The box that has to be checked by July 31: Retirement Plan Restatement

That’s the box that has to be checked by July 31, 2022. It’s the date the IRS requires that your 401(k) plan, profit sharing plan, or other defined contribution plan be restated to be in compliance with recent tax law changes. Here is a plain language explanation in Q and A format to help you understand why July 31 is one of those “don’t miss” dates: Continue Reading

July 31, 2022 Restatement Deadline for 401(k) Plans Approaches: Carpe Diem

I never thought my high school Latin could come in handy, let alone in our ERISA world. Heck, there wasn’t even ERISA back then. But here goes.

The July 31, 2022 deadline for defined contribution plans such as 401(k), Profit Sharing, ESOPs, and Money Purchase Plans to be restated is not that far away. You’ll find the details here.

If you miss the deadline to restate your qualified retirement plan, the IRS can disqualify it, and take away all its tax benefits. This means contributions might not be deductible or employees will have them immediately included in income. Therefore, restating your document should be a high priority. The IRS does provide a “late adopter” procedure for employers who missed the deadline to requalify the plan. However, IRS User Fees and additional professional fees make the late adopter procedure substantially more expensive than restating the plan before the deadline.

Now here’s where the Carpe Diem, or Seize the Day!, part comes in. The Restatement will update the plan for all law changes since the last Restatement six years ago.

The 401(k) industry hasn’t stood still either. In the recent years, there have been plan design enhancements, technology improvements, fund changes, provider consolidations, more effective employee communication tools, etc., etc.

Use the required Restatement process as an opportunity to see if you can make your plan better.

Picture Credit: © Can Stock Photo / blasbike

ERISA Record Retention: How long is long enough?


ERISA record retention may not be of those sizzling retirement plan topics for some folks. But please don’t stop reading.

It’s an important issue in today’s ERISA’s environment in which Plan Administrators and other fiduciaries must meet complicated compliance reporting requirements, oversight from regulatory agencies, and sometimes litigation.

So here is some basic information about document retention for ERISA plans in a Q and A format.

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IRS now requires an employer discretionary match to be “definitely determinable”

“Definitely Determinable” is one of those pre-ERISA concepts that are still applicable. It means that in order for a retirement plan to be considered “qualified” (eligible for favorable tax treatment), a participant’s retirement benefit had to be determined in accordance with a stipulated formula that is not subject to the discretion of the employer.

The purpose of which is, of course, to eliminate the possibility of benefits favoring the higher paid employees. It’s long been required for defined benefit pension plans in which it’s a straightforward matter.

But what about those 401(k) plans that provided a discretionary employer discretionary match? Until recently, an employer matching contribution that was discretionary did not have to be stated in the plan document. But now the IRS has taken the position that a discretionary employer match must also be definitely determinable.

Here is what an employer needs to do if its match is discretionary. Continue Reading

The IRS Required Restatement of 401(k) and Profit Sharing Plans: A Plain Language Explanation in Q & A Format

If you’re an employer who has adopted an IRS pre-approved defined contribution plan such as 401(k) or profit-sharing, you’ll need to have the Compliant box checked no later than July 31, 2022.

Plan document compliance to be specific. It’s the IRS requirement that a retirement plan document must be up to date to qualify for favorable tax treatment.

IRS pre-approved plans must be rewritten, reviewed, and approved every six years. Once approved, employers who use them must adopt the new plan documents by a certain date.

This is called the Restatement process, and as noted in the headline, this Restatement is called Cycle 3 with a July 31, 2022 deadline. The Questions and Answers that follow provide a plain language explanation of what you should know about Cycle 3.

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Form 5500: The Body Language of ERISA Compliance

Last month, the  Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) released advance copies of the 2020 Form 5500 Series. When filed, they will join those of prior years’ morphing into the body language of ERISA compliance. Here’s how:

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Sometimes SIMPLEs aren’t always simple and mistakes can happen.

SIMPLEs were designed by Congress in 1996 to make it, well simple, for employers with fewer than 100 employees to establish tax-advantaged retirement plans for their employees. Hence, the legislative branding naming the new law the Savings Investment Match Plan for Employees to make the acronym, SIMPLE.

It’s a special type of IRA and adopted because they’re easy to use. But they still have to be in compliance with many of the tax and ERISA provisions required of 401(k) and other qualified plans in order to continue to enjoy tax advantages.

It’s an especially current concern for those employers who have decided that a SIMPLE no longer fits, and will be replacing it in 2021 with a 401(k) plan. SIMPLEs must continue to be kept in compliance prior to termination, and plan document or operating mistakes should be corrected to preserve the tax advantages.

SIMPLEs haven’t always fared well in IRS audits with over 50% reported to have operational errors. Here are the 9 most frequent mistakes that the IRS has found need fixing.

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A Cautionary Note on the President’s Memorandum on Payroll Tax Deferrals

On August 6 President Donald Trump signed a series of executive orders that expanded economic relief to taxpayers. One of those orders calls for employee payroll tax deferrals from September 1 through December 31, 2020.

It includes the 6.2% of the employee’s share of Social Security taxes but not the 1.45% employee’s share of Medicare taxes; and it is applicable for employees with biweekly pre-tax income of less than $4,000.

In the absence of any Treasury guidance, there were several uncertainties. On Friday, August 28, four days before the start of the deferral period, the IRS issued the 3-page Notice 2020-65, which cleared up some of the concerns but left some questions unanswered. Here’s my take on it. Be cautious, and here’s why.

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So you missed the July 31, 2020 Restatement Deadline for Pension Plans and 403(b) Plans. Here’s what you can do about it.

The deadline to restate preapproved defined benefit pension plans or 403(b) plans for the Pension Protection Act (“PPA”) has come and gone.

July 31, 2020 was the date the IRS required that these plans be updated to reflect changes since the PPA was passed in 2016.

The PPA restatement is not optional. Failure to do so by the deadline is a plan disqualification issue that could adverse tax consequences for plan sponsors and participants. However, the IRS does provide a method to avoid plan disqualification. Here are the details.

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But wait. It may not be too late to set up a retirement plan for 2019.

That plan would be a SEP, the acronym for Simplified Employee Pension, an IRA-based retirement plan. Unlike a “qualified” retirement plan (401[k}, profit-sharing, or defined benefit) which must be in place no later than the last day of the year, a SEP is subject to a different rule.

Generally, a SEP can be set as late as the due date (including extensions) of the taxpayer’s income tax return for the tax year.

That means he or she may be able to establish a SEP for the 2019 tax year in 2020 before the due date including extensions.

Here are the details: Continue Reading