It’s time to complete the Solo 401k Post-PPA Restatement, which is a major overhaul to your plan documents. Every 6 years, the IRS requires 401k documents be updated to the latest standards. This is done to ensure compliance with any regulatory or legislative changes made since the previous restatement.
The 6-year cycle is a special timeline kept by the IRS. This might mean you need to update your Solo 401k to the Post-PPA restatement, even if you just set up your plan 1-2 years ago (or even earlier this year!). Typically, a Solo 401k plan restatement replaces every single one of your 401k plan documents with a brand new document package.
While your entire document package is being overhauled, there are no changes to how you run the plan as an administrator and you do not lose any investment or contribution capabilities.
Why Do I Have To Restate My Plan?
Plan documents are drafted based on laws and regulations set forth by Congress, the Treasury Department (IRS), and the Department of Labor. As those laws and regulations change, 401k plan documents must be updated to reflect those changes.
It takes a lot of time and work to prepare for a restatement. As an example, the deadline for the previous mandatory restatement was April 30, 2016, but it was based on documents approved by the IRS in 2014 and only considered legislative/regulatory updates through 2010.
Since that time, there have been a number of regulatory and legislative changes impacting retirement plans, including the following:
- Expansion of the definition of “spouse” to include those of the same gender;
- Creation of in-plan Roth rollovers (your Nabers Group plan previously included this, but now the IRS has expanded this for almost all 401k plans);
- Passing of the SECURE Act and CARES Act
The current Solo 401k Post-PPA restatement ends on July 31, 2022. That means you must restate your 401k documents (referred to as “Cycle 3 DC,”) before that date. There are no extensions for a restatement.
What Kind of Updates are Included?
The Solo 401k Post-PPA restatement includes a full new set of plan documents, reflecting the most up to date regulations from the IRS and Department of Labor. This includes new adoption agreement, trust agreement, forms, summary plan description, beneficiary designation form, etc.
There are still other IRS amendments bering written that will be brought into your plan by the end of 2022 or early 2023.
Most Solo 401k Post-PPA restatement documents will not include the final hardship withdrawal rules, nor any voluntary or mandatory provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act and/or the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
That’s because the IRS needs a lot of time to write the language of the regulation and get that to the DOL for implementation. Then, plan providers (like Nabers Group) need appropriate time to write the amendments specific to your Solo 401k plan, based on those IRS regulations.
The pandemic prompted other legislative requirements for retirement plans, such as the CARES Act (more on this amendment below). But even during less momentous years, multiple regulatory changes affect Solo 401k and many other retirement plan documents. For a comprehensive list of changes that will be in the rewrite, see IRS Cumulative List of Changes in Retirement Plan Qualification Requirements.
What is an IRS Pre-Approved Plan?
Nabers Group Solo 401k account holders have a “pre-approved” plan. A pre-approved plan is one the IRS has reviewed and approved all of the options that are available. They issue an opinion letter as evidence of the pre-approved status.
When you adopt a pre-approved plan document covered by our Opinion Letter, you are entitled to rely on that approval issued at the “global” level without applying for your own, individual determination letter. This saves you time (typical approval takes 2-3 years) and money (cost for creating a pre-approved plan is approximately $20,000-$40,000 and up).
The IRS issued the letters for this round of pre-approved documents on June 30, 2020. You will get a copy of the new Opinion Letter in your restatement documents.
After July 31st, 2022 – your old Opinion Letter and old Solo 401k documents will no longer be valid.
CARES Act Amendment (Coming Late 2022)
The Coronavirus Aid, Relief and Economic Security (CARES) Act became law on March 27, 2020. The forthcoming CARES Act amendment will detail how to pay back loans and distributions taken during the Coronavirus pandemic.
Coronavirus-related distributions (CRDs) were available between January 1, 2020 and December 30. These CRDs were not subject to mandatory withholding or the 10% early distribution penalty. The new amendment will stipulate how these distributions can be repaid without taxable penalties.
Coronavirus-related loans were available to CRD-eligible participants between March 27, 2020 and September 23, 2020. The Covid loan was double the normal 401k loan amount (up to $100,000). Due to economic hardship as a result of the pandemic, the law allowed these special Coronavirus 401k loan payments to be suspended March 27, 2020 and December 31, 2020.
SECURE Act Amendment (Coming Late 2022)
The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law on December 20, 2019 and brought significant changes to retirement plans. This amendment will outline how these changes affect retirement plan participants. Some of these changes include:
- The age at which Required Minimum Distributions (RMDs) start increased from 70½ to 72. This change is effective for participants who turn 70½ on or after January 1, 2020.
- “Stretch” distributions from an inherited 401k went away with the SECURE Act. Before the SECURE Act, individuals could “stretch” distributions from an inherited 401k account over the course of their lifetime. Now, only an “eligible designated beneficiary”, such as a surviving spouse, a minor child, a disabled person, a chronically ill person, or any person not more than 10 years younger than the employee can do so. This change applies to participants who die on or after January 1, 2020.
- Perhaps the most notable change affecting Solo 401k plan owners is the inclusion of part-time employees. Due to the SECURE Act, 401k plans (even Solo 401ks) can no longer prevent “long-term, part-time employees” – defined as employees that complete at least 500 hours of service annually for three consecutive years – from making participating in the plan and making elective deferrals. This change is effective for plan years that start on or after January 1, 2021.
Service earned prior to 2021 does not count, so the soonest employees affected by this change could become plan-eligible is January 1, 2024.
We just restated our plan to Nabers Group. Do we have to do it again?
Yes. If you restated your Solo 401k to Nabers Group on or before April 1, 2022, you received the last iteration of pre-approved documents. Now that the new documents are ready, you must complete the Solo 401k Post-PPA restatement.
We just set up our plan this year (brand new). Do we have to do this restatement?
Yes. If you opened your new Solo 401k with Nabers Group on or before April 1, 2022, you received the previous iteration of pre-approved documents. Now that the new documents are ready, you must complete the Solo 401k Post-PPA Restatement.
Do I Have to Pay for the Restatement?
This restatement is complimentary if your document maintenance fee is in good standing. Your document maintenance fee allows you to continue using the documents, as well as gives you access to all plan updates, amendments, and restatements.
If your maintenance fee is delinquent, you will not have access to the mandatory restatement until your account is in good standing.
What Happens if I Don’t Restate?
The Solo 401k Post-PPA restatement is mandatory although your plan has been amended frequently for a variety of reasons. Your role as a Solo 401k account holder will be minimal, but you will need to review the restatement and your signature will be needed. If the July 31, 2022 deadline is not met, the IRS may impose penalties up to and including revocation of tax-favored status.
Revocation will almost certainly result in future contributions no longer being deductible and most unfortunately, the immediate distribution of the account as taxable income. However, it might be possible to use the “late adopter” procedure if the deadline is missed. But the late adopter procedure will incur significant IRS user fees.
Failure to amend on time may result in your entering the IRS Voluntary Correction Program (VCP). The VCP is paperwork-heavy, costly, and complicated. You can avoid needing to do this extra work by completing your Solo 401k Post-PPA restatement as soon as possible.