The Internal Revenue Service (IRS) is reminding plan sponsors that April 30, 2016, is the deadline for those using preapproved retirement plan documents to sign an updated version of their 401(k), profit-sharing or other defined contribution (DC) retirement plans.
April 30, 2017, is the extended deadline for any defined contribution preapproved plan adopted on or after January 1, 2016, other than a plan that is adopted as a modification and restatement of a defined contribution preapproved plan that had been maintained by the employer prior to this January 1. This extension is to facilitate a plan sponsor’s ability to convert an existing individually designed plan into a current defined contribution preapproved plan. The IRS announced last July its intent to eliminate the staggered five-year determination letter remedial amendment cycles for individually designed retirement plans. The IRS also said it would limit the scope of the determination letter program to initial plan qualification and qualification upon plan termination.
Retirement plan documents must be revised when the law changes. A retirement plan will remain qualified and provide tax benefits only if the plan document is updated for law changes by the required deadline. After April 30, if a plan sponsor has neglected to adopt a restated plan, the plan does not comply with the tax laws and may be ineligible for tax benefits.
A plan sponsor’s retirement plan provider should have sent a revised plan document, approved by the IRS, which complies with the Pension Protection Act of 2006 (PPA) and other law changes listed on the 2010 Cumulative List of Changes in Retirement Plan Qualification Requirements.
Previously, the only way an employer could correct not signing a preapproved DC retirement plan by the deadline was to complete a submission under the IRS’ Voluntary Correction Program (VCP). A new option allows the financial institution or service provider to request a closing agreement on a plan sponsor’s behalf.
To reduce employers’ burden of submitting VCP applications, the IRS invites financial institutions or other service providers to submit proposals for umbrella closing agreements that cover individual employers affected by the failure to update their plans by the deadline. These would be similar to a group submission under the VCP, but, under these closing agreements, the organization does not need to have made a systemic error.