Every six years, all independent providers of preapproved plan documents (including those that offer employee stock ownership plan (ESOP) plan documents) are required to amend and restate their existing plan documents to obtain a current IRS Opinion Letter. In the interim preceding the next restatement deadline, good faith amendments act as a bridge to show that a qualified plan is operating in compliance with all required plan rules and regulations until these provisions are incorporated within the plan document at the culmination of the amendment and restatement cycle.
The current amendment and restatement is commonly referred to as “Cycle 4.” Plan amendments and restatements and separate required good faith amendments apply for preapproved plans, while the IRS Required Amendments List applies to individually designed plans. Periodic plan amendments must be adhered to by all plan sponsors that maintain one or more qualified retirement plans for their employees.
Retirement plan sponsors of a preapproved plan must manage these two separate compliance tracks—good-faith amendments and the Cycle 4 amendment and restatement—while deciding in the interim which optional plan changes may benefit their participants. This management process is necessary by plan sponsors to meet their fiduciary duties with respect to the plan and its participants and to make sure the plan retains its tax-qualified status and remains in compliance with the numerous legislative and regulatory changes prevalent in the qualified retirement plan space. This article will explore aspects of the amendments that sponsors should consider.
Upcoming Required Good Faith Amendment Deadline
Good faith amendments bridge the gap until the formal plan amendment and restatement is adopted. With most plans, within the current Cycle 4 amendment and restatement period, this means that the formal adoption by a plan sponsor of the required good faith amendments will come first. The good faith adoption deadline for most retirement plans that are on a preapproved plan document is December 31, 2026.
For collectively bargained plans, the good faith amendment deadline is December 31, 2028, and for governmental and public school plans, the good faith amendment deadline is December 31, 2029. As to ESOPs on an individually designed plan, the IRS required amendments list should be consulted to determine what changes must be made to the plan by December 31, 2026.
Cycle 4 amendments and restatements are a separate plan document task that must also be observed by plan sponsors of a preapproved plan in a timely manner. As of August 31, 2026, the IRS formally issued opinion letters to all providers of preapproved defined contribution plan documents (which includes ESOPs that are now eligible to be on a preapproved plan). With the issuance of these opinion letters, the two-year amendment and restatement window for all Cycle 4 changes opened up on October 1, 2026 and will end as of September 30, 2028.
Cycle 4 Amendments & Mandatory Provisions for Preapproved Plans
IRS Notice 2024-3 sets out the 2023 Cumulative List of required changes for defined contribution preapproved plans for the Cycle 4 amendments. Items not included in the 2023 Cumulative List for Cycle 4 will likely be addressed through subsequent good faith amendments with their own specified adoption date.
With the required Cycle 4 amendments, this is a good time for a plan sponsor to review their preapproved plan and determine if any plan design changes also need to be made as part of the Cycle 4 amendment and restatement process since the last time the plan was required to be amended. Plan design changes can take the form of redesigning the preapproved plan to conform with how the plan is operationally being administered and/or adding one or more of the discretionary plan provisions resulting from any of the legislative acts included with the Cycle 4 amendment and restatement process.
Many ESOPs for a host of reasons are generally maintained on an individually designed plan document. Ordinarily, an ESOP that is individually designed can only receive an IRS favorable determination letter (FDL) on creation, termination, or in conjunction with certain corporate transactions. Changes to an individually designed ESOP follow the IRS Required Amendments List (which may be different from the Cycle 4 changes). With the ability for ESOPs to now be maintained on a preapproved plan document, a plan sponsor of an ESOP may want to consider switching from an individually designed plan to a preapproved plan.
A plan sponsor’s use of a preapproved nonstandardized ESOP plan document may result in the plan sponsor being able to obtain a current FDL, which is not possible with an individually designed ESOP. However, an individually designed ESOP document still may be warranted in many situations where the ESOP plan document includes:
- Customized Section 1042 provisions
- Special leveraged ESOP loan provisions
- Customized distribution and put option provisions
- Other legacy provisions that cannot easily fit within a preapproved ESOP plan document
Optional Benefits & Plan-Design Decisions
Sponsors have choices, not a mandate to adopt every feature. Options to discuss within a 401(k) defined contribution plan or a KSOP as to whether to add certain features include enhanced catch-ups for ages 60 to 63, student-loan matching contributions, emergency savings accounts, certain emergency distributions, the $7,000 cash-out limit (which is also available to an ESOP that does not include a 401(k) feature) hardship self-certification, and Roth employer contributions. It is important to balance participant needs against administration and retirement-savings leakage.
Action item: Create an adopt/defer list for optional features, weighing workforce needs, administrative readiness, and preservation of retirement savings; use the Cycle 4 process to incorporate selected design changes.
ESOP Document Strategy
Cycle 4 is an opportunity to reconsider the document platform for an ESOP and the corresponding IRS Required Amendments List for individually designed plans. Historically, most ESOPs (and for good reason) have been maintained as an individually designed plan. Plan sponsors should evaluate whether it makes sense to move from an individually designed ESOP to a preapproved document for potential cost savings, IRS-approved baseline language, and reduced risk of drafting errors. Some customization within a preapproved ESOP plan that is converted from an individually designed plan may allow the ESOP to obtain an individual IRS determination letter. Some situations where a Form 5307 may be useful to obtain an FDL on a preapproved nonstandardized ESOP plan include the following provisions, which are added to the preapproved plan document.
- Customized Section 1042
- Special leveraged ESOP loan
- Customized distribution and put option
- Preservation of legacy in moving from an individually designed plan to a preapproved ESOP
Summary
Prepare for the upcoming separate good faith amendment and Cycle 4 amendment and restatement deadlines by recognizing and understanding the benefits of using a preapproved nonstandardized document. Generally speaking, the good faith amendment deadline for all preapproved defined contribution plans is December 31, 2026 and the Cycle 4 amendment and restatement deadline for these plans is September 30, 2028. Plan sponsors of an individually designed ESOP should consider at this time whether it makes sense to switch over to a preapproved ESOP document. Plan sponsors should also understand and assess what Cycle 4 changes are mandatory versus optional and determine whether any such optional changes are the right fit for their plan.
How Forvis Mazars Can Help
The ESOP team at Forvis Mazars can help ESOP sponsors navigate good faith amendments and Cycle 4 amendments and restatements. In addition to the ESOP team, the Retirement Plan Consulting (RPC) team at Forvis Mazars can also assist plan sponsors within RPC’s retirement plan consulting and TPA practice as to how best to navigate these upcoming two separate required plan amendment tasks as they apply to various types of defined contribution plans. Since many ESOP plan sponsors also maintain a separate 401(k) plan or include a 401(k) feature within their ESOP, ESOP plan sponsors are able to call on two separate specialized practice groups within Forvis Mazars that are highly skilled and well versed in the complexities that exist in the retirement plan space. Contact a professional at Forvis Mazars to discuss your ESOP’s priorities and prepare for these upcoming deadlines.