What is a 401(k) Plan Restatement?

  1. How does a 401(k) Plan Restatement Work?
  2. Safe Harbor 401(k) Plan Restatement
  3. What Happens if I Don’t Restate My 401(k) Plan?
  4. When Do I Need to Get My 401(k) Plan Restated?
  5. What Changes Are Part of the 2020-2022 Restatement Cycle?

Every six years, the IRS requires defined contribution retirement plans (e.g., 401(k) plans) to be updated based on regulatory and legislative changes. This “restatement” makes sure your plan is up-to-date and compliant with the IRS to reflect any legislative and regulatory changes mandated in the last six years. The next restatement cycle started on August 1, 2020, and closes on July 31, 2022. Restatement is required by the IRS, which means plans that aren’t restated before July 31, 2022, could be subject to penalties.

It’s common for retirement plans to be updated via voluntary amendments for various reasons like changing contribution percentages or Safe Harbor status. However, the IRS mandated six-year restatement cycle is a way to bring together all the rule and law changes into one document. Even if you’ve recently updated your business’s plan by amendments, the plan will still need to be restated.

Your business’s plan also must be restated even if it’s brand new.

How does a 401(k) Plan Restatement Work?

If you’re the administrator of your business’s 401(k) plan, you’re responsible for your 401(k) plan’s restatement. However, you’re not alone in trying to handle what can be a complex update to your 401(k) plan. If you work with a Third-Party Administration (TPA) firm like Guidant Financial, we’ll make it easy for you to satisfy the IRS requirements for restatement. If you don’t have a TPA, you’ll want to work with your retirement plan professional to ensure your business’s plan is correctly restated.

The restatement process depends entirely on your TPA firm. Here’s how it works with Guidant.

  1. We update everything necessary in the 401(k) Plan Document, which outlines all the rules of your business’s 401(k) plan. This is also called the Adoption Agreement (AA). Guidant 401(k) clients sign the AA when they set up their business’s customized 401(k) plan.
  2. We put the updated AA online for our clients to sign and let them know it’s ready to be signed. Guidant uses DocuSign, but other TPA firms may vary. Our clients access their updated AA via a DocuSign link they receive in an email.
  3. Our client digitally signs the updated AA.
  4. After signing, our client, who is most often also the 401(k) plan administrator, receives the newly updated Plan Documents through the Guidant Client Portal.

And that’s it! Other restatement cycles may require more decision-making from you as your 401(k) plan’s administrator, but the 2020-2022 cycle doesn’t include any changes to plan electives.

Safe Harbor 401(k) Plan Restatement

Safe Harbor 401(k) plans have one additional step in the 2020-2022 restatement cycle. Safe Harbor is an optional election to your business’s 401(k) plan that includes an employer contribution, which allows the plan to avoid annual compliance issues. If your business’s 401(k) plan includes a Safe Harbor provision, you make annual contributions to the plan on behalf of your employees. Those contributions are immediately vested.

Typically, your TPA will provide you with a Safe Harbor notice that you’re required to provide to your employees 30 and 90 days before the end of your 401(k) plan year. After your 401(k) plan is restated, you’re required to provide an updated Safe Harbor notice and 401(k) plan summary description to your employees 30 to 90 days before the 401(k) plan’s year end. This lets your employees make an educated decision about participating in your business’s 401(k) plan.

What Happens if I Don’t Restate My 401(k) Plan?

Restating your business’s 401(k) plan is an IRS requirement, and during the 2020-2022 cycle, no updates are optional. If your business’s 401(k) plan isn’t restated before its final deadline, you’ll be subject to steep IRS penalties. The penalties can include the loss of tax-favored status, which means contributions might not be tax-deductible and would be included as employee income.

Guidant is dedicated to supporting our small business owner clients. One way we do this is by partnering with our clients to make sure their 401(k) plans are always compliant. If we’re unable to procure a client’s signature to their updated AA by the deadline after trying to reach them numerous times, we will end service to the client. Unfortunately, after terminating service, we can’t support a client any further and can only refer them to an attorney specializing in ERISA law. It costs approximately $3,500 to have a 401(k) plan restated in this method. We highly recommend 401(k) plan administrators sign their updated AA as soon as they receive it.

When Do I Need to Get My 401(k) Plan Restated?

The IRS’s final restatement deadline is July 31, 2022. However, the deadline for your plan might vary depending on your elections and your TPA firm. 401(k) plans with Safe Harbor elections must sign at least 30 days before their 401(k) plan year end. Safe Harbor plans don’t have an option to extend to July 2022 like other 401(k) plans might.

No matter your business’s retirement plan, it’s key to sign your updated AA as soon as you receive it from your TPA firm and not wait until the last minute.

What Changes Are Part of the 2020-2022 Restatement Cycle?

Here is a simplified breakdown of the mandated changes that will be updated in your business’s 401(k) plan as part of the Restatement Cycle 3.

  • Expansion of the definition of “spouse” to include those of the same gender
  • Availability of plan forfeitures to offset certain additional types of company contributions
  • Ability to amend Safe Harbor 401(k) plans once the year has already started in specific situations
  • Creation of in-plan Roth transfers

Even if you’ve recently restated or amended your plan, you’ll still need to restate your plan in its entirety to include these changes to comply with the Cycle 3 requirements:

  • Trustee Changes
  • Changes to discretionary matching contributions
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