Missed the 401(k) Restatement Deadline? Here's Your Plan B for Compliance

The deadline for restating a 401(k), profit sharing, or money purchase pension plan has come and gone. So, what can an employer do? It was, after all, the employer’s responsibility to ensure that the plan was updated and signed by July 31, 2022.

But if an employer did miss that deadline, there is a Plan B. But first let’s put July 31, 2022, into context. That’s the date the IRS required pre-approved plans to be updated for the last 6 years of legislative and regulatory changes.

It’s referred to as a “Cycle 3 restatement” in the retirement plan world and allows the employer to have “reliance” that the document meets the current requirements of the law and regulations. Here is a link to our FAQs from last year that will bring you up to date.

So what’s the impact on an employer’s plan that didn’t restate its plan by the July 31, 2022 deadline? It’s a good news-not so-bad news situation.

The good news is that the IRS does not consider that the failure to timely restate the plan will itself disqualify it from favorable tax treatment.

The not-so-good news is that the failure transforms that pre-approved plan into an individually designed plan upon which the employer can no longer rely as a qualified plan. The Plan B mentioned above would be for the employer to adopt corrections under the IRS Self-Correction Program and consider whether to obtain formal approval through its Voluntary Correction Program.

You may be wondering if there is a Plan B, is there also a Plan C? Not exactly, and it’s certainly not voluntary. It’s the IRS’ Audit Agreement Closing Program (“Audit CAP”) which is the end result of a plan audit. If the IRS finds the plan to be non-compliant, the employer would be required to submit an updated plan to avoid disqualification. The cost of which would be significantly more than if the missed deadline was dealt with on a voluntary basis.

The takeaway should be obvious: Contact them before they contact you.