April 30, 2016, was the IRS deadline for employers to restate their 401(k), profit-sharing, or other defined contribution (not including 403(b) plans) retirement plans. Failure to comply with new regulations could result in significant IRS fines as well as loss of a plan’s qualified status.
What is Required?
The Pension Protection Act necessitates that all plans be restated, or rewritten, to include certain features including:
- Heroes Earnings Assistance and Relief Tax Act (HEART), which revives benefits for military service members, including disability and death while in service. It expands distributions available to reservists and makes differential pay part of regular compensation for plan purposes.
- Worker, Retiree, and Employer Recovery Act (WRERA) allows non-spouse beneficiaries to rollover to inherited IRAs and clarifies rollover rules for Roth accounts.
What if Plan Sponsors Do Not Comply?
Sponsors who have not restated their plan are termed “Non-Amenders” and may face fines up to $15,000. Failure to comply could result in the loss of a plan’s qualified status, which could produce the following obstacles:
- The sponsoring company would lose its tax deductions for plan contributions
- Participants may be taxed on their contributions
- The earnings of the plan’s trust may be subject to taxation
- Any distributions from the plan are immediately taxable and ineligible for rollovers
What if Plan Sponsors Missed the Deadline?
The IRS has issued guidelines for plan sponsors who missed the deadline. To preserve their plan’s qualified status, they must submit their correction through the Voluntary Compliance Program (VCP). The VCP Submission Kit requires that several forms and documentation be presented. Fees for filing range from $750 to $5,000 but may be reduced by 50% by completing the process before April 30th, 2017. For help completing your VCP Submission Kit, contact our office today.
It’s important to understand that IRS approval of your VCP submission will not restore your plan’s qualified status if there are other failures in your plan, include not amending the plan for legislation before PPA, or not meeting required amendments for recent tax law changes. Additional steps are needed to address those issues. Do you have questions about the restatement deadline or the status of your plan? Give our office a call at (312) 973-4911 or email us at mark.olsen@planpilot.com.
About Mark
Mark Olsen is a Senior Consultant at PlanPilot, an independent retirement plan consulting firm headquartered in Chicago. PlanPilot delivers comprehensive retirement plan advisory services to 401(k) and 403(b) plan sponsors. Drawing on over two decades of experience, Mark provides institutional retirement plan consulting to 401(k), 403(b) and defined benefit plans. His specialties include plan governance, investment searches, investment monitoring and plan oversight. Mark is recognized as a leader within the industry and speaks at national conferences including Pensions & Investments, Stable Value Investment Association, and CUPAHR.