In addition to the thousands of private sector 401(k) and 401(a) plans that must be restated by this July 31st, practically all governmental 401(a) plans using recordkeeper-provided plan documents – in other words, pre-approved plan documents – must also be restated.
What governmental plans are subject to the 7/31/22 deadline?
- The 7/31/22 restatement deadline generally applies to all governmental defined contribution (i.e., 401(a)) plans that are utilizing IRS pre-approved plan documents.
- Typically a pre-approved plan is one for which the provider of the plan (e.g., the financial institution, third party administrator or recordkeeper) has applied for and obtained an IRS opinion letter stating that the form of the plan meets the requirements for Internal Revenue Code 401(a). If you are not sure whether you are using a pre-approved plan, you can always ask your plan provider.
What must we do to restate our plan?
- Review, confirm, and execute new plan adoption agreement. Most pre-approved plan providers have been reaching out to their plan document users about the restatement deadline for a number of months. Most plan providers are sending their customers links to internet portals, along with instructions, directing them to review and finalize the adoption of their updated plan documents. Make sure that a person with appropriate “authority” signs your updated plan document. It also is important for the customer to understand what changes have been made to its plan, and, what administrative or operational changes will be necessitated by the changes.
- Who has authority to amend and restate your plan? Most plan documents reserve the right of plan amendments (or changes) to the “employer.” So, unless your governing board or council has delegated plan adoption/amendment authority to a staff member, it makes sense to have the plan restatement approved and authorized by your governing board/council. With many municipalities and agencies on summer schedules, it may become necessary for a senior staff member to sign the plan restatement (before the July 31, 2022 deadline) and then have the agency’s governing body ratify such action.
What if we don’t restate our plan on time? If you do not timely restate your plan, it eventually could be treated as “disqualified” by the IRS. While there are ways to fix or correct a plan that has not been updated on a timely basis, it makes a lot more sense to avoid the problem by dealing with this requirement before the deadline. Remember, it is the “employer’s” responsibility – that is your responsibility – to make sure that its plan has been timely restated. Although most plan document providers are doing their best to notify their customers of the deadline, and to offer them appropriate updated plan documents, it is ultimately up to each adopting employer to keep their plan(s) up to date.
If you are unsure about any aspect of the restatement process, you should contact your plan consultant or employee benefits counsel immediately – while there still is time.
Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at firstname.lastname@example.org or (916) 329-3685.