Five things you should know about the IRS’s latest 401(k) plan restatement cycle for preapproved plans

Every six years, the IRS requires that qualified retirement plans that rely on preapproved plan documents be completely amended and restated. The restatement must comply with intervening law changes, as well as incorporate all amendments since the last restatement. The current required amendment and restatement cycle, for 401(k), profit-sharing, and money purchase pension plans, referred to as “Cycle 3 DC,” opened as of August 1, 2020, and ends on July 31, 2022.

The following information should provide you with a good understanding of the restatement process and the document options that are available to plan sponsors.

401(k) plan document options

As mentioned above, Cycle 3 DC applies to preapproved plan documents for defined contribution (DC) plans. There are two main types of preapproved plan documents: prototype and volume submitter.

Prototype document Volume submitter document

The prototype plan consists of a basic plan document and an adoption agreement.

The volume submitter plan is usually a single-document plan.

The basic plan document consists of all the nonelective provisions.

A single-document plan does not use an adoption agreement.

The adoption agreement contains the options (and blanks) for completion by the employer.

The options and alternative paragraphs available for selection by the employer are contained throughout the single document.

Both document types provide great flexibility for plan design, but a prototype document is generally less expensive to maintain, since the plan is established by merely completing blanks in the adoption agreement (as opposed to drafting specific plan provisions). In addition, a plan sponsor who uses a prototype document can rely on the IRS opinion letter issued to the plan document sponsor versus filing for its own IRS determination letter. As a result, a plan sponsor will avoid all costs associated with the IRS submission process, as well as the added administration of the submission process.

Finally, when the prototype document is updated to reflect a change in tax laws, the document will be amended by the plan document sponsor for all plan sponsors using the prototype document, eliminating the need for a customized plan amendment.

Alternatively, for plans with a more complex plan design or those that have experienced significant merger activity, a volume submitter document may be better suited than a prototype document. Most plan sponsors who use a volume submitter document also prefer to file for their own individual determination letter with the IRS.

Five important things about the 401(k) plan restatement cycle

1      Cycle 3 DC does not apply to defined benefit plans, nor does it apply to DC plans that use an individually designed plan document.

2     Because of the timeline that the IRS uses to review and approve preapproved plan documents, Cycle 3 DC documents will not reflect any statutory and/or regulatory changes that have taken place since 2017; therefore, most Cycle 3 documents will not include the final hardship withdrawal rules, nor any voluntary or mandatory provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act and/or the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Note: You may already have amended your plan for the hardship withdrawal changes. For the SECURE Act and CARES Act provisions, plan amendments will generally not be available until the IRS provides model language for these changes. The deadline to amend plans retroactively for SECURE Act and CARES Act changes is the last day of the plan year that begins in 2022.

3     If you request additional changes to your plan document during the restatement process, your document provider may charge additional fees. Furthermore, depending on the scope of the changes, the preparation of your plan’s document restatement may be delayed.

4     If you are planning on terminating your plan, please be aware that, prior to the termination, the plan document must be updated with all required law changes.

5     If you are filing for an individual determination letter, please note the following:

  • The determination letter submission to the IRS must include all plan documentation for the plan since the last determination letter submission, as well as all plan documentation for any other plan that has merged with the plan since the last restatement.
  • The IRS scrutinizes the documentation submitted with each plan during the review process and may assess substantial penalties to resolve issues it identifies during review.
  • The deadline for a determination letter filing for a Cycle 3 DC plan restatement is
    July 31, 2022.
  • In addition to any submission preparation fee charged by your document provider, you will be responsible for the $1,000 user fee imposed by the IRS.

Final thoughts on Cycle 3 DC

The maintenance of plan documentation is a fiduciary responsibility of the plan sponsor (or plan administrator), so it is important to understand the Cycle 3 DC restatement process, as well as the plan document options that are available to plan sponsors. In some cases, the document type may be predetermined under the service arrangement, but, usually, the choice is yours.

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.

MGTS-P44305-GE 03/21 44305          MGR0212211520582

Chris Frank

Chris Frank, 

Head of Defined Contribution Consulting

John Hancock Retirement

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