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Terminating before 7/31/22 to avoid restatement


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I understand a plan is not required to restate if it terminates prior to 7/31/22, albeit it must be fully up to date, including at this time the Hardship and SECURE amendments.

That being said, if a plan does terminate but does not yet distribute assets in full by 7/31/22, would there be any qualification issue?

I'm thinking it's okay but wanted to throw that out.

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Leaving aside your question about a lag between a discontinuance or termination date and the plan’s final distribution:

Following your idea that the plan’s documents “must be fully up to date” when the plan terminates, wouldn’t at least some provisions in a cycle 3 restatement be needed for the plan’s termination?

Wouldn’t the plan’s sponsor want the cycle 3 restatement and whichever further amendments are needed to make the user’s document up-to-date for the termination?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Peter - you would think so, but this question has to do with a couple of deadbeat plan sponsors of very small plans who need to be begged and cajoled simply to sign their 5500. Annual fees as it is exceed any earnings within the plans.  The goal is to ease their way out of their plan.  Any such plan termination would indicate such outstanding issues as the unfulfilled restatement.

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On 6/12/2022 at 3:58 PM, TPApril said:

I understand a plan is not required to restate if it terminates prior to 7/31/22, albeit it must be fully up to date, including at this time the Hardship and SECURE amendments.

That being said, if a plan does terminate but does not yet distribute assets in full by 7/31/22, would there be any qualification issue?

I'm thinking it's okay but wanted to throw that out.

TPApril, under Rev. 89-87 a plan that the employer resolves to terminate will not be treated as terminated, but rather frozen, unless all of its assets are distributed as soon as administratively feasible, which is generally considered to be one year. So basically, you have  a year. The plan would need to be up to date for all applicable law changes as of the stated date of termination, however.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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The conclusion from the May 23, 2022 EP newsletter (below) answers your question. Regardless of why you don't restate onto the new documents, it's not a per se qualification failure. You just have no reliance on the good-faith interim amendments so there's a risk (albeit very small) if those amendments have any defects. 

 

Conclusion

The failure to qualify as a pre-approved plan is not a qualification issue. Being a pre-approved plan is one method of meeting the requirement to have an updated written plan document. If the employer who sponsors a plan does not timely adopt a current pre-approved plan, it can still meet the written document requirements as an individually designed plan. Individually designed plans that don't meet those requirements can be self-corrected under the circumstances detailed in Rev. Proc. 2021-30, Part IV.

https://www.irs.gov/retirement-plans/employee-plans-news

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