United States

Did you miss the deadline for restating your retirement plan?


Generally, employers and self-employed individuals with IRS preapproved 401(k) or other tax-qualified defined contribution retirement plans were required to sign new plan documents no later than April 30, 2016. These updated documents incorporate changes required by the Pension Protection Act. Most preapproved plans have a check-the-box format designed to make it easy for an employer to establish a tax-qualified retirement plan. Employers obtain these preapproved plan documents (often referred to as prototype plans) through law firms, banks, brokers, insurers and other financial service providers.

If an employer fails to update its document, the IRS can disqualify the plan or assess a substantial monetary sanction on the employer upon examination. When the IRS disqualifies a plan, the employer is no longer entitled to deduct its contributions to the plan, and employees lose the tax benefits associated with the plan.

The IRS knows that many employers, particularly small employers, and self-employed individuals fail to update their retirement plan documents on time. Fortunately, the IRS has a late amender program that allows an employer to reinstate its plan’s tax-qualified status in a low-cost manner. To use the late amender program, an employer must:

  • Adopt an updated plan document,
  • Submit the plan document to the IRS using Form 8950 and related schedules, and
  • Pay a user fee determined by reference to Form 8951.

Employers that file an application under this program by April 30, 2017, pay only 50 percent of the normal user fee if they had no other operational failures in their plan. As part of the process, the IRS requires the employer to describe what steps it has taken to ensure that the failure will not recur.

Bill O’Malley

Senior Director

Bill advises businesses on executive compensation, employee benefits, estate planning related to business. Contact him at bill.omalley@rsmus.com.

Areas of focus: Washington National Tax