IRS Kit Explains Corrections for Missed Plan Restatements

A new correction method was introduced earlier this month.

The Internal Revenue Service (IRS) has created a kit for plan sponsors that maintain a pre-approved defined contribution plan but failed to adopt a new plan document by April 30, 2016, and are correcting the failure by adopting a pre-approved defined contribution retirement plan that reflects the provisions of the Pension Protection Act (PPA).

If plan sponsors do not sign a restated defined contribution plan document as required on or before the April 30, 2016, deadline, the retirement plan is no longer entitled to tax-favored treatment. Plan sponsors can restore the tax-favored status of their plan by adopting a restated PPA pre-approved plan document and filing a submission for a Voluntary Correction Program (VCP) compliance statement with the IRS. If the submission is approved, the IRS will treat the plan as entitled to tax-favored status.

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Previously, the only way an employer could correct not signing a preapproved DC retirement plan by the deadline was to complete a submission under the VCP. A new option allows the financial institution or service provider to request a closing agreement on a plan sponsor’s behalf.

Before making a VCP submission to the IRS, the agency suggests plan sponsors check with the law firms, banks, brokers, other financial institutions or plan administrators that created the pre-approved defined contribution plan to see if they will be making a special request for a closing agreement on behalf of all adopters who missed the deadline.