The Restatement Process: From EGTRRA to PPA

A qualified retirement plan must operate according to its plan document. Plan documents, however, are not static. There are ongoing legal and regulatory changes that must be incorporated.

To do this, the IRS requires that master, prototype, and volume submitter plans be rewritten, reviewed, and approved by the IRS every six years. Once approved, the plan sponsors who use them must adopt the new plan documents. This is called the restatement process. Note: Individually designed plans must be restated every five years.

IRS approval and plan sponsor reliance

IRS approval provides a plan sponsor with “reliance,” which means the sponsor does not have to worry about an IRS auditor challenging the way the plan document is written. The plan must still be operated in compliance with its document, and plan sponsors adopting a prototype plan may not make any changes to the document (other than to select allowable elections or fill in blanks subject to the parameters provided). If they do, they will lose reliance.

The IRS issues approval in the form of an “opinion letter” for prototype plans and an “advisory letter” for volume submitter plans. Individually designed plans go through a different process and receive a “determination letter.” Note: The IRS no longer issues determination letters for prototype plans and significantly limits their availability for volume submitter plans.

The EGTRRA document

The preapproved defined contribution plan document currently in effect is the EGTRRA document, named for the Economic Growth and Tax Relief Reconciliation Act of 2001. The EGTRRA document incorporated relevant laws and regulations as of the end of 2004, including the final Section 401(k) and (m) regulations. The IRS approved the document by early 2008, and plan sponsors had from May 1, 2008, until April 30, 2010 (the “EGTRRA restatement period”), to adopt it.

The PPA document

Since the EGTRRA document, guidance has been released and various laws have been enacted that affect qualified plans. These include the Pension Protection Act of 2006 (PPA); the final 415 regulations; the Heroes Earnings Assistance and Relief Tax (HEART) Act and the Worker, Retiree, and Employer Recovery Act (WRERA) of 2008; the Katrina Emergency Tax Relief Act of 2005 (KETRA); and the Gulf Opportunity Zone Act of 2005 (GOZA). This restatement cycle is known as the “PPA document restatement” because most of the document changes reflect PPA provisions.

Restatement is not optional

PPA restatement is required. Failure to restate by the deadline is a plan disqualification issue that could have adverse tax repercussions for plan sponsors and participants. Sponsors may also be subject to penalties. The window for sponsors of preapproved defined contribution plans to adopt the PPA document opened on May 1, 2014, and will close on April 30, 2016.

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