What is a 401(k) Plan Restatement?

Every six years, the IRS requires that all qualified retirement plans be “restated.” Find out what this means for your plan.

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Every six years, the IRS requires all qualified retirement plans to update their plan documents to reflect recent legislative and regulatory changes - that’s every six years as counted by the IRS, regardless of how long your plan has been active. Some updates are made during the normal course of business through plan amendments, but others require more substantial rewriting of plan documents through a formal process known as a “plan restatement.”

This process began on August 1, 2020 and closed on July 31, 2022. Plan restatements are required by the IRS and not optional. Those who do not comply may be subject to significant IRS penalties.

If you work with a third party administrator (TPA), they are the ones who handle the plan restatement, and we will coordinate with them when the next cycle begins.

What is a plan restatement?

A restatement is a complete re-writing of the plan document. It includes voluntary amendments that have been adopted since the last time the document was re-written, along with mandatory amendments to reflect additional legislative and regulatory changes.

The latest mandatory restatement period for defined contribution plans is referred to as “Cycle 3” because it was the third required restatement that follows this six-year cycle.

Is plan restatement mandatory or voluntary?

This plan restatement is mandatory, even if your plan was amended for various reasons in the recent past. Plans that did not meet the July 31, 2022 restatement deadline are subject to penalties, up to and including revocation of tax-favored status. This means contributions might not be deductible and would be immediately included as income to employees.

Why do plans have to be restated?

Retirement plans are governed by ever-changing laws and regulations imposed by Congress, the IRS, and the Department of Labor (DOL). To remain in compliance and current with those laws and regulations, plan documents must be updated from time to time. Some of these changes may be reflected through plan amendments, but it is impractical for plans to amend their documents for every new law or regulation.

What has changed since the last restatement?

The deadline for the last mandatory restatement was July 31, 2022. Before that the previous deadline was April 30, 2016, and was based on documents approved by the IRS two years prior and only reflected legislative and regulatory updates through 2010. Since then, there have been a number of regulatory and legislative changes impacting retirement plans such as availability of plan forfeitures to offset certain additional types of company contributions and good faith amendments like the SECURE and CARES Acts.

Haven’t we amended our plan to address these changes?

Yes. Recognizing that plans would have to continuously update their plans to address changing regulations, the IRS allows for so-called “snap-on” amendments (also known as good faith amendments). However, it is more difficult to interpret a plan document (and therefore operate a plan consistent with the plan document) when there are so many amendments. A restatement cycle requires a full rewrite to incorporate “snap-on” amendments into the body of the document, often in greater detail.

How will Betterment help with the plan restatement process?

Betterment will draft and deliver the restated plan document to you for review and approval. Once you approve the restated plan document, we will see to it that plan provisions are accurately reflected in our recordkeeping system and provide you with the necessary disclosures for you to deliver to your participants.

What does the plan restatement package include?

The plan document restatement packages include the following, as applicable, based on your plan’s provisions:

  • Adoption agreement
  • Basic plan document that includes the detailed legal language describing each of the provisions
  • Summary Plan Description (SPD) for distribution to plan participants
  • Administrative policies for participant loans and qualified domestic relations orders (QDROs)
  • Good faith amendments (currently, for the SECURE and CARES Acts)

Will this restatement process take a lot of my time?

Betterment will ensure that your plan document is properly drafted and delivered to you for execution. However, you have several important roles:

  1. Inform Betterment about any organizational changes that may impact your 401(k) plan.
  2. Review your restated plan document once you receive it, especially the plan highlight and plan provision (such as eligibility requirements) sections, to be sure they accurately reflect your plan.
  3. Distribute the Summary Plan Description (SPD), to be provided to you after you execute the restated plan document, to your plan participants.

Is there a fee for this plan restatement?

A standard plan restatement will be provided as part of our included compliance services to you. Any additional changes will trigger amendment fees.