On the Horizon, Cycle 3 Restatement
By Ethan Heck, QKA
What is a plan document restatement?
Qualified retirement plans (QRPs)—including profit sharing, money purchase, and 401(k) plans—receive special tax benefits by meeting the requirements set forth by the IRS. Employers or plan sponsors are responsible for restating their plan documents to avoid a plan qualification failure. The IRS reviews plan documents in staggered cycles and issues letters permitting adopters of the “qualified” document to be eligible for the special tax benefits reserved only for QRPs.
Some plans apply for qualification individually under the determination letter program. These are called “individually designed” plans. Restatement services for these documents are typically provided by the ERISA attorney or third party administrator (TPA) firm that drafted the document. Most plans use a “pre-approved” document, meaning that the document has already been submitted to and approved by the IRS. For example, the Ascensus plan document is a pre-approved document that is re-certified as a QRP by the IRS when restated every six years.
Why must plans be restated?
Retirement plans are subject to frequent regulatory and statutory changes, often requiring multiple amendments. To help keep plans from becoming too burdened with separate amendments over many years of operation, the IRS requires pre-approved plan documents to be restated on a uniform six-year cycle.
“Good-faith,” interim amendments may still be required by law in any year that significant retirement plan changes become effective in the middle of a restatement cycle.
What is the current restatement cycle?
Known as the “Cycle 3 restatement,” this is the third six-year cycle that the IRS has issued opinion letters under the pre-approved retirement plan program. The first cycle was the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) restatement in 2010, and the second was the Pension Protection Act (PPA) restatement in 2016.
When do employers need to complete the Cycle 3 restatement?
Once the IRS issues favorable opinion letters for a plan document, document providers—like Ascensus—begin transitioning their plan sponsors to the new document. Once complete, it will be time for employers to review and sign the restated documents.
The IRS has recently finished reviewing Cycle 3 plan documents. The Cycle 3 restatement process for pre-approved plan documents has begun in 2020 and must be completed by July 31, 2022.
