Choosing a Pre-approved Retirement Plan for Your Business

Jon A. Becker

Author: Jon A. Becker

POST DATE: 8.30.19
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Many employers wish to offer retirement plan benefits in order to attract and retain employees. An employer may find it beneficial to adopt a pre-approved retirement plan offered by a financial institution. Pre-approved plans allow limited customization, but offer reassurance of possessing an IRS-approved plan.

Pre-approved Retirement Plan Timelines & Updates

For employers using a pre-approved retirement plan, a new plan must be adopted at least once every six years. Most employers will not need to apply for a separate IRS determination letter to use a pre-approved plan. Instead, they can rely on the IRS opinion or advisory letter issued to the pre-approved plan.

Retirement plan documents must be periodically revised when the law changes. Retirement plans will offer tax benefits only when plan documents are updated for law changes by IRS deadlines. For example and if an employer did not adopt a restated plan by April 30, 2016, the plan likely does not comply with the tax laws and may be ineligible for tax benefits.

Advantages of Pre-approved Retirement Plans

One advantage to using a pre-approved plan is the document provider updates its plan every six years and requests a new favorable determination letter from the IRS. Most pre-approved plan document providers help with amending the plan to comply with legal changes and assist with ensuring the employer meets plan amendment deadlines. Costs can be lower than using individually designed plans which require the hiring of and updating by a plan drafter.

An adoption agreement is attached to the plan document and allows for selection of plan options and provisions. Employers must understand the features chosen in the adoption agreement. An adoption agreement often describes: when employees are eligible to participate and make contributions; what contributions allowed; how employer contributions are treated; vesting schedules; and when distributions can be made.

Changing a Retirement Plan

There may be a need to change the terms of the retirement plan from time to time, such as to change how the employer makes matching contributions. If using an adoption agreement and plan features change, a new adoption agreement must be signed before administering changes to the plan.

Again, the document provider often provides copies of any required plan amendments. But if a document provider does not adopt those amendments for the employer, the employer must ensure it signs the amendments no later than the required deadlines. In some situations, the plan should be operated according to new laws before the plan document is amended.

If any questions regarding adoption of a pre-approved plan or when amendments or operational changes are necessary, contact an experienced benefit plan attorney at Church Church Hittle + Antrim who can assist the employer with retirement plan compliance. For more information about Jon and his practice, visit his profile.