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Plan Document Failures: A Reminder That All Is Not Lost

Practice Management

Plan documents, and compliance with the rules and regulations governing them, can be complicated and are always important. An industry expert in a recent ASPPA webinar outlined what can be done if one has made an error with one. 

John P. Griffin, JD, LLM Principal at the ASC Institute, reminds that the IRS provides mechanisms by which one can correct plan document errors. It is important to take action if a mistake has been made, he cautioned, remarking, “Plan document failures are considered a ‘significant’ failure.” 

Correction Under the SCP

Revenue Procedure 2021-30 allows for self-correction in certain situations. This applies to 401(a) plans—including 401(k) plans—as well as 403(b) plans, Griffin says. 
Plan document failures are considered a “significant” failure that must be corrected within the three-year correction period, Griffin notes. A plan must have a “favorable letter.” 

Griffin reminds that the IRS self-correction program (SCP) is not available to correct a failure to timely adopt an initial 401(a) plan document, nor a failure to adopt an initial written 403(b) plan within the required timeframes. In addition, he says, the late adoption of discretionary amendments is not considered a plan document failure. 

Missed Restatement Deadlines

For pre-approved defined benefit plans governed by Code Section 401(a), the restatement deadline is long gone—it was July 31, 2020. For 403(b) plans, the restatement deadline was a month earlier.

Griffin points out that if those deadlines have been missed, the IRS provides remedies. And the IRS itself provided a reminder in the Employee Plans Newsletter of May 23, 2022, which addressed the impact of missed deadlines for restatement of pre-approved plans. 

Simply failing to qualify as a pre-approved plan is not a qualification issue, the IRS says. But if a plan is pre-approved, there are certain rules that apply. For instance, if a pre-approved plan is not timely amended by the restatement deadline, it becomes an individually designed plan (IDP). 

Missed deadlines for DB plans. If a DB plan misses a restatement deadline, Griffin notes, the following points apply:

  • There is a review of interim amendments to determine if they satisfied 401(a) requirements. 
  • Under the favorable letter requirement, reliance on an opinion/advisory letter is equivalent to determination letter.
  • The SCP is available if the defect existed for less than three years; the voluntary compliance program (VCP) is available for older mistakes.  

Missed deadline for 403(b) plans. If a 403(b) plan misses a restatement deadline, Griffin notes, the following points apply:

  • Under the favorable letter requirement, if a written plan was not adopted by 2009 and was adopted later, the plan should state the year it was adopted.
  • The SCP is available if the defect existed for less than three years; the VCP is to be used to correct older mistakes. 

Available on Demand

The June 30, 2022 ASPPA webinar, “Plan Document Issues for 2022” is available on demand; click here to access it.