Pre-Approved Retirement Plans: Tips for Employers

Small Business

Understand your plan and ensure that it’s effective and complies with the law

Like many other employers, you may have purchased a pre-approved plan from a pre-approved plan sponsor and adopted it as your employees’ retirement plan. Regardless of the type of plan, you are ultimately responsible for making sure it complies with all legal requirements. Here are a few tips to help you meet this responsibility.

Service Agreements

Your service agreement outlines plan responsibilities for you and your pre-approved plan sponsor. Ask yourself these questions to make sure you fully understand your service agreement:

Who is responsible for updating the plan document with changes in the law?

Who will administer the plan: the pre-approved plan sponsor or a third party?

Who gives any required plan notices to the participants?

Who files required forms and returns with the IRS or the Department of Labor?

Who determines whether nondiscrimination testing will be required?

Who conducts any required nondiscrimination testing, and when will the testing be done?

Where will the plan accounts be maintained? What are the fees for those accounts?

How will the funds be invested? What are the associated fees?

If something goes wrong and the plan becomes noncompliant, how will the pre-approved plan sponsor or a third party assist in bringing the plan back into compliance, and at what cost?

What information do you have to give the pre-approved plan sponsor, and when?

What other services are you entitled to under the agreement? Does it include an annual compliance check?

What fees will you be charged by the pre-approved plan sponsor or third party?

What are your remedies if the pre-approved plan sponsor doesn’t provide the services detailed in the agreement?

Adoption Agreement

If you signed an adoption agreement outlining your plan feature choices, this becomes part of your plan, and you must follow its terms when operating the plan. Make sure you completely understand the features you have chosen in the adoption agreement. An adoption agreement may specify:

When employees are eligible to participate in the plan

Types and amounts of contributions allowed by the plan

How employer contributions are allocated

A vesting schedule

Distribution options

Keep a copy of the pre-approved plan and refer to it for definitions and provisions that relate to your adoption agreement.


Pay close attention to all communications from your pre-approved plan sponsor and administrator. Make sure you fully understand these communications and promptly provide any requested information. Keep the opinion or advisory letter for your pre-approved plan and promptly sign any plan amendments sent to you by your pre-approved plan sponsor (if a signature is required). If your sponsor signs amendments on your behalf, send copies of these to your plan administrator.

Coordination with Payroll

Make sure your payroll processor has a copy of your plan and any amendments and understands and correctly implements them. For example, make sure your payroll processor:

Uses the definition of compensation specified in your plan for contribution purposes and maximum limitations

Deducts the correct amount of employee contributions in a timely manner

Deducts the correct amount of any loan repayments

Promptly notify your payroll processor of any newly eligible employees who have enrolled in the plan as well as any required elective deferral suspensions for employees who have taken hardship withdrawals.

Review Your Plan

Ask your pre-approved plan sponsor if the plan has been updated for current law. Also, periodically review your plan document and plan operations to answer questions such as:

Is your existing plan still right for your business? Often, employers have a plan that is too complicated or is not providing the right benefits for their employees.

Are there features you can add to your plan to further benefit your employees? For example, should you consider adding an automatic enrollment feature or designated Roth accounts?

Is your plan operating according to the plan document’s terms?

The IRS provides many free resources to help employers with their plans. Click here for more information.

Leave a Reply

Your email address will not be published. Required fields are marked *

Stay Connected with CBIA News Digests

The latest news and information delivered directly to your inbox.