401(k) plans (as well as other retirement plans) must be "restated" in order to remain up to date with the IRS. According to the IRS, the restatement cycle for 401(k) plans lasts "every 5 years for individually designed plans, or 6 years for pre-approved plans." At the end of the cycle, all 401(k) plans must be completely rewritten from scratch in order to incorporate all of the changes in the tax and other guidelines that were legislated throughout the cycle. Interim amendments should be made to 401(k) plans as necessary to keep up with rule changes, but a plan restatement is still necessary at the end of the restatement cycle. This helps the plan to stay current with tax and other legal changes to the plan without becoming overburdened with amendments. The 401(k) plan administrator is responsible for restating the plan, and it must keep detailed records of every restatement, every amendment and any other change or modification to the plan since its inception. If a plan is audited, the IRS will require this information, and administrators that do not have all of the required records may enter into a voluntary correction program that allows them to correct and/or update their books for a fee that is considerably less than the penalty that the IRS would otherwise charge for being out of compliance. Again, 401(k) plans that use a prototype document (or pre-approved plan) to govern the plan have restatement cycles lasting for six years. Plans that have been individually designed generally have a restatement cycle of five years. Amendments must be made to both types of plans during their respective cycles in order to remain compliant.
401(k) Plan Administrator
401(k) Plan Restatement Cycle FAQs
A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.
A 401(k) plan restatement cycle is the process of preparing and issuing updated documents that are legally required to maintain an employer’s qualified retirement plan in compliance with relevant laws and regulations. It typically occurs every three years, or more frequently if there have been major changes made to the plan.
Documents that are typically included in a 401(k) plan restatement cycle include adoption agreements, summary plan descriptions, trusts, beneficiary designations, service provider contracts, and amendments to any of these documents.
Completing a 401(k) plan restatement cycle helps ensure that an employer’s qualified retirement plan is compliant with laws and regulations and that all documents accurately reflect any changes that may have taken place since the last restatement cycle. It can also help reduce administrative costs by ensuring that all necessary documents are current and valid.
If an employer fails to complete a 401(k) plan restatement cycle, they may be subject to penalties from the Internal Revenue Service (IRS), including fines and/or disqualification of the plan. Additionally, failure to comply with regulations can result in civil or criminal liability for those responsible for managing the plan. Therefore, it is important for employers to ensure that their plans are up-to-date and compliant with applicable laws and regulations.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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