The author Douglas Adams said, “I love deadlines. I love the whooshing noise they make as they go by.” No matter how you feel about deadlines, the last thing you want from an Internal Revenue Service deadline is the sound of them flying by you! This can be a costly mistake for your company.
The Internal Revenue Service requires that pre-approved 401(k) plans must be restated every six years, and this year, the deadline for adopting the restatement is July 31, 2022. If you as an employer do not adopt the restatement on time, the tax qualification of the plan could be in jeopardy.
Typically, the pre-approved plan restatement consists of a basic plan document and an adoption agreement. The basic plan document contains all the non-elective provisions of the plan. The adoption agreement allows you to select the options for your particular plan design and is where you sign. If your company sponsors a pre-approved 401(k) plan, you should have received the restatement from your plan vendor to review in time for the deadline.
It is important that you, as the Plan Sponsor, review the restatement to understand the options chosen in the adoption agreement. This is important even if you don’t think there were changes from the previous adoption agreement. It is usually a record keeper or third-party administrator preparing these documents for review, but as the Plan Sponsor, you have the responsibility for confirming that the restatement is in line with the plan operation and complies with the law.
For instance, your 401(k) plan may categorically exclude part-time employees. However, if these employees are working more than 1,000 hours per year, and have sufficient service to participate in the plan, incorrectly excluding them could be a costly mistake if you to have to make up for their missed deferrals and employer match.
If you haven’t received the restatement or you have received it and want to ensure you know the best way to move forward, reach out to us today to schedule a consultation. We would be glad to help you through the process so that you can meet the July 31, 2022 deadline.