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August 3, 2020
Cycle 3 401(k) Restatement Newsletter
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What is Cycle 3?

About every six years, the IRS requires most company-sponsored retirement plans to update their

plan documents to reflect recent legislative and/or regulatory changes The new restatement period for

defined contribution plans is referred to as "Cycle 3" because it is the third required restatement that follows

this six-year cycle. The IRS has recently announced that the Cycle 3 restatement window will begin in just

a few weeks on August 1, 2020.

While some updates can be completed through amendments, others require plan documents to be

rewritten entirely (or "restated"). Restating a plan requires a complete rewriting of the plan document. When

you restate your plan, you can incorporate changes from any mandatory or voluntary amendments that may

have been adopted since the last time the plan document was rewritten.

If your plan is not restated by the deadline, you will be subject to IRS-imposed penalties which

could cost tens of thousands of dollars and could result in the revocation of the plan's tax-favored status.

Recent Legislative and Regulatory Changes

The laws and regulations set forth by Congress, the Treasury Department, and the Department of

Labor determine how plan documents are drafted. As those laws and regulations change, plan documents

must be updated to reflect those changes. The last mandatory restatement, which only considered

legislative/regulatory updates through 2010, had a 2016 deadline. Since then, 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

• Availability of plan forfeitures to offset certain additional types of company contributions

• Ability to amend Safe Harbor 401(k) plans once the year has already started

• Creation of in-plan Roth transfers

• CARES Act expansion of participant loans and distributions, postponement of participant

loan payments, and waiver of required minimum distributions ("RMDs") for 2020


• SECURE Act increase in the RMD beginning age, penalty-free distributions for birth and

adoption, pooled employer plans, portability of lifetime income options, testing relief for

frozen defined benefit plans, and more

• Elimination of the deferral suspension, removal of the requirement to first take a loan, and

availability of Safe Harbor contributions as well as earnings on elective deferrals

Even if you have recently restated or amended your plan, you will still need to restate your plan in

its entirety to include these changes in order to comply with the Cycle 3 requirements.

Self-Trustee vs. Corporate Trustee

This is also an ideal time to address whether you should be your plan's trustee (acting as a "selftrustee")

or whether you should designate a discretionary or directed corporate trustee.

A discretionary corporate trustee, while assuming some of the responsibilities of the administration

of the plan, will also require broad indemnification whereby you agree to defend and hold harmless the

corporate trustee from any losses or liabilities related to the plan. Not only will you need to indemnify a

discretionary trustee, but the cost of a discretionary trustee is very high.

Alternatively, you could choose to use a directed corporate trustee. As the title implies, a directed

corporate trustee requires direction from the plan sponsor (you) to act in most instances.

Using either a directed or discretionary corporate trustee will incur significant costs while offering

little liability protection (in the case of a discretionary trustee) or a relief of duties (in the case of a directed


Regardless of whether you utilize the self-trustee option, the directed corporate trustee option, or

the discretionary trustee option, you will always be considered a plan "fiduciary" because ERISA still

requires that you monitor the corporate trustee's work. A fiduciary must follow the high standards of

conduct required by ERISA both when managing the plan's investments and when making decisions

regarding plan operations. Each fiduciary may be liable in the event an employee who participates in the

plan, or other fiduciaries, bring a lawsuit to correct fiduciary wrongdoing.

The Department of Labor also has the ability to enforce the rule through civil and criminal actions

which would be directed toward the plan's fiduciaries. Although you cannot avoid being considered a

fiduciary even by delegating your duties, you can reduce administrative costs by making your plan a self18976-


trustee plan. Ultimately, the pros and cons of this decision should be discussed internally and with your

legal counsel.

Trust Agreements:

Once you have determined which type of trustee best fits your plan, you should ensure that you

have a trust agreement in place to govern this relationship. The IRS no longer allows third-party

administrators to produce or deliver trust agreements that are pre-approved by the IRS. This means that any

trust agreement that your third-party administrator provides to govern your relationship with the plan trustee

was generated solely by the third-party administrator.

While third-party administrators provide essential services for your plan, they are not licensed

attorneys and have not been trained to uncover or address potential considerations and issues that a trust

document should contain. One example of such an issue is the indemnification of the trustee. If you are

acting as the plan's trustee, you should be indemnified by the company for your actions while acting as

trustee. This indemnification should extend to after you have terminated your role as trustee. This is not

something that trust agreements generated by third-party administrators typically account for.

For this reason, and countless others, it would be in your best interest to discuss your plan document

and related agreements like the trust agreement with a licensed attorney. If you found this information

helpful and would like to learn more, please feel free to email me at



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