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Updating Pre-Approved Defined Contribution Plans
The majority of retirement plans use a document that has been pre-approved through the IRS plan document program. Service providers, such as third party administrators and investment providers, frequently provide their clients with this pre-approved document, which simplifies things for both the employer and the IRS. As long as employers only use the options offered in the pre-approved document, they don’t need to submit a copy of the plan to the IRS for further approval.
However, in order to keep plan language up to date with legislation that changes each year, documents must go through a re-write on a regular cycle. Pre-approved defined contribution plans, which include 401(k), profit sharing, and money purchase plans, began the two year period for required restatement on May 1, 2014. All plans of this type must be restated and signed by April 30, 2016, to remain in compliance with the law.
Adjusting your plan
If you have a 401(k), profit sharing, or money purchase plan, you may need to have a document restatement completed prior to April 30, 2016. Defined benefit, 403(b) plans, and other plan types are not included in this restatement cycle.
It is not too early to begin discussing the restatement of your plan with your document provider, especially if your company has significantly changed in the past few years or if changes are likely in the near future. Carefully assessing your plan may require some research and discussion.
Set up a time to review your plan provisions to make sure your plan is still a good fit for you and your business. Have your employee demographics changed? Are you planning to make changes to your business, such as buying, selling, taking on a partner, or even bringing your child on as an employee when they graduate from college? Any of these things can change the way your plan contributions and compliance testing work.
Some plan designs may only be changed as of the first day of the year, so planning ahead is essential. Your document provider can help guide you through the legislative changes as well as broader discussions about options you might consider as your business grows and changes.
Ultimately, you as the employer have the responsibility to ensure the plan stays in compliance. Check in with your provider and schedule some time to discuss your document restatement. It isn’t a huge task, but the issues you address in the process may prompt you to see your retirement plan from a different point of view.