February 18, 2021
Subject: What is Cycle 3 Restatement?
(As required by the Internal Revenue Service)
From time-to-time, all qualified retirement plans are required to be updated to reflect recent legislative and/or regulatory changes. Some of these updates are made through plan amendments and others require plan documents to be completely re-written. Re-writing a plan is called a “restatement.”
The current restatement required by the government is called Cycle 3 Restatement and it is for defined contribution plans such as 401(k), Profit Sharing, and Money Purchase Plans. With your approval, our experienced staff at Benefit Equity Inc. (BEI) can prepare the restatement for you, along with other required amendments. Watch for more information to come your way in the coming weeks and months.
BEI has received approval from the Internal Revenue Service (IRS) for the plan documents that we sponsor. After you sign the plan documentation, this approval will be passed through to you.
Our work with the IRS to restate our plan documents reverts back to 2017 and although approval was received on June 30, 2020, only laws and regulations in place through 2017 can be included in the new plan document.
Since 2017 there have been several new laws passed that are important for employers to be aware of and they include the SECURE Act, CARES Act, and Hardship Distribution rules. The Hardship Rules will be incorporated into the restated document as an amendment. The Secure Act and Cares Act amendments could not be included and will be completed after the restatement.
Frequently Asked Questions (FAQs)
What is a plan restatement?
A restatement is a complete re-writing of the plan document. It incorporates changes from any mandatory or voluntary amendments that may have been adopted, since the last time the document was re-written.
Is the current plan restatement mandatory or voluntary?
The restatement is mandatory. Plans that do not adopt a restated plan document by July 31, 2022, will be subject to IRS penalties, often in the tens of thousands of dollars, and in extreme circumstances resulting in a revocation of the plan’s tax-favored status.
Why do we have to restate our plan?
Plan documents are drafted based on laws and regulations set forth by Congress, the Treasury Department (IRS) and the Department of Labor (DOL). There have also been a number of regulatory and legislative changes recently impacting retirement plans.
We recently adopted our plan, so do we really have to restate it again?
Unfortunately, yes. Regardless of how recently you may have adopted or restated your plan, it may not satisfy the new requirements, considering the IRS has not yet issued any new approval letters until June 2020. As a result, you must restate once again.
Does this restatement mean we won't have any other amendments?
Unfortunately, no. This restatement does not mean that you won’t have any other interim amendments. The IRS approval letters for Cycle 3 plan documents only consider legislative and regulatory changes enacted prior to February 1, 2017. This means the following changes will still have to be addressed in separate amendments, rather than in the restated plan documents:
- SECURE Act (passed in December 2019)
- CARES Act (passed in March 2020)
We will provide these additional amendments when available and at a future date.
Is there a fee for this plan restatement?
The plan document forms the foundation of your plan’s operations and compliance. If your plan is not prepared carefully and accurately, it can lead to incorrect plan administration and non-compliance that can be expensive to correct. While BEI will be charging a fee for the restatement, we expect it to be the same competitive fee that we generally charge for writing a plan document. There will also be fees for the additional amendments.
Can we pay for the restatement fee from plan assets?
Yes. Since this restatement and amendments are mandatory, the expense is eligible to be paid from plan assets. You’ll just need to let us know if this is how you want to pay when you receive the authorization form.
What are the next steps in the restatement process?
You will receive more details on all the new plan provisions and documentation needed to bring your plan into compliance.
If you have any questions throughout this process, please contact your plan consultant or your Benefit Equity Administrator at 714-480-1364 or email us at MyDocs@BenefitEquity.com.
Author: Robert Gorelick, APA, Founder Benefit Equity Inc.