AS THEY SAY, OUT WITH THE OLD AND IN WITH THE NEW….PLAN DESIGN.
Every six years, the IRS requires all preapproved 401(k) plan documents to restate to newer versions to incorporate law changes, procedural changes and discretionary amendments that have been adopted since the last restatement. The current “Cycle
3” adoption deadline is July 31, 2022. Basically, it’s a way of making sure plans don’t become antiquated.
Should this be looked upon as a negative? My opinion is no. Prior to these mandatory restatements and after many years of doing so many plan reviews I lost count, I can tell you many plans would look like time capsules from the 1990s without them. They
don’t modernize themselves.
As plan sponsors start to receive notices from their administration/compliance service providers about the upcoming restatement, there are strategies or concepts worth considering that could significantly improve the success of their retirement plan.
In most cases, the sponsor will pay a restatement fee (which typically ranges from $1,000 to $1,500) so making the most of the restatement makes financial sense. Bottom-line: If it has to be done and you have to pay a fee to get it done, you might
as well make the most of it.
Some of the primary considerations:
- Have the goals of the plan changed since implementation? Example: Refunds from failed tests have become an annual problem and needs to be addressed.
- Are business owners concerned about the current or future
tax environment? Example: One of the primary benefits of offering a retirement plan is tax benefits. What can be done to lessen the tax burden now or in the future for the company and participants?
- Is the current design effective and working
as well as it could? Example: It’s currently a competitive labor market. Should eligibility rules be made “more welcoming” to new hires? FMPWA would appreciate the opportunity to serve you, and we hope this information helps you
understand when and why your plan must be restated.
If you have any questions or would like to talk to one of our retirement plan team members, the Retirement Specialists at First Merchants Private Wealth Advisors are here to help:
Retirement Plan Advisor
N. Jane Smith