Let’s start from the beginning.
If your qualified defined contribution (DC) retirement plan uses a base plan document with most of the basic features of the plan and an adoption agreement that allows you to select some specific plan features (as opposed to having an individually drafted plan document where there is just one document written specifically for the provisions of your plan), then you have a preapproved plan document.
Almost a decade ago, the Internal Revenue Service (IRS) determined that all preapproved plans would have to be restated periodically — every six years to be exact. This would allow them to pull in all of the law changes in the previous six years and hopefully make the plans easier to read, administer, and review.
The first cycle was referred to as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) restatement, which was to be completed no later than April 30, 2010.
In early 2014, the IRS released the approval letters to sponsors of preapproved plans for the second cycle, referred to as the Pension Protection Act of 2006 (PPA) restatement. The PPA restatement brings in required changes from that legislation, as well as all subsequent regulatory changes — including Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) and Worker, Retiree and Employer Recovery Act of 2008 (WRERA).
All plans that use a preapproved plan document must be restated before April 30, 2016. Failure to amend by this date will require the plan to submit an application to the IRS, through its Voluntary Compliance Program (VCP), to correct this error. IRS VCP fees as well as preparation fees will apply, and could be hefty depending on the size of the plan.
Milliman is in the process of working with plan sponsors utilizing our preapproved DC plan document services to complete the restatement prior to the above deadline.
Now is an excellent time for every plan sponsor to review the plan provisions to ensure they are in line with actual plan operations, as well as to ensure that the plan is meeting the goals and needs of the plan sponsor and plan participants.
Reviewing the plan provisions with your Milliman consultant at the time of restatement is both beneficial and cost-effective.
Some items that the plan sponsor should be reviewing include:
• Eligibility: Are participants entering the plan when they should? Once eligible, is there anything that can be done to encourage participation in the plan? Should auto enrollment or other provisions be considered to get participants into the plan faster?
• Plan design/contributions: Do the plan design and contributions elected and allowed under the plan meet the needs and goals of plan sponsors and participants? Each plan, plan sponsor, and participant population is unique. Visit with your consultants and advisors to see if there is anything you could be doing differently.
• New provisions: Are there new provisions added in recent years, such as in-plan Roth conversions, or changes to base document language, such as the use of forfeitures and ERISA recapture accounts, that might make sense to review against the way your plan is operating?
• Compensation: Is the correct compensation being provided to your plan’s recordkeeper or administrator? Plans should take this time to review the compensation definition in the plan document to make sure that it matches the compensation used by the payroll systems to determine contributions and benefits. The IRS finds compensation errors one of the most frequent errors made in qualified retirement plans.
When the restatement process is complete, you should receive a new signature-ready adoption agreement, a copy of the base plan document, and the IRS approval letter of the preapproved plan document, as well as an updated Summary Plan Description. You will want to make sure to maintain copies of all plan documents, including superseded versions for the life of the plan, plus six years.
Remember, changes to the plan document are fiduciary decisions, and should be reviewed carefully with your consultant and plan’s legal counsel.
Happy PPA restatement!