Retirement plan documents are legal documents that outline a plan’s provisions and the regulatory requirements for the plan. Most qualified plans use what is known as a “preapproved” plan document. This is one the IRS has reviewed and approved for use. Alternatively, a plan can use an attorney-drafted document (known as an individually designed plan document).

What is a restatement?

Preapproved plan documents are required to be rewritten, approved by the IRS, and adopted by plan sponsors every six years. This process is known as a restatement and it allows the document language to be updated for legislative changes and amendments that occurred since the last document was written. The IRS has separate cycles for defined contribution plans, defined benefit plans, and 403(b) plans. The defined benefit restatement window was just closed on July 31, 2020, with the restatement window for defined contribution plans beginning on its heels. This window opened on August 1, 2020. This restatement is being referred to as the “Cycle 3 restatement” or the “post-PPA restatement.”

What types of retirement plans are included?

The defined contribution plan restatement includes all preapproved plan documents for profit sharing, 401(k), and money purchase plans. In addition, some ESOP and church 401(k) plans may be able to use a preapproved plan for the first time with this restatement. Plans that currently use an individually designed plan may also choose to adopt a pre-approved plan during this cycle.

In the past, the IRS had two preapproved document programs available: prototype and volume submitter. Those programs have gone away with this restatement cycle. In their place is one IRS preapproved plan program that incorporates the options of both programs.

When will this restatement take place?

Document providers are working now to prepare their newly approved documents for adoption by employers. Once they are ready for use, service providers can begin the process of restating plan documents to a preapproved post-PPA document for their clients. The deadline for plans to be restated under Cycle 3 is July 31, 2022. As a result, most plans will likely be restated, or at least begin the process, sometime in 2021.

New Electronic Disclosure Rules from the DOL

The Department of Labor (DOL) released a final rule on electronic disclosure of retirement plan notices to plan participants on May 21, 2020. This new rule will allow disclosures to be delivered to certain employees via email or posted on a web site, as a default, rather than by election.

Background

Plans covered by ERISA must provide multiple notices to participants and beneficiaries each year. In the past, the notices had to be hand-delivered or mailed to participants, unless the participant provided consent to receive the notice electronically or the plan was able to meet a stringent safe harbor requirement for electronic delivery. As a result, many employers chose to mail notices, despite the cost of doing so, to ensure they were meeting their fiduciary requirements.

New Safe Harbor

Although the old rules have not gone away, the new rule adds availability for electronic disclosure for many businesses that could not easily satisfy the requirements in the past. The new rule adds a safe harbor option that can be followed (at the employer’s option) to provide disclosures through electronic means without consent, unless the participant requests a paper copy of the disclosure. The new safe harbor will permit the employer to post the disclosure to a website or furnish it through email delivery.

Covered Individuals and Covered Documents

The new safe harbor is available only for “covered individuals.” A covered individual is any person entitled to receive a “covered document” who has a valid email address or smartphone number. This can be an email address or phone number that the employee provides to the employer, or one that the employer assigns to the employee for employment-related purposes (but not solely for purposes of receiving these communications). Therefore, if the employee has an email address assigned to them for business purposes, this email address can be used to deliver covered documents as required under ERISA. A covered document is any document required to be provided to a participant, beneficiary, or another party under ERISA, except for one that is only required to be provided upon request.

Initial Notice

Before any disclosures can be provided under the new rule, an initial notification must be provided, on paper, to inform participants they will be receiving notifications electronically, and must include:

• how the disclosures will be delivered (email, website, etc.) along with any instructions needed to access the disclosures, and
• that this is a change for existing participants (when this method of delivery is first used), and
• that they have a right to opt out of electronic delivery if they prefer to receive the notice on paper, at no charge.

Notice of Internet Availability

Once an initial notice has been provided, a Notice of Internet Availability (NOIA) must be provided whenever a new notice is posted to a website to let the participants know it is available. Alternatively, the disclosure can be attached to the email, or just included in the body of the email.

The NOIA is intended to be short and concise. It must identify or describe the covered document, how to access it, and the participant’s right to receive a paper copy and opt out of electronic delivery. To avoid “notice overload,” the DOL allows one NOIA to be used to announce multiple disclosures that are posted at the same time. Documents that can be combined under one notice include the SPD, any covered document that must be provided annually (as opposed to upon the occurrence of an event) like participant-level fee disclosure, and any other documents not specifically included but otherwise authorized by the DOL or IRS. However, note that the new rule does not change the deadline for providing any specific notice or disclosure.

If posted online, the covered documents must be available until replaced by a newer version, but at a minimum for at least one year. If a newer version is posted sooner than the one-year period has expired, both documents will be accessible at once.

Invalid Addresses

The plan administrator must ensure that they will receive notifications of invalid addresses so that they can review and correct the problem. If they cannot obtain a valid electronic address, they must treat the participant as having opted out. Also, the plan administrator must take steps upon an employee’s termination to ensure the continued accuracy of the participant’s electronic address.

Effective Date of the New Rule The final rule becomes effective on July 27, 2020, 60 days after published in the Federal Register. However, the DOL has indicated they will not take any enforcement action against a plan administrator that relies on this safe harbor before that date. Their decision to provide this non-enforcement policy supports the government’s broader effort to respond to the COVID-19 pandemic.

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SECURE Act New Plan Federal Tax Credit for Small Employers

Effective in 2020, a federal tax credit is available for each of the first three years of a new retirement plan. There is a separate credit for 401(k) plans that add an eligible automatic contribution arrangement. These credits are available to employers with no more than 100 employees earning $5,000 or more annually.

Part I – Start up Credit

The start-up credit is one-half of the costs paid by the employer to set-up and administer a new plan. It can be as much as $5,000 per year but is limited to $250 per non-highly compensated employee covered by the plan.

Part II – Eligible Automatic Contribution Arrangement (EACA)

This $500 tax credit is available in each of the first three years a plan offers an EACA. EACAs require the employer to automatically enroll eligible employees at a uniform contribution rate (3% of pay is commonly used) and provide an annual notice to employees. Employees may opt out of contributing. This credit is available whether plan expenses are paid by the employer or the plan itself.

Summary – Total Estimated Tax Credit Available in First Three Plan Years

Please consult with your tax accountant. The tax credit is claimed by filing IRS Form 8881 with your business income tax return. It is recommended a separate expense category is used in your general ledger for retirement plan expenses so your accountant can easily identify the actual expenses paid.

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