Previously, the only way an employer could correct not signing a pre-approved defined contribution (DC) retirement plan by the deadline was to complete a submission under the Voluntary Correction Program (VCP) as outlined in 1 below. A new option, 2 below, allows the financial institution or service provider that offers the plan document to request a closing agreement on behalf of all adopters who missed the deadline.
- You make a VCP submission. You can restore the tax-favored status of your plan by adopting a restated plan document and filing a VCP submission with the IRS. If approved, the IRS treats the plan as entitled to tax-favored status. See sample VCP Submission kit to help you with your VCP submission.
- A new option allows the financial institution or service provider to request a closing agreement on your behalf. To reduce employers’ burden of submitting VCP applications, the IRS invites financial institutions or other service providers to submit proposals for umbrella closing agreements that cover individual employers affected by the failure to update their plans by the deadline. These would be similar to a group submission under the VCP, but under these closing agreements the organization doesn’t need to have made a systemic error.
April 30, 2016 - deadline for employers using a pre-approved 401(k), profit-sharing or other defined contribution (DC) retirement plans to sign an updated version.
April 30, 2017 - deadline for new adopters of pre-approved DC plans. A “new adopter” is any plan adopted on or after January 1, 2016 (other than one adopted as a modification and restatement of a DC pre-approved plan that an employer had prior to January 1, 2016). The April 30, 2017 extension is to help plan sponsors who want to switch from an individually designed plan to a current DC
Pre-approved plans - These are purchased from a financial institution, advisor, or similar provider. They allow limited customization but give the employer the reassurance that IRS approved the plan’s wording.
Consequences of failing to adopt the pre-approved plan by the applicable deadline
If you didn’t sign a restated DC plan document by the deadline, your plan is no longer entitled to