Guest Blog Post!
Every now and again we like to have guest bloggers talk about the nitty-gritty stuff Reading Rainbow style. ("You don't have to take MY word for it!") Here's Chris Oneal from Stones River Consulting giving you the skinny on why you're going to be asked to re-state and re-sign all of your plan documents in the next 18 months. --RP
You’ve probably received a letter from your Third Party Administrator (TPA) notifying you that your plan documents need to be restated. If you haven’t, you will soon. No, you haven’t done anything wrong. No, your TPA hasn’t lost all of your paperwork.
So, what does all that legal mumbo jumbo mean and why do you have to sign that mountain of paperwork again? The answer is simple -- because the IRS says so. Every six years or so, the IRS requires that all plan documents get updated to incorporate any legislative changes and amendments that have occurred since the last restatement.
What is PPA?
This restatement has been named after the largest piece of legislation included -- the Pension Protection Act (PPA). PPA was enacted in 2006 and made significant changes in the tax laws that pertain to retirement plans including:
- automatic enrollment provisions
- automatic enrollment opt out
- funding notifications
- investment advice rules
- contribution limits
- and qualified default investment arrangements.
This restatement will also incorporate language from the prior Economic Growth and Tax Relief Reconciliation Act (EGTRRA) restatement document, any new laws added by Congress and any guidance issued by the IRS through the fall of 2010 including:
- the final Section 415 regulations
- the Windsor Decision
- the Heroes Earnings Assistance and Relief Tax Act (HEART)
- the Worker, Retiree, and Employer Recovery Act (WRERA)
- the Katrina Emergency Tax Relief Act of 2005 (KETRA)
- and The GULF Opportunity Zone Act of 2005 (GOZone).
Types of plan documents
All qualified plans are required to have a written plan document. The plan document can take various forms:
Individually Designed Plan Document: This type of plan document is custom designed by an attorney exclusively for an individual employer to meet its specific needs. An individually designed plan offers the greatest degree of flexibility possible.
Pre-Approved Plan Document: There are two types of pre-approved plan documents—volume submitter plans and prototype plans. Volume submitter plans generally offer more flexibility than prototype plans but not as much as individually designed plans. Pre-approved plan documents are available for most types of plans including 401(k), profit sharing, new comparability and defined benefit plans.
If your plan utilizes an Individually Designed Plan document, it is wise to submit the plan to the IRS (along with a small fee) to have them rule favorably on the tax-qualification requirements of the plan. This is called a Determination Letter.
If your plan uses a Pre-Approved Plan document, the IRS has already reviewed and approved the plan document. As long as you don’t modify the format and options of the plan document, you can feel comfortable that the plan is in complete compliance with the IRS. A smart move would be to ask your TPA for a copy of the new IRS opinion letter (Determination Letter).
What’s the deadline?
All Defined Contribution plan documents, including 401(k), profit sharing, money purchase plans, and defined benefit plans must be restated no later than April 30, 2016. Mark it in your calendar now because failure to complete the restatement process before the deadline can result in disqualification of your plan and/or significant penalties to you and your participants! NO LATER THAN APRIL 16, 2016 - you wrote it down, right?
How much is this going to cost?
This is the part where you get to do the happy dance. Most TPAs charge a fee of at least $1,000 to complete the restatement process. There is a lot of work involved for the TPAs to go through each plan document and making sure the plan is in complete compliance with the new requirements.
But you can take this opportunity to take a negative and turn it into a positive. While your TPA is working on the restatement, now is the perfect time to work with them [RP here: AND your Retirement Planologist!!] to make any changes.
If you’ve been considering making any changes to your plan documents such as updates to the vesting rules, distribution or eligibility rules, etc., now is the perfect time to do it. Making these types of changes during the restatement will help you avoid incurring fees for document updates.
Remember, it’s YOUR retirement we’re talking about. The more you know and understand, the better off you will be!
Chris Oneal, MBA, QKA, CBC
President, Stones River Consulting