David Klimaszewski, a partner in Culhane Meadows’ Dallas office, was recently interviewed for an article by PLANSPONSOR which discusses a new IRS issued ‘helpful’ bulletin for a preapproved plan.
Here are some excerpts from the article:
In a bulletin, the IRS has put preapproved defined contribution plans on notice of the consequences for missing the July 31 deadline to submit restated plan documents.
Preapproved plans are required to be restated every six years to incorporate changes to the retirement plan and new laws and regulations.
“The IRS expects that a lot of people will end up missing that deadline,” says David Klimaszewski, partner at law firm Culhane Meadows. “They came out with this particular bulletin to let companies know what would happen if they screwed up and they missed the deadline for restating their plan, if they have a prototype plan.”
The bulletin came in the midst of the IRS fielding questions about the issue and anticipating many more questions before July ends, Klimaszewski explains.
“The IRS bulletin is basically a warning for employers,” he adds. “It was a very helpful piece of guidance to get; it did actually answer several questions that I had with the self-correction procedure.”
“The IRS issued this to make it clear what the consequences were, and the consequences are [that] if you do not timely adopt a restated document then technically you have an individually designed plan,” adds Klimaszewski. “And of course it doesn’t satisfy the qualification requirements, but you can fix that by going through the IRS’ self-correction procedures.”
Restatements are an opportunity for employers with preapproved plans to ensure that documents fully integrate law changes, adds Klimaszewski.
“Typically, the restatements are a good chance to update the plan, but a restatement also will reflect better the new law,” he says. “You don’t just regurgitate the code—what Congress has said—you actually go in and explain it and figure out how that’s going to affect your plan and address the appropriate provisions.”
DC plans are grouped into five cycles for submitting restated plan adoption agreements. This year concerns cycle three plans, which are sponsored by a company with an employer identification number that ends in two or seven, Klimaszewski adds.
“Basically, one-fifth of the prototype plans that are out there have to be restated by this July 31, and another 20% will be restated by July 31, 2023, and then another 20% by July 31, 2024, et cetera,” he says.
The statement concludes by advising plan sponsors that “being a pre-approved plan is one method of meeting the requirement to have an updated written plan document.” It continues, “If the employer who sponsors a plan does not timely adopt a current pre-approved plan, it can still meet the written document requirements as an individually designed plan. Individually designed plans that don’t meet those requirements can be self-corrected under the circumstances detailed in Rev. Proc. 2021-30, Part IV.”
The complete article can be found here.
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