Every six years, all preapproved defined contribution retirement plans (such as 401(k) plans) must be restated in new plan documents that have fresh approval from the Internal Revenue Service (IRS). The deadline to adopt the newest preapproved documents was July 31, 2022. That means every preapproved defined contribution plan should have an updated plan document with a signature date of July 31, 2022, or earlier.

On May 23, 2022, the IRS issued an Employee Plans News bulletin titled “Impact of Missed Deadline for Restatement of Pre-approved Plans.” Although specifically geared toward defined benefit retirement plans, which had to be restated by July 31, 2020, the guidance would apply similarly to defined contribution plans. According to the IRS guidance, a plan that misses the July 31 deadline may no longer rely on the preapproved plan document’s favorable opinion letter. That means the plan is considered an “individually designed plan.” As an individually designed plan, the plan sponsor does not have any guarantee that the plan document is in compliance with the law. This assurance of plan document compliance is one of the biggest benefits of using a preapproved plan document.

The IRS guidance states that the plan is not automatically out of compliance solely because it became individually designed. However, some plan document requirements may apply differently to individually designed plans than they do to preapproved plans. Therefore, once a plan becomes individually designed, the plan sponsor may want to analyze it to confirm that it is in compliance with all legal requirements applicable to individually designed plans.

If the plan sponsor finds any deficiencies, those deficiencies can be corrected through the Employee Plans Compliance Resolution System (EPCRS), most recently updated in Revenue Procedure 2021-30. Under EPCRS, certain errors can be self-corrected, while others must be corrected with a submission to the IRS. Whether the errors can be self-corrected depends in part on when the error first began. Usually, amendments that should have been in place for the individually designed plan more than three years ago must be submitted to the IRS. Amendments that should have been in place three or fewer years ago can potentially be self-corrected.

Plan sponsors that missed the July 31, 2022, deadline may regain reliance on the preapproved document’s opinion letter. According to the IRS, the plan must first be brought into compliance as an individually designed plan. That means plan sponsors may want to carefully review all legally required and discretionary changes to the plan and, if necessary, adopt an amendment to bring the plan into compliance. This may require correcting under EPCRS. Once the plan is in compliance as an individually designed plan, the plan sponsor can adopt an updated preapproved plan document and rely on the preapproved document’s IRS opinion letter going forward.