Restate 401(k) Plan Documents and Evaluate Plan Design | American Funds

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April 20, 2015

Restate 401(k) Plan Documents and Evaluate Plan Design

Under IRS rules, qualified retirement plan documents must be restated periodically to conform to current law.

The current cycle of plan restatements is being referred to as the “PPA restatement” after the Pension Protection Act (PPA) of 2006. Plan sponsors of pre-approved plans need to complete the restatement process by April 30, 2016.

In addition to fulfilling legal requirements, plan sponsors may view the plan restatement as an opportunity to decide if any additional changes should be made to their plan.

What is a 401(k) plan restatement?

During a restatement, a plan’s documents are updated and resubmitted for review and approval. Plan sponsors use the restatement period to incorporate any amendments they have adopted since the last time the document was restated.

PPA restatements incorporate updates regarding laws and regulations implemented since 2006, including features such as automatic enrollment and in-plan Roth rollovers. Failure to restate the plan before the deadline can result in disqualification of the plan and/or significant penalties.

The timing of restatements is typically dependent on the type of plan and plan document. For example, pre-approved plans generally must be restated every six years while individually designed plans must generally be restated every five years.

What steps should sponsors take?

To comply with plan restatement rules, sponsors should:

  • Carefully review the restated documents for accuracy and to ensure that all amendments since the last restatement have been incorporated
  • Share the restatement with the Board of Directors or partners
  • Complete, sign and date a new adoption agreement
  • Return a copy to the plan administrator and save a copy for the plan files
  • Update the Summary Plan Description and distribute copies to employees
  • Work closely with the plan’s consultant or TPA to help ensure appropriate measures are being taken

What else should sponsors consider?

The restatement period is an additional opportunity to re-evaluate plan features and benefits. For example, plan sponsors may want to review:

  • Investment options to see if the current menu is suitable for participants
  • If a target date series is not being used as the QDIA, this may provide an opportunity to add it
  • Plan pricing to ensure recordkeeping and share class fees are competitive and appropriate to the plan’s needs

In addition, sponsors may want to consider:

  • An employer-sponsored 529 plan, which can provide additional college-saving benefits to participants
  • A safe harbor feature for the plan, which may help eliminate the need for refunds and/or allow participants to save more in their plan

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries. 

This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.