It's That Time Again! 401(k) Restatement Requirements

Every so often, all qualified retirement plans must be updated to reflect legislative or regulatory changes. Some of these updates are made through plan amendments, while others require plan documents to be rewritten—known as "restating" the plan. The deadlines for adopting such updates are usually dependent on the type of plan and plan documents. For example, defined contribution plans (such as a 401(k)) are generally restated every six years. Amendments may still be required between restatements.

As a plan sponsor, you need to be able to show that you've adopted a written plan document as well as any necessary amendments to reflect tax law changes; you should also have a plan document that complies with the form requirements of the Internal Revenue Code (IRC). For a plan sponsor, reviewing the following documents will help you determine if the plan has been amended on time:

· Original basic plan document

· Any Adoption Agreement

· All subsequent plan amendments and restatements

· Any IRS opinion or advisory letters

· Board of Director's resolutions and minutes, or similar records related to the plan


There are two types of plan documents: pre-approved plans and individually designed plans. A pre-approved plan is submitted to the IRS to obtain an advisory letter approving the plan document. Most retirement plan service providers offer a pre-approved plan document. An individually-designed plan document is tailored to meet the needs of an employer by providing the maximum amount of flexibility in plan design: the IRS hasn't pre-approved it and it is typically drafted by an ERISA attorney.

401(k) plans must be updated from time-to-time to conform to changes in federal tax laws Congress approves or to reflect IRS guidance. If you didn't adopt an amendment on time, your 401(k) plan doesn't comply with the law and is at risk of no longer being a tax-favored qualified plan without going through the IRS correction process.

If you are a plan sponsor, you may wonder why restatements and amendments are necessary. Plans are governed by a set of Federal laws and regulated by several agencies such as the IRS and the Department of Labor. The result of this is a revolving door of legislation and regulations to oversee compliance. As laws change, plans must be amended to reflect changes.


Once a plan has been reviewed, additional changes must be made and restated documents are drafted—they should also be reviewed with care. The final documents consist of the following:

· A restated Plan Document or Adoption Agreement

· A resolution adopting the restatement document

· A restated Summary Plan Description for distribution to all participants and beneficiaries.

So, what would happen if you fail to make proper amendments on time? The IRS may disqualify the plan if deadlines are not met. When the plan is disqualified, all taxable benefits to both the sponsor and participants are lost. Contributions may no longer be deductible, and employees can no longer defer taxes on contributions. Plan sponsors who continue to neglect restatements may incur additional expenses to correct the failure through the IRS' Voluntary Correction Program filing—which further emphasizes the importance of restating retirement plans.




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