Sponsors of pre-approved defined contribution retirement plans are generally required to sign new plan documents that incorporate changes required by the Pension Protection Act on or before April 30, 2016. Defined contribution plans include profit-sharing plans, 401(k) plans, and money purchase pension plans. Pre-approved plans are plan documents that have been approved by the Internal Revenue Service (IRS) and are made available to plan sponsors through plan administrators, law firms, banks, brokers, and other financial institutions. The IRS issued favorable opinion letters to the sponsors of pre-approved plan documents approving these plans in or about March of 2014.
If your company has this type of plan and does not sign a restated defined contribution plan document as required on or before the April 30, 2016 deadline, your retirement plan will no longer be entitled to tax-favored treatment. This could adversely affect the deductibility of contributions and the tax-favored status of accumulated retirement savings.
The IRS does have a program under which your company can correct the failure if you are not able to arrange for and sign the restatement by April 30, 2016. You can make a submission under the Voluntary Correction Program (VCP). If your submission is approved, the IRS will treat the plan as entitled to tax-favored status. It is also possible that the pre-approved plan sponsor you are using may be making a special request to the IRS for a closing agreement on behalf of employers who missed the deadline, so you will want to check with your pre-approved plan sponsor.
The IRS recently published a VCP Submission Kit that assists filers in using the VCP process. There are a number of forms that have to be completed as well as a filing fee based on the number of plan participants. However, if you make your submission by April 29, 2017, the filing (user) fee is reduced by 50 percent if the failure to timely adopt the restatement is the only failure of the submission.
It is also important to note that some plan sponsors that want to use a pre-approved plan have a later deadline. If your company wishes to convert an existing individually designed plan into a current defined contribution pre-approved plan, you have until April 30, 2017, to adopt the pre-approved defined contribution plan.
If you have any questions about these requirements, please contact one of the attorneys in the Employee Benefits & Executive Compensation practice group at Bradley.