Cycle 3 Plan Restatement Deadline Is Closer Than You Think

JANUARY 12, 2021

If you haven’t completed your defined contribution plan’s Cycle 3 restatement, it’s time to move that task to the front burner and turn up the heat. The Cycle 3 restatement period for DC plans is winding down and restatements must be adopted no later than July 31, 2022.

In accordance with Internal Revenue Service (IRS) regulations, plan sponsors of a pre-approved retirement plan must update their plan document every six years to bring the plan up to date with applicable legislative and regulatory changes, as well as voluntary amendments adopted since the last time the plan document was revised. Referred to as the Cycle 3 restatement because it is the third required restatement under the pre-approved retirement plan program, the period began August 1, 2020, and will close on July 31, 2022.

Failing to adopt a restated plan document by the deadline could result in IRS-imposed penalties and may also jeopardize your plan’s tax-qualified status.

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Don’t Wait Until the Last Minute

Employers who have not yet completed the plan document restatement should begin the process now. While you’re at it, you may want to use the restatement process as an opportunity to consider plan-related changes that may benefit your organization:

  • Revising the current plan design (plan type and provisions) to be consistent with your organization’s financial and human resources objectives.
  • Ensuring the plan document incorporates best-practice features that are designed to mitigate the litigation and liability risks associated with sponsoring and administering an ERISA-governed retirement plan.

Plan Design Solutions & the Opportunity for Savings

In our experience assisting plan sponsors with their Cycle 3 plan restatements, USICG’s consultants have enhanced the process by providing solutions that brought value to a wide variety of organizations. In one recent case, USICG was hired to complete a Cycle 3 plan restatement for a company that sponsored a Profit Sharing 401(k) plan that was administered by a variety of providers. The plan’s administration was cumbersome, had increasing costs and had no strategic design consulting or review of the plan’s features to determine optimum design.

The company shared with us that compliance testing, reporting and contribution processing required coordination between vendors. In addition, plan discrimination testing failed and resulted in highly compensated employees (HCEs) being unable to contribute the maximum amount to the 401(k) plan. Plan managers communicated failures to the executives, but they could not offer a clear strategy to resolve the problem.

Our consultants restated the plan document and also successfully addressed each of their concerns with these solutions:

  • Restated plan document incorporated new features allowing HCEs to maximize contributions in the plan.
  • Strategic plan design consulting by USICG resulted in savings of the total plan cost for the client.
  • A comprehensive communication campaign for all employees was developed and improved participation in the 401(k) plan.

This information is provided solely for educational purposes and is not to be construed as investment, legal or tax advice. Prior to acting on this information, we recommend that you seek independent advice specific to your situation from a qualified investment/legal/tax professional.