The IRS recently announced the opening of a new twoyear period to adopt restated pre-approved defined contribution plans. These are generally profit-sharing and 401(k) plans. Preapproved plans are master and prototype plans, standardized, nonstandardized. These types of plans are normally what you’ll find offered by banks, insurance companies, brokerage firms, and other financial institutions, plus plan document companies, third-party administrators – just about anyone in the business of retirement plans.
The IRS and Retirement Plans
These pre-approved plans make up the majority of all plans. The failure to update for current law is, and has always been since I’ve been in Employee Plans, the number one issue across all types of plans, across all types of employers. The two-year window for restating pre-approved plans for current law is open now until April 30, 2016. If you have one of these plans, pay close attention to any mail you receive regarding your plan.
What types of retirement plans?
Some companies may offer the newly-updated plan free. Most ask for several hundred dollars to update the plan. You’ll need to adopt the new document to keep the plan compliant with current laws to avoid being one of those non-amenders, to keep deducting contributions and for the plan assets to keep growing tax-deferred.
IRS pre-approved defined contribution plans
It sounds simple enough. You have a pre-approved plan that needs updating for current law. Your plan company sends you the new plan and adoption agreement for you to complete. You fill out the adoption agreement, sign it, and it’s done. That’s only partially true. Your plan may be properly updated, but now you have a new opportunity for more mistakes. First, the adoption agreement must be timely signed and dated. Over the years, we’ve seen many adoption agreements that were signed and not dated. If you have to adopt a new plan by April 30, 2016, and you do not date your signature, there could be a problem.
Retirement Plan Adoption Agreements
Some adoption agreements require you to put the date the amendment is effective. If you have a question about what to put where, follow the instructions for completing the adoption agreement. There can be a number of options on an adoption agreement. If you select an option that’s different from how you’ve been operating your plan, again, this could cause a problem. What we suggest is, pull out the old adoption agreement and compare it to the new one. Make sure your new selections match what you’ve selected in the previous adoption agreement, and it matches how you’re currently operating your plan
Submitting Retirement Plan Adoption Agreements
For example, if the eligibility requirements selected in the old adoption agreement were age 21 and one year of service with entry dates on January 1st and July 1st, make sure that’s what you select for the new adoption agreement. If you choose immediate eligibility in the new adoption agreement, but you continue to operate the plan using the old age 21 and one year of service requirement, the plan is no longer in compliance and may need to make corrective contributions for participants.