24 July 2024

2 Key July Deadlines Approaching for 401k Plans

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Richmond, Va.-based law firm Williams Mullen posted an alert this week to remind retirement plan sponsors about a pair of deadlines to be aware of at the end of July, as missing the deadlines could lead to steep IRS penalties for plan sponsors, including possible plan disqualification.

The first deadline relates to restated adoption agreements for pre-approved plans. Employers using pre-approved plan documents for their 401k plans must adopt restated adoption agreements by July 31, 2022.

The Internal Revenue Service (IRS) requires all plan sponsors that have adopted pre-approved qualified retirement plans to restate their plans every six years in order for the plan sponsor to rely on the plan’s pre-approved status. The IRS approved certain defined contribution plans in the third of such six-year cycles in 2019, and the new documents are often referred to as “third cycle restatements.”

The IRS has set a deadline of July 31, 2022 for employers to adopt these restated defined contribution plan documents. Note that this deadline does not apply to individually designed plans, or to pre-approved defined benefit and 403b plans that are part of separate six-year cycles.

Document providers have been sending restated adoption agreements and basic plan documents to plan sponsors that previously adopted their plans, with instructions to review and sign the new adoption agreements. Plan sponsors should be sure that they have returned the new documents to the document provider in a timely manner to preserve the plan’s reliance on its pre-approved status.

The second reminder relates to the possible need to issue a summary of material modifications (SMM) if a retirement plan was amended in 2021, or the need to update the summary plan description (SPD) to reflect the change.

An SMM describes material modifications to a plan and changes in the information required to be in the SPD. An SMM or an updated SPD must be distributed to participants and pension plan beneficiaries receiving benefits not later than 210 days after the end of the plan year in which the change is adopted. That means if a plan has a plan year that ended December 31, 2021, the SMM must be distributed no later than July 29, 2022.

Plans with a different fiscal plan year will have a different deadline. Many 401k plans were amended in 2021 to conform to new rules on hardship distributions. Those changes, and any other amendments adopted in 2021, must be described in an SMM or an updated SPD.

Amendments to conform to the SECURE Act must be adopted no later than the last day of the first plan year beginning on or after January 1, 2022. Sponsors of plans with a calendar year plan year must adopt amendments by December 31, 2022, and the SMM would be required by July 29, 2023.

However, since the changes in the SECURE Act have been effective for several years now, Williams Mullen recommends distributing an SMM describing the SECURE Act changes as soon as the SECURE Act amendments are adopted.

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