoption agreement on the other hand selects, or adopts, provisions of the basic plan document as the employer sees fit - in a check-box manner. This adoption agreement must be signed by the employer or other delegated fiduciary, such as the plan's trustee.
Single Document Format
A single document plan does not use an adoption agreement. The provisions of the plan design elected by the employer are incorporated into the paragraphs of the single document plan. This format provides little question over whether or not a provision was intended to be incorporated.
Trust Document
The Trust Document is now its own separate document. In addition, the Trust Document is not subject to submission to the IRS for an approval letter. Due to this, and in the event there is conflicting language, the pre-approved plan contains a statement that the provisions of the plan supersede any conflicting provision within the trust used by the plan.
When Must My Plan Document Be Restated for Cycle 3?
The Post-PPA restatement period begins on August 1, 2020 and runs through July 31, 2022. Generally, your pre-approved plan must be executed on or before July 31, 2022; however, some provisions of the restatement must be executed no later than the last day of the plan year in which they are effective. As a general rule, you should sign your plan documents upon receipt and after you have performed a review.
Will Recent Legislature Be Included In My Restated Plan Documents?
There have been some notable changes to the law since the filing for approval. These law changes will be incorporated after the plan is restated. The Interim Amendments so far are:
Hardship Distribution Amendment
This Amendment is part of the Bipartisan Budget Act of 2018 and eliminated the suspension of elective deferrals after a hardship withdrawal, removed the requirement to take a retirement plan loan first, and made safe harbor contributions and elective deferral earnings available for hardship.
SECURE Act Amendment & CARES Act Amendment
We anticipate release mid-2021 for these Interim Amendments to be available. Plans may operate under the Acts provisions from the date they became effective as the Interim Amendments will be retroactive to those past dates.
Can We Incorporate Additional Changes?
Yes! The Restatement is an opportunity for you to review your current retirement plan's structure. If you are considering adding or removing features to better align with your organizations goals and objectives we can incorporate those changes during the plan document restatement.