Restatement of Defined Benefit Plan

[Ted]

I'm a sole proprietor and I open a defined benefit plan for my company (myself) in 2015. The plan administrator is telling me that I need to restate my plan by 2019 and there is a hefty fee on top of the annual maintenance fee. Given that I haven't changed anything on the plan and it's only for me a single employee, must I really restate the plan?

[Mike Preston]

Only if you want to have your plan remain qualified. IOW, yes. 

[CuseFan]

The due date to do this is actually 4/30/2020, and although you may not have changed anything, the provisions of the IRS pre-approved plan you adopted in 2015 have been updated. These plans are updated on a 6-year cycle, so you will incur future update fees as well - it's not just a one and done affair. If you would prefer not to have that sporadic cost you can have an attorney draft an individually designed plan for you, which you will likely never have to restate again but will need periodic amendments. If you think you were quoted a hefty fee for this pre-approved plan restatement, go the individually designed attorney plan route. 

My apologies to any attorneys who draft individually designed plans, I do recognize their value in the larger defined benefit plan market.

[Draper55]

You could also terminate the plan before 4/30/2020 adopting any required amendments for 2019 and 2020(if needed) and call it a day..

[jpod]

One person's "hefty" is another person's "bargain."  Your administrator/vendor has made an investment in developing, or at least purchasing, the IRS pre-approved documentation, and then needs to spend time making sure the specs for your particular plan are accurately reflected.  I can assure you over the life of your plan, and as compared to the tax benefit you are getting out of it, you are getting a bargain as compared to the costs of hiring a competent ERISA lawyer to draft an individually-designed plan and amending it from time to time as required by changes in law and regulations.  And this is coming from someone who cut his teeth on and used to spend most of his professional hours drafting individually-designed qualified plan documents and amendments to qualified plans.   

[figure 8]

7 hours ago, Ted said:

I'm a sole proprietor and I open a defined benefit plan for my company (myself) in 2015. The plan administrator is telling me that I need to restate my plan by 2019 and there is a hefty fee on top of the annual maintenance fee. Given that I haven't changed anything on the plan and it's only for me a single employee, must I really restate the plan?

Don't be annoyed with the administrator for saying the plan must be restated - they're only following the rules to keep your plan in compliance (though as someone mentioned, the date is technically April 2020, not 2019). You're free to shop around and see what other places would charge to restate. Unless you get quotes from other places, you can't really be sure whether the fee they are charging you is relatively excessive.

[chc93]

One of the items that we discuss with new clients/plans is the need to periodically completely restate the plan document.... probably costing as much as the first plan document... so no surprises later.

[RatherBeGolfing]

17 minutes ago, chc93 said:

One of the items that we discuss with new clients/plans is the need to periodically completely restate the plan document.... probably costing as much as the first plan document... so no surprises later.

We do the same, but that does not stop people from complaining ?

I know some practitioners who have "removed" their document fee by making smaller increases to the annual admin fee to avoid the "why do I have to pay for this AGAIN?" conversation.  Im not quite sold on it, but hey whatever works...

[Bird]

12 hours ago, chc93 said:

One of the items that we discuss with new clients/plans is the need to periodically completely restate the plan document.... probably costing as much as the first plan document... so no surprises later.

Agreed.  This should not be a surprise; could be something that was discussed and forgotten, or a bad job by the administrator up front.

12 hours ago, RatherBeGolfing said:

I know some practitioners who have "removed" their document fee by making smaller increases to the annual admin fee to avoid the "why do I have to pay for this AGAIN?" conversation.  Im not quite sold on it, but hey whatever works...

We did it between the EGTRAA and PPA cycles, at least for DC plans, and found it worked great.  We bill for a document maintenance fee that is roughly one sixth of what we would have charged for a restatement and get 0 complaints - of course it is discussed up front at the time of proposal/installation - versus just a bit of griping; it wasn't ever a huge problem.  But smoothing out the fees is nice.

[Ted]

Thank you for all replies. Are these fees reasonable:

• Restatement of defined benefit plan - $2,000
• Annual maintenance (custodial fee) - $2,600

If not, where can I shop around?

[Effen]

Due to anti-trust rules, we are not permitted to discuss fees on this board.

Ask your accountant or other professional advisers for recommendations, or just search the internet for other actuaries in your area.   

[Larry Starr]

On 12/13/2018 at 7:15 PM, RatherBeGolfing said:

We do the same, but that does not stop people from complaining ?

I know some practitioners who have "removed" their document fee by making smaller increases to the annual admin fee to avoid the "why do I have to pay for this AGAIN?" conversation.  Im not quite sold on it, but hey whatever works...

We long ago eliminated this issue; we charge to set up the plan documents only the first time. Thereafter, there is an annual modest document compliance fee paid every year that covers ALL amendments needed (whether for compliance or to meet client objectives), and that includes the restatements every 5 or 6 years.  We surveyed clients when we changed from the standard "charge 'em for documents every 5 years"; our clients voted for an annual fee overwhelmingly.

[Effen]

What Larry described is not the way I typically see it.  Most of the firms in our area, and the local ERISA attorneys, still charge on an "as needed" basis.  That means there is a fee to restate the document, or amend the document, whenever a restatement or amendment is required.

The advantage is that you are only paying for the service when necessary.  The disadvantage is that you have a relatively large legal bill every 5 to 6 years.

Larry - under your structure, what if the client leaves you after 5 years of advanced payments?  Do they get that back, or is that considered "support"?

[Bird]

We went to an annual doc maintenance fee before the EGTRRA restatement and I think it's a win/win for us and our clients.  We know now that we have to restate every six years, so just took our typical restatement fee and divided by 6.  We include required interim amendments so it winds up saving the clients a bit to the extent we would have charged for those amendments, it makes it a lot easier for them to pay annually, and spreads out our revenue.  There might be some winners and losers in terms of the restatement timing but that's trivial in the grand scheme of things.  

[Larry Starr]

On 12/29/2018 at 9:33 AM, Effen said:

What Larry described is not the way I typically see it.  Most of the firms in our area, and the local ERISA attorneys, still charge on an "as needed" basis.  That means there is a fee to restate the document, or amend the document, whenever a restatement or amendment is required.

The advantage is that you are only paying for the service when necessary.  The disadvantage is that you have a relatively large legal bill every 5 to 6 years.

Larry - under your structure, what if the client leaves you after 5 years of advanced payments?  Do they get that back, or is that considered "support"?

Of course they don't get it back.  It's an annual fee that covers all amendments that might be needed (for any reason) during that year.  Trustee changes, -11g amendments, provision changes, limits on participants, or complete document restatements.  You misunderstand: there are NO advance payments.

[JohnC]

I am the sole employee of a consulting business that opened a Defined Benefits Plan a few years ago. In 2019 I took a full time position and closed my Defined Benefits Plan, with 2018 being the final contribution year. Everything has been moved to a 401K in 2019. With the deadline for Restatement of April 30, 2020, do I still need to file a Restatement?

[JD23]

9 hours ago, JohnC said:

I am the sole employee of a consulting business that opened a Defined Benefits Plan a few years ago. In 2019 I took a full time position and closed my Defined Benefits Plan, with 2018 being the final contribution year. Everything has been moved to a 401K in 2019. With the deadline for Restatement of April 30, 2020, do I still need to file a Restatement?

As long as the plan termination date was prior to April 30, 2020, you are fine.

[Mike Preston]

6 hours ago, JD23 said:

As long as the plan termination date was prior to April 30, 2020, you are fine.

Huh?