Plan Restatement - Obligation or Opportunity? The answer: BOTH!

Restate the Plan to Maintain Compliance
Any plan relying on a document that has been preapproved by the IRS (e. g. a prototype or volume submitter document) must be restated every six years to remain in compliance.

Defined benefit preapproved plans’ most recent restatement cycle ended in 2012.  However, the most common type of plan, defined contribution, is in the restatement cycle now.  Beginning May 1, 2014 and continuing for two years, all 401(k), profit sharing and money purchase defined contribution plans must be amended and restated to incorporate the language and provisions from the Pension Protection Act (PPA) and various other required amendments that took effect between 2007 and 2011.

Some highlights of the PPA as it relates to retirement plans include:

  • Automatic enrollment provisions - Provides statutory authority for employers to enroll workers in 401(k) and 403(b) plans automatically
  • Automatic enrollment opt out - Allows automatic contributions to be returned to employees without tax penalties, if the employee opts out of participation within 90 days
  • Funding notification - Expands disclosure that workers must receive about the performance of their plan
  • Investment advice rules - Removes the conflict of interest for giving certain types of investment advice to participants in retirement accounts
  • Contribution limits- Extends the 2001 tax act’s (should use a formal name) contribution limits
  • Qualified default investment arrangements - Establishes safe harbor investments, also known as Qualified Default Investment Alternatives to protect employers from liability of losses suffered by automatically enrolled employees

Review the Plan Design to Maximize Benefits
With this obligation also comes opportunity.  The economy has certainly changed since the last required restatement.  The financial position of your organization, the size and the age mix of your workforce have likely changed as well.  As financial needs and goals change, this required restatement is an opportunity to step back and revisit your plan design to see if amendments need to be made to reflect these changes and see if your plan is still the valuable benefit it’s meant to be.

Working with your plan document provider, start with the basics and examine the features of your plan looking for ways to improve your plan’s operating efficiencies and effectiveness.  Ask yourself some critical questions including:

  • Are you maximizing your deduction?  Plan design can be structured to consider the maximization of contributions at the lowest cost.
  • Are highly compensated employees regularly receiving corrective distributions?  There are plan design techniques that could minimize the impact of nondiscrimination testing that should be considered.
  • Would auto-enrollment or auto-escalation features increase participation? A change in this area may minimize nondiscrimination test failures.
  • Should Roth deferrals or in-plan Roth conversions be added as benefits?
  • Does your vesting schedule make sense considering your employee turnover and are resulting forfeitures being utilized effectively?
  • Should your plan allow loans?  This provision can be added to benefit employees in need of this benefit.
  • Are fees paid by the plan and specific participant transaction fees reasonable?  You may be able to significantly reduce fees.

Read the Plan to Operate Accordingly
Your plan document is lengthy and complex, and the adoption agreement includes many options, with which you will be required to comply with during the following years.  Be sure to read and ask enough questions of the document provider to fully understand the plan adoption agreement before you sign it.  You don’t want to inadvertently change an option you intended to keep or keep an option you intended to change. If operations match your intent, but not your document, you may not even be aware of this non-compliance until your auditor brings it to your attention. Correcting non-compliance is almost always expensive in dollars and in time.

Resources Available to You
DHG provides audit and consulting services for all types of Plans.  Currently, we serve as auditors for more than 850 plans firm wide, ranging from single employers with a few hundred employees to public companies with thousands of employees.  DHG is a member of the AICPA’s Employee Benefit Plan Audit Quality Center. DHG’s Retirement Plan Service (RPS) offers both state-of-the-art third-party administrative services, comprehensive management, and consulting services specializing in plan design and correction of operational issues.  DHG RPS currently serves over 1,200 retirement plans, ranging from startup plans to larger companies across a wide variety of industries.