Employers who have adopted a pre-approved Pension Plan – either traditional Defined Benefit or Cash Balance – must restate their plans by March 31, 2025 to stay in compliance with the Internal Revenue Code (“Code”) and Internal Revenue Service (“IRS”) regulations.

If you’re not part of our retirement plan world, both the law and regulations can be complicated and confusing. To help you understand what’s required and how to take advantage of the required Restatement process, here is a Plain Language explanation in a Question and Answer format.

Q. Why do I need to restate my Defined Benefit Pension Plan or Cash Balance Pension Plan at this time?

A. The IRS established a system that requires employers who have adopted a pre-approved retirement Plan to restate their Plans once every six years to reflect changes in the Code and IRS regulations. This Restatement is called Cycle 3 because it is the third time the IRS has used this system.

Q. How will the Restatement process be handled?

A. Our firm like other retirement plan service firms sponsors a series of retirement Plans for which favorable approval has been received from the IRS. Using a pre-approved Plan can provide employers with an efficient and cost-effective retirement plan document rather than having a document that is individually drafted by an attorney.

Q. What will change in the document?

A. As mentioned above, pre-approved Plans must include the requirements from the prior laws, new laws added by Congress and regulations issued by the IRS. Prior amendments that were executed previously are also included. These are called “Good Faith Amendments” and are not totally new, but up to now have not been formally approved by the IRS.

Q. Do the Cycle 3 documents include SECURE, CARES and SECURE 2.0 language?

A. No. Because these Acts were signed into law after the deadline for the submission of Cycle 3 Pension Plan documents for IRS approval. Instead, the required language for SECURE and CARES is in a separate document addendum. A SECURE 2.0 addendum/amendment will be available after the IRS reviews and approves the language.

Q. Can employers rely on the IRS Opinion Letter?

A. Yes. But it is important to note that pre-approved Plans are only approved as to form. They still must be operated in accordance with the Code and IRS regulation to enjoy favorable tax treatment.

Q. Why does the Restatement consist of?

A.  Our Restatement process consists of the required documents and resources to help the fiduciaries manage their Plans more effectively and efficiently. We refer to it as our “Restatement Portfolio and includes the following:

Document Description
1.  Consent Action Authorizes the restatement of the Pension Plan by the employer’s governing body.
2.  Adoption Agreement Identifies the specific Plan provisions the employer has adopted to customize it to their organization’s needs and goals.
3.  Operations Checklist  Includes operational provisions not required to be in the Plan document and can be changed without an amending the Plan.
4.  Trust Agreement Identifies the individuals or institution that holds title to Plan assets for the benefit of participants and beneficiaries and describes their powers and duties.
5.  Basic Plan Document Contains the substantive provisions that are integral to the operation of your Plan.
6.  IRS Approval Letter States the Plan and Adoption Agreement meet the requirements of the Internal Revenue Code.
7.  Summary Plan Description (“SPD”) Describes the specific features of your Plan which must be delivered to participants within 90 days after they become covered, whether they request it or not.
8.  Plan Highlights Summarizes the provisions of the Plan which can be provided to employees as a supplement to the Summary Plan Description.
9.  Funding Policy Sets forth the basic guidelines or general instructions concerning investment management decisions. 
10.  Record Retention Guide Helps manage Plan records and documents to meet fiduciary responsibilities.

Q. What is the Operational Checklist mentioned above?

A.  Several operational provisions that were part of the former Plan document have been moved into a separate Operations Checklist. They are not required to be part of the Plan document. We have included them as a supplement to the Plan document and can be changed without the need for a Plan amendment

Q. Are there any special considerations when replacing one Plan document with another?

A. Yes. Special care must be taken to ensure that certain benefits called “protected benefits” are not unintentionally eliminated or reduced. Protected benefits include forms of distributions such as lump sums and annuities and timing of distributions such as an early retirement provision.

Q. Can the restatement process be used to make changes to the Plan?

A. Most certainly. the Restatement process provides the opportunity to review the Plan to determine if there are provisions that better align with Plan Sponsor objectives and better serve the employees. Plan changes can be efficiently made as part of the Restatement.

Q. Why are we discussing the Restatement now if the deadline is March 31, 2025?

A. The March 31, 2025 deadline may seem like a long time away. But in order to ensure that there is sufficien time to review the Plan as discussed above, we’re beginning the Restatement process now.

Q. Does a terminating Plan need to be restated?

A. Practically speaking, yes.  Plans that are terminating must be updated at the time of termination to reflect all applicable qualification requirements then in effect.  This means the Plan must have all relevant amendments at the termination date. Using a pre-approved Plan is the most efficient method of accomplishing this.

Q. Is the Restatement mandatory?

A. Yes.  A retirement Plan keeps its tax-favored status only by maintaining a document with language that satisfies the law and regulations and operates under the terms of such document.  Failure to restate the document before the March 31, 2025 deadline can result in disqualification of the Plan and/or significant penalties.

Q. What happens if i fail to restate my Plan on a timely basis?

A. If you miss the deadline for restating your Plan, then you can avoid Plan disqualification by using an IRS correction program. If the IRS discovers the missed deadline before you take corrective action, the cost associated to update the Plan will be significantly higher. And starting this year they will. Form 5500 for 2023 now requires employers to provide the serial number of the pre-approved Plan they have adopted. It’s safe to say that the IRS will be looking for the right response.

Q. What does it cost for the Plan Restatement?

A.  The cost of restating a Plan will vary depending on such factors as the type of Plan, provisions, and administrative requirements. No two Plans are exactly alike so an appropriate fee is based on the specific facts and circumstances. The cost to restate the Plan for IRS compliance may be paid by the employer or from Plan assets if permitted by the Plan document.

KEY TAKAWAY

It is the responsibility of the Plan fiduciary to ensure that the Plan is updated and signed by the  March 31, 2025 deadline. Because the Restatement process can be time consuming, it is important to begin Planning to ensure the Restatement deadline is met. And as mentioned above, it’s now a compliance question on Form 5500.