[co-author: Claire Pollock]
Employers using pre-approved plan documents for their defined contribution retirement plans, such as 401(k) plans, should carefully review restated adoption agreements and basic plan documents that may be issued by their document provider. The Internal Revenue Service (IRS) requires all pre-approved qualified retirement plans to be restated every six years in order for the plan sponsor to rely on the plan’s pre-approved status. The document providers generally received IRS opinion or advisory letters on the tax-qualified status of their restated defined contribution plan documents last summer. The IRS has set a deadline of June 30, 2022, for employers to adopt these restated plan documents.*
Document providers are beginning to send restated adoption agreements and basic plan documents now, with instructions to review and sign the new adoption agreements. It is very important that employers carefully review the restated documents. Document providers will base the terms of the restated adoption agreement on current plan provisions. The new documents should not change any plan provisions unless the change has been requested or approved by the plan sponsor and is generally being made prospectively (or no earlier than the beginning of the current plan year).
An unexpected change that is made in error or not understood by the plan sponsor could result in errors in plan administration. Such errors could lead to costly corrections and plan qualification failures. For example, an inadvertent change in the plan’s definition of compensation used for determining contributions, eligibility for participation requirements, and/or forms of distribution would result in operational errors if the employer continues to administer the plan in accordance with the terms of the prior plan documents. Such operational errors would threaten the plan’s tax-qualified status if not corrected. Corrections may be costly.
Plan sponsors that adopt a pre-approved plan document do not need to request approval from the IRS to determine that the terms of its plan meet the requirements of the Internal Revenue Code. However, if a plan sponsor makes certain changes to the pre-approved plan, the plan sponsor is permitted, but is not required, to request a determination letter from the IRS.
*This deadline does not apply to individually designed plans or to pre-approved defined benefit plans.