Tips for Employers Using Pre-Approved Plans


Like many other employers, you may have purchased a pre-approved plan from a pre-approved plan provider and adopted it as your employees’ retirement plan. Regardless of the type of retirement plan or the type of pre-approved plan you’ve purchased, you are ultimately responsible for making sure the plan 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 provider. Ask yourself these questions to make sure you fully understand your service agreement:

  • Who is responsible for updating the plan document for any law changes?
  • Who will administer the plan – the pre-approved plan provider 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 any 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 fees associated with the investments?
  • If something goes wrong and the plan becomes noncompliant, how will the pre-approved plan provider or a third party assist in bringing the plan back into compliance and at what cost?
  • What information do you have to give to the pre-approved plan provider or administrator and when must you provide it?
  • What other services are you entitled to under the agreement? An annual compliance check?
  • What fees will you be charged by the pre-approved plan provider or third party?
  • What are your remedies if the pre-approved plan provider 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 include:

  • when employees are eligible to participate in the plan;
  • types and amounts of contributions allowed by the plan;
  • how employer contributions are allocated;
  • vesting schedule; and
  • distribution options.

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

Communication with the pre-approved plan provider and administrator

Pay close attention to all communications from your pre-approved plan provider 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. You must promptly sign any plan amendments sent to you by your pre-approved plan provider (if a signature is required). If your provider 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, 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;
  • timely deducts the correct amount of employee contributions;
  • deducts the correct amount of any loan repayments.

Be sure to timely notify your payroll processor of any newly eligible employees who have enrolled in the plan.

Review your plan

Periodically review your plan document and plan operations to answer questions such as:

  • Is your existing plan still right for your business? Many times, employers may have a plan that is too complicated or is not providing the right benefits for their employees.
  • Are there other features that 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?
  • Ask your pre-approved plan provider if the plan has been updated for current law.

Additional resources

The IRS provides many free resources to help employers with their plans or to raise awareness of issues so you can ask the right questions.

  • Retirement Plans page  - Tools and resources to help you with your plan. You can find FAQs on various retirement plan topics, information by plan types and programs such as examinations and correcting plan errors.
  • Fix-It Guides - Common Problems, Real Solutions - Tips on how to find, fix, and avoid common mistakes in retirement plans. Each Fix-It-Guide links to a checklist that can help you do a quick check-up of your plan.
  • Retirement Plan Publications - Plain language publications about retirement plans topics.