2022 – An Ideal Time to Review Plan DesignEach year, those in the retirement community collect, analyze and calculate data to ensure plan compliance with the laws that govern qualified retirement plans. The calendar of deadlines repeats each year, challenging plan sponsors and service providers to focus on the current plan compliance along with the myriad of changes that have come into effect in the last few years. In addition, the COVID-19 pandemic created many financial difficulties and workplace changes for millions of employees and business owners. So, keeping abreast of the ‘normal’ routine of retirement planning, compliance has become anything but ‘normal.’ However, as we embrace our new work environment, there’s never been a better time for employers to reevaluate their current plan design. This is an opportunity to add or update features that align with changes to the company’s employee demographic and their business objectives and retirement plan goals, as well as take into account the effect of new regulations. So, what’s happening in 2022? The Internal Revenue Service requires all qualified retirement plans to update their plan documents every six years. These updates are intended to reflect legislative and regulatory changes that occurred since the last restatement. For defined contribution plans, the most recent restatement cycle (called Cycle 3) opened on August 1, 2020 and will close on July 31, 2022. This is an important deadline because all plan documents, unless drafted in late 2020 or later, must be restated and adopted by employers by July 31, 2022. This restatement is mandatory and, if missed, plans will be considered out of compliance and employers may face IRS penalties. The restatement period provides employers with an opportunity to enhance their existing retirement plans — especially if demographics, operations or hiring strategies at the company have changed. The timing of Cycle 3 means that recent changes, such as the hardship distribution regulations effective in January 2019, the SECURE Act of 2019, and the CARES Act of 2020, will need to be addressed in separate, good-faith amendments and will not be included in this restatement period. Cycle 3 restatements will, however, include language pertaining to regulatory changes enacted prior to February 1, 2017. These changes include:
- Expansion of the definition of “spouse” to include those of the same gender;
- Availability of plan forfeitures to offset additional types of company contributions;
- Ability to amend safe harbor 401(k) plans once the year has already started;
- Creation of in-plan Roth transfers.