Plan Implementation and Installation
The document is the foundation
A qualified plan must be maintained under a written document. Candidates should distinguish an individually designed plan from a pre-approved plan (basic plan document plus adoption agreement), which must be restated on the IRS six-year cycle and kept current for interim law changes via good-faith amendments. The summary plan description goes to participants within 120 days after the plan is established (90 days for new participants), with summaries of material modification for later changes.
Deadlines and notices to know
- A new plan generally must be adopted by the employer's tax filing deadline, including extensions, and may be treated as effective for the prior year for employer contributions.
- Deferral features cannot normally be added retroactively; a brand-new sole proprietorship has a limited SECURE 2.0 window to adopt a 401(k) and make first-year deferrals.
- A new safe harbor 401(k) using the 3% nonelective contribution can generally be established as late as October 1 for that plan year.
- A SIMPLE IRA must be established by October 1.
- ERISA bond under ERISA section 412: 10% of plan assets, minimum $1,000, generally capped at $500,000 ($1 million if the plan holds employer securities).
- Form 5500 is due the last day of the seventh month after the plan year ends, extendable 2.5 months.
Traps
Questions blur bonding and fiduciary liability insurance: the ERISA bond covers fraud or dishonesty by persons handling plan assets, not fiduciary breaches. Also, adopting an updated document is not the same as filing a determination letter - filing is optional for pre-approved plans. Reduction of accrued benefits in a defined benefit plan triggers 204(h) notice.
Worked example
A calendar-year corporation decides in February to add a profit sharing plan for the prior year. Its return is on extension to September 15. The plan can be adopted and the contribution deducted for the prior year if the document is signed by the extended due date and the contribution is made by that date. If the owner also wanted salary deferrals for that prior year, that generally would not be allowed - the deferral feature is prospective.