Taking Advantage of the 401(k) Document Restatement

Retirement Plan Consulting

Jul 14, 2021

Most plan sponsors put the bulk of their time and energy into the day-to-day operations of the plan and making sure the form 5500 is filed each year in a timely manner. Every 6 years, an additional responsibility is added to the plan sponsor’s plate. The plan document that governs their 401(k) plan must be fully rewritten or “restated” to reflect any recent law changes. We currently sit right in the middle of a “restatement” period that began on August 1, 2020 and ends on July 31, 2022.

While it isn’t exciting to take on an additional project in any given year, it does present a nice opportunity to review your plan. Amending your plan usually comes with a fee from your Third-Party Administrator to update the document. The restatement is no different and the fee usually ranges from $500-$2000. It is a great time to take care of any amendments you’ve been considering so that you can get everything done with one fee.

What kind of changes should be considered? First, there are mandatory changes. The hardship distribution rules have been updated and any plan that permits hardship distributions must be amended by December 31, 2021. The SECURE Act included some changes to the Required Minimum Distribution (RMD) age, the inherited 401(k) distribution options and rules regarding part-time employees. 401(k) plans need to be amended to reflect these changes by the end of 2022. Finally, The CARES Act had some optional changes related to loans and withdrawals. Any plan that permitted these options needs to be amended to reflect the changes by the end of 2022.

The more opportunistic aspect is in the discretionary changes. If your plan is experiencing corrective distributions, maybe you should consider safe harbor or automatic enrollment. Adding a Roth deferral option has been popular during prior restatement periods. If your plan doesn’t offer Roth deferrals, it is a perfect time to consider adding them. Other possibilities are adding a loan feature, updating eligibility requirements, and evaluating different profit-sharing formulas.

The retirement plan can fall to the back burner as other priorities take precedent. The document restatement is a time where the retirement plan can’t really be put off to a later date. While the retirement plan is front of mind, take the time to evaluate everything. Are you happy with your service providers? Are there any discretionary changes that can improve your plan? You’re going to be spending time and money on the plan to complete the document restatement. Make it count.

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