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Cycle 3 Restatement for terminated plans

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We are planning to restate for cycle 3 plans in the process of terminating. so there are 3 kinds of terminating plans.  Curious as to thoughts about this.

1) Plan termination amendment prior to 8/1/2020 but funds still in the plan after that date.

2) Plan termination amendment after 8/1/2020 and funds paid out in fall of 2020.

3) Plan termination amendment after 8/1/2020 and funds not out of the plan until January 2021.

Thank you for your comments.

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Regarding point 1, depending on which document provider you ask. Some might say must do and some might say not required as long as all good faith amendments are in place by the official termination date. If no amendment was available at the time of termination, it needed to be adopted anyway.

They have claimers on the good faith amendments not being approved by the IRS so sometimes recommend to file a determination on termination.

I have had these conversations with different vendors and got different responses in the past.

Just my 2 cents FWIW.

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I have several terminating calendar year 401k plans where the termination amendment is dated in December, 2020 but funds have not been paid out yet.  What effective date should I use for the Cycle 3 restatement? Should I use August 1, 2020 or a later date?

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Technically all amendments/restatements have to be in place by the termination date. However, under the cycle 3, based on my understanding, restatement date can only go back to the beginning of the plan year in which the restatement is executed. Again, different vendors may have different opinions.

If your plan is a calendar year plan, can go to 1/1/2020, depends on what provisions you want the restatement to cover.

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  • 9 months later...

This can be rather confusing, as different vendors are not all in agreement. I recall reading that a terminating plan that distributes all assets before 7/31/2022 did not have to amend for Cycle 3, even if the termination date occurred after August 1, 2020.

Case in point: We terminated a PSP in  April 2021 with an effective date of 5/31/2021, filed the F5310  and received the DT approval letter on August 11, 2021. No Cycle 3 nor any good faith amendments for CARES, SECURE etc. were made,  nor did the IRS did not ask for them and issued the approval letter.

Did the IRS make a mistake here? Very puzzling! But with this DT letter, we do not have to make any cycle 3/safe harbor amendments, in my opinion.

Comments appreciated!

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