How to Restate your Individual 401(k) Profit Sharing Plan
Frequently Asked Questions About Individual 401(k) Restatement
Q1 What is a restatement?
When Congress passes a law that has major effects to retirement plans, the various federal agencies create regulations as a result of these amendments and tax law changes. Some of these need to be incorporated into existing retirement plans through new plan documents that must be re-executed.
Q2 What determines when a plan must be restated?
The IRS requires that retirement plan documents be restated, and subsequently re-adopted by employers, cyclically within a certain period of time after tax law changes take place. This is to ensure that plans are updated with all legislative and regulatory amendments. So that plans do not need to be rewritten more frequently, pre-approved plans are restated on a regular 6-year cycle, retroactively combining amendments that have been made since the last required restatement. The current restatement is the result of significant changes made by the Pension Protection Act of 2006. This restatement is therefore referred to as the “PPA Restatement.”
Q3 What is the deadline to restate my plan for PPA?
The IRS requires that the PPA Restatement be completed by April 30, 2016. That means you must complete and sign your new Adoption Agreement reflecting these changes no later than April 30, 2016. You can also take this opportunity to make optional changes that you may wish to add to your plan. Once you complete filing out the document a copy must be submitted to Entrust.
Q4 What happens if I don’t restate my Plan by the required date?
Your Plan will no longer be a qualified plan and therefore will no longer have the advantage of being tax-deferred. Your assets, and those of your employees (if applicable), will become immediately taxable for the year following the restatement deadline. The IRS has provided guidance in Revenue Procedure 2013-12 regarding the penalty they will assess on a “non-amender” (an employer who does not amend and restate their qualified plan for the PPA Amendments on a timely basis). The employer penalty is determined by calculating the amount of taxes due on all of the assets in the qualified plan, plus interest and/or penalties for not paying the taxes on time. The IRS also reserves the right to go back 3 years (the “open years”) to do this calculation. The Revenue Procedure also indicates the penalties that will apply if you execute the Adoption Agreement late (after April 30, 2016).