The recent IRS deadline at the end of April required that plan sponsors restate their 401(k) plans and other tax-qualified retirement plans to comply with the Pension Protection Act. For busy plan sponsors, the deadline was easy to overlook. However, missing the deadline means their plan is now out of compliance and could see significant IRS fines as well as the loss of a plan’s qualified status.
What is Plan Restatement?
The Pension Protection Act requires that all plans be restated, or rewritten, to include certain features including:
- Default investment options
- Minimum investment diversification requirements
- Access to investment advice providers for plan participants
- Updated safe harbor rules for automatic enrollment plans
- Hardship distribution changes
- New rules for automatic enrollment
- More flexible vesting schedules
- Reporting changes
What are the Penalties for Missing the Deadline?
Employers who missed the deadline are termed “Non-Amenders” and may face fines up to $15,000. Failure to comply could result in the loss of a plan’s qualified status, which could cause the following:
- The sponsoring company would lose its tax deductions for plan contributions
- Participants may be taxed on their contributions
- The earnings of the plan’s trust may be subject to taxation
- Any distributions from the plan are immediately taxable and ineligible for rollovers
What if Your Plan Sponsors Missed the Deadline?
Luckily, the IRS is aware that many sponsors missed the deadline and has issued guidelines to correct the errors. To preserve their plan’s qualified status, employers must submit their correction through the Voluntary Compliance Program (VCP). The VCP Submission Kit requires that 10 forms and documentation be submitted. Fees for filing range from $750 to $5,000 but may be reduced by 50% by completing the process before April 30th, 2017.
Because the VCP Submission Kit is complex, it may be beneficial to work with a qualified pension professional to be sure your submission is accurate and complete. To learn more or get help correcting an error for your plan sponsor, give me a call today at 480.494.8992 or by email at firstname.lastname@example.org.
About Kenny Phan
Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.