Blog

June 13, 2024

Legislative Update: Cycle 3 Restatement for Defined Benefit and Cash Balance Pension Plans

Maintaining Qualified Status

In order to maintain the qualified status of your Plan, your company must adopt certain amendments required by the Internal Revenue Service (IRS) to ensure your Plan continues to comply with all current laws. To adopt the appropriate amendments, the IRS requires that you adopt a new version of your Plan document, called a “Plan restatement.” To assist you with this restatement process, we will update your Plan Document as required by the IRS. You will need to sign and date documentation prepared by Benefit Equity Inc. to make the restatement effective.

In this update, we are presenting FAQs and a list of technical changes.

Frequently Asked Questions (FAQs)

1. What is the Cycle 3 restatement and why is it required?

The Cycle 3 Restatement is a regulatory process mandated by the Internal Revenue Service (IRS) that occurs every six years. It involves updating pre-approved qualified retirement plan documents to align with any changes in laws and regulations that have occurred since the last restatement. This process is crucial to ensure that retirement plans remain compliant with current laws and continue to provide the intended benefits to participants.

2. Is it mandatory to go through the restatement process?

Yes, the Cycle 3 restatement is a mandatory requirement set by the IRS for all pre-approved defined benefit plans, including cash balance plans. Timely restatement and execution of the plan document are crucial to maintain the pre-approved status of the plan.

3. Can the restatement process be used to make changes to the plan?

Absolutely, the restatement process can be an excellent opportunity to make changes to your plan design. As you review your plan for restatement, you may identify provisions that are no longer serving your business or your employees well. The restatement process allows you to update these provisions to better align with your current goals and objectives. BEI is well-equipped to use this opportunity to further tailor fit the plan design to your goals as a plan sponsor.

4. How does BEI support the restatement process?

BEI is committed to providing a smooth and efficient restatement process. Our team of experts will guide you through every step, from reviewing your current plan document to executing the restated document. We’re here to ensure your plan remains compliant and continues to serve your business and your employees effectively.

5. What will be provided with the restatement?

The restated plan documents will include:

A Plan Document
An IRS Opinion Letter pre-approving the plan as tax-qualified
A Summary Plan Description (SPD) that explains the plan to employees in plain language
A board or member resolution to adopt the plan

6. What is the deadline to restate?

The deadline for restating all tax-qualified defined benefit plan documents (except individually designed plan documents) is March 31, 2025. This is to maintain their pre-approved status. However, we are requiring all restatements to be completed by December 31, 2024 to ensure that all provisions are in place for the start of the 2025 plan year.

7. Why am I receiving this notice now?

BEI is initiating the restatement process as early as possible to ensure each plan sponsor receives the high-quality service they deserve. Starting early not only helps meet the compliance deadline but also allows plan sponsors an opportunity to discuss potential enhancements and updates to their plan design and provisions with their plan consultant.

8. Can the fees for the Cycle 3 restatement be paid from the trust?

Yes, the fees for the restatement process can be paid from the trust. This is because the restatement is considered an administrative expense required to maintain the plan’s tax-qualified status.

9. Do frozen plans need to be restated?

Yes, even plans that are currently frozen are required to be restated.

10. I’m terminating my retirement plan. Do I still need to restate the plan document?

Yes, the IRS requires a qualified retirement plan to be in full compliance with all applicable legislation upon termination. Restatement gives the plan an opportunity to incorporate the latest plan language in one plan document.

11. What happens if I do not restate my plan within the given timeframe?

If you fail to restate your plan within the given timeframe, you risk losing the plan’s pre-approved status. This could have significant and costly tax implications that could potentially disrupt the plan’s operation. It’s crucial to complete the restatement process by the given deadline to avoid these issues.

12. Where do I go if I have more questions?

If you have more questions or need further clarification on any aspect of the restatement process, please don’t hesitate to contact Benefit Equity Inc. at 714-480-1364. Our team of dedicated professionals is always ready to assist you.

Defined Benefit/Cash Balance “Cycle 3” Plan Document Changes

This summary is not intended for our Plan Sponsors/Employers to take any action. It is informational for those interested in the technicalities of the changes we are making as required by the Internal Revenue Service and the Department of Labor.

Your Plan document that we are amending is the “road map” we all must follow to keep the Plan in compliance with governmental rules and regulations. This summary is not an extensive list of changes. We are providing this because many employers ask us what has changed. This information relates to “provisions and/or language” in the plan document that must be brought up to date in accordance with governmental rules. Keeping your Plan up to date is one of the most important jobs we provide for you. Failure to amend or, as the government calls it, restate your Plan Document removes you from the reliance provided by the approval letter the Internal Revenue Service has given us.

Key Changes in Plan Document

The Definition of Actuarial Equivalent: Explains what must be done when comparing the Accrued Benefit to the Cash Balance lump sum.
Revised Compensation Limit: Updated to $330,000 plus cost-of-living adjustment.
Credit for Service Due to Family & Medical Leave Act & Military Leave
Normal Retirement Benefit: Shall not be less than the largest periodic benefit that would have been payable upon separation from service at or prior to Normal Retirement Age.
Rollover Contribution: A contribution made by an Employee to the Plan that is accepted by the Plan Administrator attributable to an Eligible Rollover Distribution from another qualified plan or IRA.
Excluded Employees: Plan cannot exclude employees due to their age.
Collectively Bargained Employer: Employer must attach relevant provisions of such agreement as an addendum to the plan’s Adoption Agreement.
Break in Service: If the Plan uses the Elapsed Time method, the Break in Service rules are applied based on the Period of Severance.
Frozen Plan: The Employer may designate the Plan as frozen and must attach an addendum to the Adoption Agreement for any special rules.
Fresh-Start Rules: Allow the Plan to test benefits of Employees in the Fresh-Start Group for nondiscrimination without regard to benefits accrued prior to the Fresh-Start Date.
Year of Accrual Service: Defines how an Employee earns a Year of Accrual Service and credits for partial years.
Year of Credited Service: Defines how a Participant’s Years of Credited Service are calculated and the potential inclusion of Pre-Participation Service.
Suspension of Benefits: The Plan Administrator may suspend benefit payments for employees working post-Normal Retirement Age.
Accrued Benefit for Cash Balance Plans: Details on how the Accrued Benefit is calculated and adjusted.
Conversion Amendment Effective Date: Specifies the date of a Plan amendment converting to a cash balance plan formula.
Top Heavy Minimum: The Top-Heavy minimum will be only as required under the Defined Contribution Plan.
Defined Benefit Dollar Limitation: Updated to $265,000 plus cost of living.
Missing Participant or Beneficiary: Employers must make a reasonable diligent search for missing participants.
Actuarial Increase: Details on the actuarial increase for benefits post-age 70½.
Annual Valuation: Plan assets will be valued at least annually.
Plan Amendments: Includes amendments #1 and #2 relating to the Coronavirus Aid Relief and Economic Security Act (CARES/SECURE 1.0) and the Disaster Tax Relief Act of 2019 and 2020.

Citations:

By staying compliant with these updates, your Plan will continue to meet governmental requirements and provide benefits to your employees effectively. For more detailed information or assistance, contact Benefit Equity Inc. at 714-480-1364.

Explore

Blog Articles

Cycle 3