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New Option to Fix Failure to Timely Adopt Pre-Approved Plan

The IRS is providing a new option that allows financial institutions service providers that offer a plan document to request a closing agreement on behalf of all adopters that missed the deadline for adopting a pre-approved plan. The IRS reports the option on a portion of its website devoted to retirement plans that was updated on April 1.

Under the new option, a financial institution or service provider may request a closing agreement on behalf of all such adopters. To reduce employers’ burden of submitting Voluntary Correction Program (VCP) applications, the IRS invites financial institutions or other service providers to submit proposals for umbrella closing agreements that cover individual employers affected by the failure to update their plans by the deadline. These would be similar to a group submission under the VCP, but under these closing agreements the organization doesn’t need to have made a systemic error.

Before the new option, the only way an employer could correct not signing a pre-approved DC plan by the deadline was to complete a submission under the VCP.

Deadlines

April 30, 2016: deadline for employers using a pre-approved 401(k), profit-sharing or other DC retirement plans to sign an updated version.

April 30, 2017: deadline for new adopters of pre-approved DC plans. A new adopter is any plan adopted on or after Jan. 1, 2016 (other than one adopted as a modification and restatement of a DC pre-approved plan that an employer had before Jan. 1, 2016). The IRS provides the April 30, 2017 extension to help plan sponsors that want to switch from an individually designed plan to a current DC pre-approved plan; that is, a plan the IRS approved based on the 2010 Cumulative List (see Notice 2016-3).