Five Actions Retirement Plan Advisors Should Take Before Year End

Five Actions Retirement Plan Advisors Should Take Before Year End

December 01, 2016

At the end of every year, it is helpful for retirement plan advisors to review their plans to see if anything needs to be done in preparation for the new year. Oftentimes laws and plans have changed that require specific actions. Here are five things that you need to make sure are getting done as 2016 comes to a close:

1. Adopt Discretionary Plan Amendments for 2016

Discretionary amendments to qualified plans have to be formally adopted no later than the end of the plan year in which they were adopted. Any calendar year plan that implemented a change in 2016 will have until December 31, 2016, to amend their plan.

2. Adopt Discretionary Plan Amendments for 2017

Some amendments, such as those that reduce future benefits or subsidies, must be adopted before they become effective. Any planned changes for 2017 must be formally adopted in 2016 and notice given to the plan participants.

With the Fair Labor Standards Act effective December 1, 2016, many plan sponsors are electing to change their benefit formula or definition of compensation for 2017. These kinds of changes must be made prospectively and need to be adopted before year end.

3. Adopt Required Plan Amendments

In November 2015, the IRS and Treasury released final regulations regarding the market rate of return limitations and other aspects of cash balance and other hybrid pension plans. These final rules are effective for plan years that begin on or after January 1, 2017, so the necessary plan amendments must be adopted and enacted before the end of the 2016 plan year.

The effective date is delayed for up to two years, however, for “collectively bargained plans” where one or more employers ratified participation in the plan on or before November 13, 2015.

4. Provide Funding Notice For Defined Benefit Plans

If your client sponsors a defined benefit plan, you need to make sure that they provide a funding notice to plan participants. This notice should include a statement of the plan’s assets and liabilities, its funding status for the previous two years and other required information, such as PBGC limits. It must be provided to participants by April 30, 2017, or for smaller plans with fewer than 100 participants, by the due date of the Form 5500.

5. Submit Cycle A Determination Letter Application

Plan sponsors that have a 1 or 6 as the last digit of their Employer Identification Number and maintain individually designed plans are part of the IRS’s Cycle A determination letter filing period. These sponsors should submit a determination letter application to the IRS by January 31, 2017.

As a part of the submission, the plan document needs to be updated to include all required amendments, including those listed in the IRS’s 2015 Cumulative List in a plan restatement. In addition, you should review the timing of all “interim” amendments. For any late or insufficient amendments, a voluntary correction through the Employee Plans Compliance Resolution System should be considered to avoid the higher fees that the IRS will impose if they discover them during the determination letter process.

The cycle system has been eliminated, so this is the last opportunity for Cycle A filers to request a determination letter. You should ensure that your Cycle A clients understand the importance of this last chance and the value of having a determination letter.

How We Can Help

The end of the year always brings with it a hefty to-do list. This is no different for plan sponsors and their advisors. If the idea of getting all of this done seems daunting to you, rest easy because we are here to help. We can come alongside you and your clients to ensure all necessary amendments are properly adopted or even take over the entire determination letter process for you.

If you are interested in working with a qualified retirement plan specialist, email me at Together we can make sure that your clients’ plans are in compliance as they enter the new plan year.

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.