Cycle 4 DC plans

[Belgarath]

Looking waaaaay ahead (except that time flies when you are having fun) - any bets on whether you think the IRS may delay this somewhat to allow providers to draft documents that take advantage of relatively late IRS guidance on SECURE/SECURE 2.0 items? Or will we just get stuck restating a document that already has a TON of changes?

I think I might just have to retire a little earlier than originally planned, to avoid that next restatement cycle...

 

Pre-approved Plan Providers: Submission Period for 4th Cycle Defined Contribution (DC) Opinion Letters

The IRS asks pre-approved plan providers and mass submitters to wait to apply for a 4th remedial amendment cycle (RAC) DC Opinion Letter until the IRS announces the opening of the one-year on-cycle submission window.

The 3rd pre-approved DC RAC ended on January 31, 2023, which means that the 4th RAC began on February 1, 2023; however, the submission window has not yet opened. We expect to issue an announcement later this year that opens the on-cycle submission window from February 1, 2024, through January 31, 2025. 

[Paul I]

My bet is on the IRS will not delay the next DC cycle for any reason other than their having insufficient resources to review and approve the documents.  The document cycle has been resilient to increased frequency of regulatory changes (with my thanks to all of the pre-approved document providers out there).

A large number of changes already have accumulated that need to be memorialized in the C4 RAC, and I don't see the IRS waiting just because there are more changes in the queue.  This does not even consider that we do not guidance on several of the most recent changes, and in some instances will not have guidance until 2025 or later.

 

[Bri]

Do we have any knowledge of whether the IRS would even consider abandoning the Cycles/Required Lists and going back, instead, to specific legislation-based restatement  periods?  (Restating for SECURE 2.0 is the new Restating for TRA '86.)

[Paul I]

We have no knowledge of anyone floating that idea.  I doubt is would be considered by the IRS.  The RAC process was part of a major initiative to reduce IRS staff time and commitment of resources.  I also had a similar impact on plans and plan sponsors.  The vast majority of plans now are on pre-approved documents and the IRS has drastically  cut the number of determination letters they issue.  Further, the concurrent cycles for types (DB, DC, 401(a), 403(b)...) of plans are scheduled to manage peak work loads for the IRS by spreading out pre-approved plan document approvals over time.

On balance, the process was a big improvement.  The current chaos springs from a very active period of Congressional actions that resulted in significant changes compressed into a short period of time.  An overall RAC for a type of plan is very active for the IRS and document providers on the front-end (roughly the 2-3 years leading up to the release of IRS approval letters) of the cycle, and then very active for plan sponsors for the next 2 years through the restatement period.

We had emergency legislation attributable to the pandemic in 2020 continuing into 2021, followed by multiple retirement plan proposed bills that were consolidated and passed in a massive new law, and now most recently a repeat performance.  It is not surprising that the RAC now seems to follow a leisurely pace compared to the pace of legislation. 

Using specific legislation-based restatement periods would likely will be doomed to fail unless the pace of legislation moderates, or the IRS and industry comes up with a much more efficient document process.

Imagine in some alternate reality if the IRS created a master plan document that included all of the required language to be a qualified plan, and then the document providers could create effectively adoption agreements that linked into that master basic plan document.  (This would be similar to a plan today incorporating required provisions by referencing applicable regulations.)  This would eliminate a substantial amount of the work that currently goes into creating, reviewing and approving pre-approved plan documents, and would preserve the ability of document providers to decide which choices will be made available under their documents.

 

[Peter Gulia]

Is this restatement cycle an opportunity to get a little IRS guidance on some unsettled SECURE 2019 and SECURE 2022 ambiguities?

Could a maker of preapproved documents express in its documents some provisions and choices that express a desired interpretation?

If the IRS reviewers don’t say no to something expressed in the documents and flagged in one’s application, that’s tantamount to a soft guidance.

Or if the IRS reviewers resist, that gives us at least a preliminary look into the issues.

[Belgarath]

On 11/18/2023 at 2:59 PM, Paul I said:

On balance, the process was a big improvement. 

I couldn't agree more!! 

[Bri]

Oh I don't argue it hasn't still been a net positive....just thinking of how we could further avoid these issues where as soon as the Required List comes out, a sweeping piece of legislation gets passed which won't end up in a basic plan document for another nine years!  Alas, that might require some foreknowledge of when the next big one is coming.