Missed the Restatement Deadline? Remember VCP

July 31, 2020 is in the rearview mirror. And for preapproved pension plans and 403(b) plans that was a big day—the date by which those plans were to make their restatements.

 

Jerry Kalish, founder and President of National Benefit Services, Inc., in a recent entry in the Retirement Plan Blog, offers a reminder concerning what can be done if the deadline is missed.

The deadline should not have been a surprise: ever since the Pension Protection Act (PPA) was enacted in 2016 it was known that July 31, 2020 was the date by which preapproved pension plans and 403(b) plans were to be updated to reflect changes after the enactment of the PPA. “The PPA restatement is not optional,” writes Kalish.

 

Kalish points out that missing the deadline risks plan disqualification and adverse tax consequences for plan sponsors and participants. Losing that status adds significant costs that directly affect a plan, its participants and the sponsor.

 

The good news, Kalish notes, is that the IRS Voluntary Compliance Program (VCP) offers a way for plan sponsors to adopt a restated plan and submit the paperwork to the IRS—and in the process bring the plan back into compliance with federal tax law and preserve the plan’s tax-favored status. In addition, through the VCP one can serve participants by protecting their retirement savings and ability to add to them.

The steps to using the VCP, says the IRS, are:

 

Find the failures. Review the plan document and your plan’s operations to determine what failures have occurred.

 

Make a voluntary submission. Voluntarily report the problem in a VCP submission, describing the failures, as well as correction and prevention methods.

 

Correcting failures. Failures may be corrected before or after a VCP submission is made, but that the compliance statement the IRS sends to those using the VCP will include a 150-day deadline by which all corrective actions must be completed. In general, Kalish notes, the statement provides that the IRS will not treat a plan using the VCP as failing to satisfy the document requirements identified in the submission; however, he adds, the compliance statement cannot be relied upon regarding other failures. In addition, the IRS cautions that corrections made before a VCP submission may need to be undone if it does not approve the correction method used.

 

Keep records. Records that should be retained include the compliance statement, as well as documents that prove corrections were completed before the deadline. The IRS recommends keeping them with the plan document.

 

 

Another advantage to resorting to the VCP, Kalish argues, is that it is possible that if a plan does not, it may end up having to use the IRS Audit Agreement Closing Program or Audit CAP. And, he notes, the cost of that “would be significantly more than if the missed deadline was dealt with on a voluntary basis through VCP.”

 

“It should be obvious,” writes Kalish, “Contact them before they contact you.”