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Required Restatement for Terminated Plan?


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What say all of you about terminating plans and the current restatement cycle? 

Assume the documents have amendments to bring them other wise up to date, just not restatements. I have a couple of different scenarios. Are document restatement required in any/all of the following circumstances. There has been some debate among our actuaries and senior folks. 

A. Plans that are terminated and completely paid out as of today, but the plan termination date was AFTER the restatement cycle started. 

B. Plans that are terminated and NOT completely paid out, the plan termination date was AFTER the restatement cycle started. 

C. Plans that are terminated and completely paid out as of today, the plan termination date was BEFORE the restatement cycle started, but final payouts occurred AFTER the restatement cycle started. 

D. Plans that terminated AFTER the restatement cycle started, but distributions will be complete BEFORE the restatement deadline. 

When was the termination amendment? Before or after the restatement cycle started?

When are distributions complete? During the restatement cycle or after the restatement deadline?

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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48 minutes ago, draper1 said:

no need to restate in A. or C. Advisable to restate under B. and D.

I deal mostly with DC, so unless there are additional rules that apply to DB, I agree with ABC.  Why the need to restate D though?  It would be completely paid out before the end of the RAP, so it would need to be updated but not restated.

 

 

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Thank you draper1 and Ratherbegolfing.

I think the discussion my colleagues are having is over the distributions that occur during the RAP. There is no question that any plans that still have money in them at the end of the RAP we will try to restate. 

The issue is plans that had their final distributions during the RAP. Some colleagues are taking the position that if ANY of the distributions occurred at ANY time (past or present) during the RAP then a restatement is required. 

I've heard some take a practical approach to split the different and not worry about restatements for plans that had already paid out when they started preparing them. Then only do restatements for any that have money in them now. I suppose that will help with the date issue, because typically I don't back date restatements. I find it easier administratively if the restatement is effective to coincide with an upcoming plan year. For instance, restated docs prepared in 2018 were made effective 1/1/2019 (calendar year plans), and restated docs prepared in 2019 will be effective 1/1/2020. 

For plans that already terminated and completely paid out,  the restated documents would be signed NOW, but would have an effective date in 2018. That doesn't seem right to me. The earliest I would typically like to go back would be the start of the current plan year. But that's just me. What are other people doing?

Is there something from the IRS that explains the rules more clearly? Admittedly I haven't delved into the weeds. I was hoping someone else here already had. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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There is a difference between required and advisable. Unless the plan is ongoing beyond the end of the RAP 4/30/2020, there is no requirement to restate. However, because you need to ensure the plan is up to date regardless, it may be advisable to restate although that is still no guarantee depending on any interim legislative changes. We've been lucky that they've been extremely minimal during this DB cycle.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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A curiosity:  For those situations in which a practitioner suggests restating or amending a terminated or discontinued plan, how often does a plan's sponsor say it is unwilling to pay $$ for that work or document?

If the plan's sponsor declines, do you just document that you rendered the advice?  Or is there something more to do?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Has there been some new guidance on this?  IIRC the whole point of Notice 87-57 was that the RAP closes when the plan is terminated and it needs to be amended for any new laws and regs that are already in effect.    This was restated (no pun intended) by IRS in more than one notice or Rev Proc subsequent to this. 

WRT DB plans not yet restated for PPA, PPA's been in effect for many years now, so restatement would be needed under the 87-57 scheme of things. 

I carry stuff uphill for others who get all the glory.

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Thanks FGC.  This seems consistent with 87-57:

update the plan for all changes in the law or plan qualification requirements effective on the plan’s termination date,

I carry stuff uphill for others who get all the glory.

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Update the document - Yes, that's been done. Amendments have been done as part of the plan termination process. 

The question is the actual requirement to fully restate the document. I don't see that addressed on the IRS website. The guidance I find on other items (such as this example for GUST https://www.irs.gov/pub/irs-tege/chap101.pdf ) mentions making sure the terminating plans have been amended. It doesn't mention restating terminating plans. It does not seem to use the terms restatement and amendment interchangeably, so I presume when it only references amendments, that's what it means. 

I'm having a hard time finding Notice 87-57 can someone provide a link?

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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Amendment/restatement, whatever.  The requirement is that the plan be amended to reflect all changes in law/regs that are in effect as of the date of plan termination.  If you have an amendment that does this, fine.  If you find it easier to do a restatement that's fine too (a restatement might need additional good faith amendments).  

I would not want to write a DB amendment to update an EGTRRA doc to curren law now, much easier to restate on an updated PPA doc and know that you've got all the PPA stuff covered and have reliance on the opinion letter for at least that much of it. 

I carry stuff uphill for others who get all the glory.

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22 hours ago, shERPA said:

I would not want to write a DB amendment to update an EGTRRA doc to curren law now, much easier to restate on an updated PPA doc and know that you've got all the PPA stuff covered and have reliance on the opinion letter for at least that much of it. 

We've been amending documents all along, and at present the document provider we use is providing amendments for both the EGTRRA cycle docs and the PPA cycle docs so that EGTRRA doc clients can still be fully up to date even if not restated. 

If there are any other interim changes needed before 4/30/2020, I suspect they will continue to provide / support regulatory amendments to the EGTRRA document. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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Restatements are not required. Taking an unnecessary risk is not prohibited. Here is my understanding:

1. If you want to maintain an ongoing pre-approved plan you must restate by the end of the IRS restatement window to maintain document compliance (e.g. 4/30/2020 for a pre-approved DB plan).

2. If your plan's official date of termination is on or before the end of the restatement window, you do not have to restate. Be sure to get everyone paid out within 12 months as the IRS may consider the plan to be ongoing otherwise, and you'd have missed a restatement deadline. Any amendments that were not covered by the plan's most recent Opinion/Advisory/Determination Letter are at risk - they have not been approved by the IRS. The plan sponsor should consider that risk and weigh the cost/benefit of restating.

3. If you have an individually designed plan and you are eligible to submit your plan to the IRS for a Form 5300 determination letter, not the initial one, but one of the "other business reasons" that the IRS has yet to define, then you likely need to restate.

Lastly, if you are terminating the plan before the end of the restatement window and you intend to file a Form 5310, no restatement is required, but be sure to submit each amendment that was not covered by the plan's last Opinion/Advisory/Determination Letter (whichever applies).

Edited to add: And yes, when a plan terminates, it's written terms must be up-to-date for any changes in laws/regs/etc. to be compliant. Also, if the plan is submitting Form 5310, the document does not have to be updated by its date of plan termination like other plans. Instead, the IRS agent reviewing the Form 5310 will explain what language is missing/incorrect, ask for that proposed language, and the plan sponsor can adopt it within 91 days after the date on the IRS Determination Letter (the 401(b) period).

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Returning to my curiosity about whether a plan's sponsor might balk at spending $$ on documenting a terminated plan, am I right in guessing that a service provider's fee for the restatement or amendment might be so modest that I'm imagining a nonproblem?

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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