Call to the Post…Cycle 3 Restatement Considerations

by Becky Achten

Just as the Kentucky Derby will finally be run this Saturday, the race for plan restatements has also begun….although this race will last longer than “the most exciting two minutes in sports.”

Pre-approved plans – plan documents the have already been submitted for review to and been issued an opinion letter from the IRS – are required to be updated and restated every six years. The IRS announced that the current restatement period (referred to as Cycle 3) would begin on August 1, 2020 and end on July 31, 2022. During that period, all pre-approved defined contribution plans, including 401(k), profit sharing and money purchase plans, must be restated in order to maintain their qualified status. And, for the first time, ESOP and KSOP pre-approved plan documents will be available from many document providers. Once the IRS has issued the opinion letters, document providers will be reaching out to plan sponsors to start the restatement process.

While plan sponsors can rely on the form and content of pre-approved plans, many plans have provisions that color outside the lines of the standard pre-approved plan document. Most pre-approved plan documents allow for this by use of the ‘fill-in’ boxes. However, the IRS opinion letter doesn’t necessarily cover these special plan provisions. In that case, plan sponsors may want to submit the restated document to the IRS to obtain an opinion on the specific plan provisions that fall outside of the standard pre-approved document language. To do so, plan sponsors can submit a Form 5307 – Application for Determination for Adopters of Modified Volume Submitter Plans. This is one of only a few opportunities to request an opinion on plan provisions and it must be completed by the end of the current restatement period.

In addition, the IRS announced in Notice 2020-14 that certain user fees relating to determination letters would be increasing as of January 1, 2021 (from $800 to $1,000 for the Form 5307 application). Plan Sponsors may want to ‘giddy-up’ on their restatements in order to take advantage of the lower Form 5307 user fee before year end.