PPA RESTATEMENT

Pension Protection Act (PPA) Restatement


What you need to know.

The Pension Protection Act (PPA) was a sweeping piece of legislation enacted in 2006 which made major changes in the tax laws relating to retirement plans. Notably, the legislation strengthens the pension insurance system and ensures that workers will receive better information about their pension plans. PPA makes permanent the deductible limits for contributions to Individual Retirement Accounts (IRAs) and 401(k) plans. PPA also encourages employers to automatically enroll workers in 401(k) plans, and expands workers' access to investment advice.


Additional highlights of PPA that impact retirement plans, include:

Automatic Enrollment Provisions – Provides statutory authority for employers to enroll employees in 401(k) and 403(b) plans automatically
Automatic Enrollment Opt Out – Allows automatic contributions to be returned to employees without tax penalties, if employees opt out of participation within 90 days
Funding Notifications – Expands the disclosure that workers must receive about the performance of their pension plan
Investment Advice Rules – Removes the conflict of interest for giving certain types of investment advice to participants in retirement accounts
Contribution Limits – Extends the 2001 tax act's contribution limits
Qualified Default Investment Arrangements (QDIA) – Establishes safe harbor investments, also known as Qualified Default Investment Alternatives, to protect employers from liability of losses suffered by automatically enrolled employees

PPA is the largest piece of legislation included in this current plan restatement cycle. The restatement takes the language from the prior Economic Growth and Tax Relief Reconciliation Act (EGTRRA) restatement document and includes any new laws added by Congress and any guidance issued by the IRS through the fall of 2010 including:

  • The Pension Protection Act (PPA)
  • The final IRS Section 415 regulations
  • The Heroes Earnings Assistance and Relief Tax Act (HEART)
  • The Worker, Retiree, and Employer Recovery Act (WRERA)
  • The Katrina Emergency Tax Relief Act of 2005 (KETRA)
  • The GULF Opportunity Zone Act of 2005 (GOZone)

Plan documents are drafted based on laws and regulations set forth by Congress, the Internal Revenue Service and the Department of Labor. As those laws and regulations change, documents must be updated to reflect those changes. For pre-approved plan documents, such as those provided by RSI, the required restatement takes place on a regular six-year cycle. The current cycle of defined contribution plan restatements is being referred to as the "PPA restatement" after the Pension Protection Act (PPA).

In a word, yes. Regardless of how recently you may have restated your plan, and since you used a pre-approved document, it could not have satisfied the new requirements since the IRS had not yet issued any new approval letters. As a result, you must restate again. The six-year cycle noted in the question above, allows us to better plan for the restatement process now, and in the future, and helps keep the written plan document in sync with current legislation. This helps minimize the confusing and cumbersome “good faith” administrative procedures that we sometimes have to adopt and adhere to as new laws go into effect which change how a plan must operate.
Nationally, more than 80% of all plans use prototype or volume submitter pre-approved documents. This is the document approach used by RSI. Currently, we are in the second six-year cycle for defined contribution plans. Beginning on May 1, 2014, the window for restating documents for PPA officially opened. The IRS provides a period of two years for all employers who use a pre-approved plan to finish the restatement. As a result, your plan must be restated by April 30, 2016.

Please note that pre-approved defined benefit plans are on a different six-year restatement cycle than defined contribution plans. And also, individually designed plans are on a five-year cycle and must be restated every five years.

No, restating your plan for PPA is not optional. The IRS requires all plans to be restated to retain their “qualified plan” status. The penalty for failing to restate your plan by the April 30, 2016 deadline is that your plan would be “disqualified” and lose its tax-favored status.

The ramifications of disqualification include:

  • The loss of tax deductibility of all employer contributions to the plan
  • Employees’ vested account balances become immediately taxable and will not be permitted to rollover to another tax-deferred retirement plan or account
  • The plan trust would lose its tax-exempt status and would be taxable

First and foremost, as the previous question makes clear, restating your plan on a timely basis ensures your plan retains its qualified plan status. In turn, this means you and your employees continue to enjoy the tax-deferred and tax deductibility benefits only offered by a qualified retirement plan.

Additionally, the periodic document restatement process incorporates any previous plan amendments and good-faith administrative and procedural changes into the written plan document and accompanying Summary Plan Description (SPD). This makes for a cleaner, simpler and more cohesive document you and your employees will find easier to read and navigate as you may have need to review from time-to-time.

Yes, this is another benefit of the restatement process. Since RSI will be contacting you to update and restate your plan anyway, this is the perfect time for us to review your plan and current tax planning strategies and determine—together—if there are changes we would like to make to your plan to ensure it continues to meet the needs of you, your business and your employees.
The cost for PPA restatement can vary somewhat depending on your current plan design and whether we will be modifying your plan in the process. We will be contacting you with more specific cost information. Be on the lookout for an email from us and feel free to contact us at (706) 868-1538 with questions once you have received this communication.

Yes. Since the current plan document restatement is required to maintain the plan’s tax-qualified status, the Department of Labor allows the fee to be paid out of plan assets.

For now, simply sit tight and look for our overview of costs for the PPA restatement. Meantime, you might give some thought to any modifications you might want to make to your plan or questions you may have either about the PPA restatement or your plan in general. As we begin working on plan restatements in 2015, we look forward to talking with you about your plan and addressing any questions.
In early 2015 we will be providing you with the specific details of the restatement process. This includes a letter regarding the restatement process, timeline of events and an election form for RSI to begin the document restatement process. Additional information will be provided to each Plan Sponsor in January with the restatement of documents starting in June.

RSI offers a breadth and depth of services unparalleled in the industry. We take care of all the details.

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229 Fury's Ferry Road
Suite 131
Augusta, Georgia 30907
(706) 868-1538

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