Post-July 31 Action Steps for Pre-Approved Plans

The July 31, 2022, deadline for restating pre-approved 401(k) plans has come and gone. If a plan missed that deadline, now what? A recent blog entry offers some suggestions. 

July 31 was the deadline for the latest plan remedial amendment cycle (Cycle 3). In a recent entry in the JacksonLewis blog, principal Keith A Dropkin makes suggestions regarding steps that can be taken if that deadline was missed.  

Retirement plans—such as 401(k) plans—must comply with Code Section 401(a) and regulations that follow and implement it, Dropkin reminds. Pre-approved plans, he continues—those whose language was pre-approved by the IRS to satisfy those requirements—most often consist of an adoption agreement and a basic plan document. Those agreements include many design options from which an employer can select; basic plan documents contain the non-elective provisions of the plan.

Pre-approved plan providers must keep up with tax law changes, and Dropkin writes that generally they need to update their plan documents and obtain approval letters from the IRS every six years in order to do that. 

Employers that adopt a pre-approved plan have a set period in which to adopt the updated plan document. And that brings us to July 31, 2022—the Cycle 3 adoption deadline. 

Did You Miss the Deadline?

There are consequences if a pre-approved pension plan or 403(b) fails to meet the restatement deadline, Dropkin notes. That could result in a pre-approved plan losing that status; plans that are not pre-approved and are individually designed still can be qualified retirement plans, but the rules for individually designed plans would apply.  

Depending on the circumstances, some failures may require obtaining formal approval from the IRS through its Voluntary Correction Program (VCP), while others may be eligible for self-correction. Further, Dropkin notes, steps must be taken if there are plan failures. 

The IRS, Dropkins notes, provides a means for correcting such plan failures through the Employee Plans Compliance Resolution System (EPCRS).  

EPCRS consists of the VCP, through which a plan sponsor pays a fee and receives IRS approval for a correction, and the self-correction program (SCP), through which a  plan sponsor voluntarily corrects failures without formal IRS approval and without having to pay fees or sanctions to the IRS. 

Dropkin adds that timing is relevant to which program a plan sponsor uses. He notes that the SCP is available only to correct mistakes that have existed for less than the past three years, while only the VCP may be used to correct failures from more than three years before.