FAQ 191: Restating terminating plans

Problem: We have several 401(k) plans that are terminating, but are still on the PPA document. Do those plans need to be restated to the Cycle 3 plan document before they are terminated?

Solution: This is one of our most frequently asked questions when a new cycle begins. ASC (along with most other mass providers) recommends that terminating plans be restated onto the new Cycle 3 documents. The rationale is that while the interim amendments that were required through August 1, 2020 satisfy the “good faith” standard, they are just that - an unapproved good faith attempt. By adopting the latest document, an employer gets more reliance on the language that is included in the document. Of course, not everything such as BBA, SECURE or CARES Acts will be covered and will still require Interim Amendments (Note, provisions under SECURE and CARES are addressed in the Termination Amendment Package since those Interim Amendments are not yet available), we feel that the employers are better off to adopt the latest approved version. That said, the official IRS position is that the documents do not need to be restated because any issues will be addressed as part of their review of your Form 5310 submission. The IRS position is in part based on their belief that terminating plans are submitting Form 5310. However, as we all know, that is generally not the case! Should the IRS audit a plan after its termination, the document needs to reflect all amendments that should have been in effect at the termination date. While the plan hopefully has all the appropriate interim amendments, that language is still just “good faith” and not actually approved. By restating onto the latest approved document, the employer can be assured that at the time of the termination, all the necessary language is not only included, but also approved.