[co-author: Claire Pollock]
This alert is a quick reminder to pension plan sponsors to be aware of two deadlines at the end of this month.
Reformulated Adoption Agreements for Pre-Approved Plans
Employers using pre-approved plan documents for their defined contribution pension plans, such as 401(k) plans, must adopt updated adopting agreements before July 31, 2022. The Internal Revenue Service (IRS) requires all plan sponsors who have adopted pre-approved qualified retirement plans to reform their plans every six years so that the plan sponsor can rely on the plan’s pre-approved status. The IRS approved some defined contribution plans in the third of those 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 Employers to adopt these revised defined contribution plan documents. Note that this timeframe does not apply to individually designed plans, pre-approved defined benefit plans and 403(b) plans that are part of separate six-year cycles.
Document providers sent reworded adoption agreements and basic plan documents to plan sponsors who had previously adopted their plans, with instructions for reviewing and signing new adoption agreements. Plan sponsors should ensure that they have returned new documents to the document provider in a timely manner to maintain the plan’s confidence in its pre-approved status.
Summary of significant changes for amendments adopted in 2021
If a pension plan was amended in 2021, the plan sponsor may need to publish a Summary of Material Amendments (SMM) or update the Summary Plan Description (SPD) to reflect the change.
An SMM describes significant changes to a plan and changes in the information required to appear in the SPD. An updated SMM or SPD must be distributed to pension plan members and beneficiaries receiving benefits no later than 210 days after the end of the plan year in which the amendment is adopted. So, if a plan has a plan year that ended on December 31, 2021, the SMM must be distributed no later than July 29, 2022. Plans with a different fiscal year will have a different deadline. Many 401(k) plans were amended in 2021 to comply with new rules on hardship distributions. These changes, and any other amendments adopted in 2021, must be described in an updated SMM or SPD.
Amendments to comply with the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”) must be passed by the last day of the plan’s first year beginning on or after January 1, 2022. the plan year must pass amendments by December 31, 2022, and the SMM would be required by July 29, 2023. However, since the SECURE Act amendments have been in effect for several years now, we recommend that an SMM describing the changes to the SECURE Act be issued as soon as the SECURE Act changes are passed.