Managing Your Account

• What is a restatement?

The IRS requires that qualified retirement plan documents be restated, and subsequently re-adopted by employers, on a consistent basis. This is to ensure that plans remain up to date with all legislative and regulatory amendments. So that plans do not need to be re-written more frequently, pre-approved plans are restated on a regular six-year cycle, retroactively combining any amendments that may have been made since the last required restatement. 

• What determines when a plan must be restated?

Pre-approved qualified plans must be restated every six years to maintain compliance with current legislation. The current restatement represents the third six-year remedial amendment cycle for pre-approved defined contribution plans. Since there was no real tax reform before the IRS began drafting the new plan language, this is simply referred to as the “Third Restatement.”

• What is the deadline to restate my plan for the Third-Cycle Restatement?

The IRS requires that this restatement be completed by July 31, 2022. Therefore, no later than July 31, 2022, you must complete and sign your new Adoption Agreement reflecting these changes. You can also take this opportunity to make optional changes that you may wish to add to your plan.

• What happens if I don’t restate my plan by the required date?

Your plan will no longer be a qualified plan and no longer have the advantage of being tax deferred. Your assets, and those of your employees if applicable, will become immediately taxable for the year following the restatement deadline. The IRS has provided guidance in Revenue Procedure 2019-19 regarding the penalty they will assess on a “non-amender” (an employer who does not amend and restate their qualified plan when required on a timely basis). The employer penalty is determined by calculating the amount of taxes due on all the assets in the qualified plan, plus interest and/or penalties for not paying the taxes on time.

The IRS also reserves the right to go back three years (the “open years”) to do this calculation. The Revenue Procedure also indicates the penalties that will apply if you execute the Adoption Agreement late (after July 31, 2022).