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Did Your Company Fail to Adopt a New Preapproved Defined Contribution Plan by the April 30th Deadline? The IRS Has a Solution for You

Sponsors of preapproved defined contribution retirement plans were generally required to sign new plan documents on or before April 30, 2016 that incorporated changes required by the Pension Protection Act of 2006 (PPA). Defined contribution plans include profit sharing plans, 401(k) plans, and money purchase pension plans.  Preapproved plans are plan documents that have been approved by the Internal Revenue Service (IRS) and are sold to plan sponsors through law firms, banks, brokers and other financial institutions. 

A prototype plan is a type of preapproved plan.  It consists of two parts: an adoption agreement and a basic plan document.  The basic plan document contains the non-elective provisions applicable to all adopting employers.  The adoption agreement contains all of the options that can be selected by an adopting employer in a “check the box” format.  A volume submitter plan is another type of document that has been preapproved by the IRS.  Volume submitter documents sometimes consist of an adoption agreement and basic plan document, although many take the form of a self-contained single document that only reflect the provisions that an adopting employer has selected.

Effect of Failure to Timely Adopt New Plan

If you are a plan sponsor of a defined contribution retirement plan that is on a preapproved document, and you did not sign a restated plan document as required on or before the April 30, 2016 deadline, your retirement plan is technically no longer entitled to tax-favored treatment.  Losing tax-favored treatment of your plan could reduce your deduction for contributions paid to the plan, and your employees could be prevented from accumulating retirement savings.  In addition, while not required by the IRS or the Internal Revenue Code, the financial institution holding the plan assets could refuse to make distributions. If they have already made distributions, the distributions could potentially be taxable and not eligible for tax-free rollover.

What Can You Do?

You will have to go to the IRS in order to correct this.  The correction can be done by filing a submission for a Voluntary Correction Program (VCP) compliance statement with the IRS as provided under the IRS Employee Plans Compliance Resolution System (EPCRS).  There is a user fee associated with VCP submissions.  Typically, the applicable user fee is determined using the number of participants in a plan.  The user fee ranges from $500 to $15,000 depending on how many participants are in the plan.  A recently released VCP submission kit indicates that if a plan sponsor sends the VCP submission to the IRS byApril 29, 2017, the general user fee is reduced by 50% (so long as the failure to adopt the PPA restated document is the only failure of the submission.  This VCP submission kit is designed to help plan sponsors who missed the April 30th deadline.  The new VCP submission kit can be found at https://www.irs.gov/retirement-plans/vcp-submission-kit-failure-to-adopt-a-new-pre-approved-defined-contribution-plan-by-the-april-30-2016-deadline

If your submission is approved, the tax-favored status of your plan will be restored.  Your Employee Benefits counsel can advise as to the program, and assist with preparation of the required IRS forms.  You should reach out to your Benefits Counsel as soon as possible to discuss this process.

Jackson Lewis P.C. © 2020National Law Review, Volume VI, Number 143


About this Author

Meredith R. Fergus, Employment Benefits Attorney, Jackson Lewis, corporate governance lawyer

Meredith R. Fergus is an Associate in the Cleveland, Ohio, office of Jackson Lewis P.C. She focuses her practice on all aspects of employee benefits, including ERISA.

Ms. Fergus has experience in the design and implementation of qualified retirement and benefits programs including ESOPs, defined benefit and defined contribution plans, and cash balance plans, operation and compliance matters, and revising and terminating benefit plans to address business needs and changes in the federal law. Ms. Fergus has experience...