Retirement plan sponsors: Pension Protection Act plan restatement process
Beginning in April 2014, all ERISA-compliant Defined Contribution Plans (i.e. 401(k) and 403(b)) are required to be restated to include all legally mandated changes and amendments that have been enacted over the last 5-6 years. This restatement process must be completed by April 30, 2016. For the majority of Retirement Plan Service Providers, and Third party Administrators (TPAs), the process will be fairly simple; they will combine the Plan Provisions in the existing document with any changes that have occurred since 2009 to create a new document.
However, a Retirement Plan put in place several years ago may no longer be the best fit for the Plan Sponsor (Employer) or the Employees/Plan Participants. Is this the right time to consider some Plan design changes (e.g. add the Roth (after-tax) contribution feature; automatic enrollment / automatic escalation; Safe Harbor employer matching contributions; loans; changes in eligibility; changes in the vesting schedule, etc.)? Rather than accepting the original plan provisions, Plan Sponsors should use this Restatement process as an opportunity to complete a holistic review of their existing Plan.
Plan Sponsors already have a fiduciary responsibility to act in a prudent manner. This includes understanding the provisions in the Plan Document, making sure it has been drafted in an ERISA compliant manner, and paying particular attention to retaining certain protected benefits. It’s critical that the Service Provider completing the Plan restatement has sufficient knowledge and expertise to navigate the complexities of multiple Plan design options.
What happens if a plan is not restated? Failure to have the Plan restated could result in penalties and/or the plan losing its tax-qualified status. This can result in employee/participant account balances becoming an immediate taxable distribution, and employer contributions no longer being tax deductible.
Plan Sponsors should also be aware of the cost to restate their Plan. Service Providers will charge a fee for the required restatement, probably in the range of $350-$750. This ‘one-time’ fee will be in addition to the usual annual Plan Administration fee(s). However, if the Plan Sponsor makes any Plan Provision changes at the same time as the Plan Restatement, most Service Providers will make all of the changes at the same time and not charge extra for the Plan Provision changes.
If you are a Plan Sponsor and have not had a discussion with your present Advisor regarding your Plan’s restatement, then please contact the WGA Retirement Service team. This is a great opportunity to conduct a thorough review of your plan, including an investment analysis report, to make sure your plan is addressing ERISA compliance requirements and that it meets the needs of your employees and Plan Participants!
Registered Representative of and securities offered through LPL Financial, Inc., Member FINRA/SIPC. Advisory services offered through LPL Advisors, Inc.
About the Authors
Rob Swails is a Vice President at William Gallagher Associates and a Qualified Retirement Plan (401k) expert within the Employee Benefits Group.
Rich Quigley is an Assistant Vice President at WGA and a Qualified Retirement Plan (401k) expert within the Employee Benefits Group. Mr. Quigley assists clients through the plan implementation process by structuring the plan design to meet their unique retirement planning needs.
James Richardson is a Client Executive at William Gallagher Associates. As a member of the Employee Benefits Group he advises emerging and middle market life science, biotechnology and professional services companies on retirement plan matters.