If you have not received a notice from
your retirement plan document provider explaining the EGTRRA restatement process required by the IRS,
don’t wait to ask your provider a few
important questions about what this
means for your business.
EGTRRA is the Economic Growth and
Tax Relief Reconciliation Act, which
was enacted in 2001. It brought about
important changes to retirement plans,
including an increase in the amount of
allowed employee and employer contributions and catch-up contributions. In
the past, as employers adopted various
IRS changes to benefit plans, they could
simply tack on amendments — and
these would add up. The IRS then
would require periodic restatement to
incorporate these footnotes into the
language, essentially cleaning up plan
documents.
“Depending on what type of retirement
plan you have, your restatement deadlines
are at different times,” explains Paula
Steinhart, director, SS&G Financial Services,
Inc. in Akron. “Every five or six years, you
have to restate your plan. All plan sponsors
(employers) should contact their third-party
administrators, attorneys, financial advisers
or whoever handled their plan documents,
and ask them: How are you handling my plan
for the EGTRRA restatement?”
Smart Business asked Steinhart why
asking this question is so important.
What types of retirement plans does the
EGTRRA restatement process affect?
All qualified retirement plans. Qualified
plan documents fit into three categories:
master and prototype (M&P) plans; volume submitter plans; and individually
designed plans. M&P and volume submitter plans are also referred to as pre-approved plans, meaning the language of
the master document has already been
approved by the IRS. Employers adopt a pre-approved plan and elect provisions,
which are limited.
For the purpose of the EGTRRA restatement process, these two plans follow the
same restatement cycle.
Individually designed plans are trickier.
Language is generally drafted by an attorney, which allows employers to include
more aggressive plan provisions. For example, a plan may include a nontraditional eligibility clause. Because these plans must be
individually reviewed by IRS agents for
restatement approval, they fall on a different
restatement cycle than pre-approved plans.
What restatement cycles do pre-approved
and individually designed plans follow?
In 2005, M&P and volume submitter core
plan documents were sent to the IRS for
approval. Plan sponsors are waiting for
approval and expect to receive notice from
the IRS in 2007. Employers will then adopt
and restate the pre-approved document
between 2008 and 2010. Once adopted,
plans are not resubmitted to the IRS
because they are already pre-approved.
The restatement cycle is every six years.
Individually designed plans must be
restated every five years. They follow a different schedule, based on the last digit of
the employer’s EIN. Some deadlines have
already passed.
Can employers with individually designed
plans do anything so they can follow the pre-approved schedule?
Actually, there is a new IRS Form 8905,
which acknowledges that the employer
intends to restate its document to a M&P or
a volume submitter. When you sign an 8905,
you are then on the pre-approved plan
schedule. This is wise for many employers,
since most of the individually designed
plans can fit into the volume submitter category. For these reasons, about 80 percent of
our clients on individually designed plans
have or will complete the Form 8905.
What will the restatement process cost
employers?
When you contact your document sponsor, you should ask how your plan is being
handled and request a quote for EGTRRA
restatement. The cost for this restatement
varies. In some cases, expenses can be paid
out of the plan, but only if your document
indicates this in its provisions. It’s important
to review this with a professional, preferably the individual actually responsible for
carrying out the restatement process.
PAULA STEINHART is a director of SS&G Financial Services,
Inc. in Akron. Reach her at [email protected] or (330)
668-9696.
