Solo 401(K) Amendments

The Myth

One of the oddly persistent myths in the self-directed arena comes in two versions:

1. Solo 401(k) plans do not need to be updated with amendments.
2. Solo 401(k) plans do need to be updated with amendments but they are infrequent.

While it is unclear how these myths got started, what is clear is that they are pernicious and can cause financial damage to those who hear them. The truth is that all 401(k) plans require updating on a regular basis, typically once or twice a year. Failure to apply the updates will cause the plan to become null and void, and here’s why.

The Amendment Process

Every active 401(k) plan on the market is an IRS-approved Qualified Retirement Plan. This means that whatever plan you have, the IRS has reviewed it and declared it in compliance with current ERISA regulations.

However, the process does not stop with that one time review. Congress is constantly amending the ERISA laws to achieve specific economic and employee-oriented objectives. Because of these emendations, what was a legal plan last year is not necessarily a legal plan now (i.e. your 401(k) plan that conformed to the law at the time that you got it doesn’t necessarily conform to the law according to its most recent changes).

As such, every time Congress amends the ERISA laws, you must amend your plan to keep it current. Hence your Plan Provider must prepare these amendments for you to sign and attach to your plan.

Additionally, every four or five years, Congress goes beyond requiring individual amendments, and instead mandates a restatement of the plan as a whole. This requires your Plan Provider to prepare and send you a totally restated version of your plan.

Recent Amendments

To get a feel for what we’re talking about, let’s take a look at some of the more recent amendments and restatements. The current 401(k) plan that is being used by all Americans is known as the EGTRRA plan (EGTRRA stands for the Economic Growth and Tax Reconciliation and Relief Act). All older versions had to be restated by April of 2010 to the EGTRRA version.

Since EGTRRA, Congress has passed a number of acts, four of which required their own unique plan amendments:

• The PPA (Pension Protection Act) Amendment
• The HEART (Hero Earning Assistance Relief Tax Act) Amendment
• The WRERA (Workers Retirees & Employer Recovery Act) Amendment
• The Roth Conversion Amendment
• The next restatement is tentatively scheduled for 2014, and will be known as the PPA version.

Conclusion

If you are looking to participate in a Solo 401(k) plan – amendments and restatements are a necessary fact of life. However, here at Broad, we make it easy for you to stay in compliance. Your amendments and restatements will be updated in a timely manner and available to you on solo.broadfinancial.com. We’ll take care of the paperwork so that you can focus on the important part of your plan: growing and securing your retirement funds.