Now that Cycle 3 is Over, What's Next?
By Sheila Pawlicki, QKA
What is Cycle 3?
The IRS requires that all qualified retirement plans be established and supported by a formal written document that complies with the Internal Revenue Code. Employers may choose to use a pre-approved document offered by a document sponsor, like Ascensus. Pre-approved defined contribution plan documents may consist of a single plan document or a basic plan document with an adoption agreement. During a remedial plan amendment cycle, document providers seek IRS approval of the documents and then update or “restate” the documents as needed. The last cycle, known as “Cycle 3,” began February 1, 2017, and ended January 31, 2023.
Previously, the IRS referred to remedial amendment cycles as “six-year cycles.” Revenue Procedure 2023-37, however, eliminated the use of the term “six-year cycle” because the term was misleading in how it applied.
What is the general timing of the remedial amendment cycle?
Year 1: Document providers create new pre-approved plan documents. For each cycle the IRS provides approved language for plan features—officially known as the Listing of Required Modifications, or LRMs—that document providers can include, as appropriate, in their pre-approved plan documents. LRM language need not be verbatim as long as the LRM meaning is effectively conveyed.
Year 2-3: Document providers submit their pre-approved plan documents to the IRS for approval. During this process, the IRS may ask for modifications to submitted documents. The IRS will then provide an opinion letter, stating that the plan meets the Internal Revenue Code tax qualification requirements as to the form of the plan. At the end of this period, the IRS will publish an announcement regarding the restatement window. The IRS will designate a uniform restatement deadline for all adopting employers who are eligible for the remedial amendment cycle.
Year 4-5: This is the two-year restatement window: newly approved pre-approved plan documents are restated and signed by adopting employers.
Year 6: The process begins again.
What comes after Cycle 3?
In December 2023, the IRS issued Notice 2024-3, which contained the 2023 cumulative list of changes in plan qualification requirements that have resulted from recent statutory changes and other guidance, provisions for which must be addressed by drafters of pre-approved defined contribution retirement plan documents, in this the fourth remedial amendment cycle known as Cycle 4. Qualified plan documents may be submitted for opinion letters during the Cycle 4 on-cycle submission period, which began on February 1, 2024, and ends January 31, 2025.
Towards the end of 2024 or early 2025, we expect the IRS to publish an announcement regarding the restatement window and establishing the deadline for adopting employers to restate the pre-approved plan documents for Cycle 4.
What if an adopting employer does not restate its plan document by the IRS’ established deadline?
Failure to adopt new pre-approved plan documents will result in the adopting employer having an individually designed plan, and thus not having reliance on an IRS opinion letter.
Why would adopting employers want to update (restate) their current plan documents?
A favorable opinion letter assures adopting employers that the plan language has been approved by the IRS and that any subsequent tax disqualifications of the plan will not be applied retroactively as long as the plan has been otherwise lawfully operated.
