From time to time, all qualified retirement plans are required to be updated to reflect recent legislative and/or regulatory changes. As you may know, it is a fiduciary responsibility to update your retirement plan document with the most recent legislative or regulatory changes. The Internal Revenue Service (IRS) requires that qualified retirement plans be restated to incorporate regulatory changes in the plan document. The plan document is analogous to a plan’s operational rule book. When rules change, the book needs to be updated. The restatement process is intended to incorporate the regulatory changes that have occurred since the plan was last updated.
The restatement is not contingent on how many years your plan has been in effect. The IRS determines the timing of the restatement cycle with the current cycle which started August 1, 2020 and goes through July 31, 2022. The IRS requires restatement around every six years.
Plan restatements are mandatory to remain in compliance. Plans that do not go through this mandatory restatement process are subject to IRS penalties which could include the potential revocation of the plan’s tax-deferred status which would negatively affect the plan sponsor and participants. Employer contributions may not be tax deductible, and participants may lose the ability to defer contributions on a tax-free basis. Additional penalties and fees can be imposed by the IRS. If you miss a restatement deadline, the IRS does offer a Voluntary Correction Program to correct the issue of the missed restatement. The cost for this option, in most cases, is less expensive than the penalty that would be assessed by the IRS if they discovered your plan is out of compliance.
Once a plan has been restated, employers should provide plan participants with a new summary plan description.
Often the plan provider will handle the restatement process to be sure a company’s plan is up to date. The plan restatement costs around $1,000. If you have been considering changing plan providers, now may be the perfect time to move to a different 401k provider if you were already considering it. This could be a cost savings of $1,000 to $2,000, in most cases. DP Grow, a full service 401k Provider, would appreciate the opportunity to empower your future and provide guidance on your plan!
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