1. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company1 Plan Adoption Qualified plan must be legally “adopted” by the employer during the taxable year in which it is to be effective. (In contrast, SEP can be adopted up to filing deadline) Plan can be retroactive to start of the year of adoption “Backdated” adoption not effective

2. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company2 Corporation adopts plan by formal action of its board of directors. Similar resolution should be used by unincorporated businesses. If trust used for funding, trust should be established before end of year of adoption If funded by insurance contract, insurer must accept application for contract before the end of the year of adoption Plan Adoption

3. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company3 Small business employers eligible for credit of $500 per year for first three years Credit covers up to 50% of “qualified” start-up costs paid or incurred to adopt a new plan Eligible employer may have no more than 100 employees earning over $5000 Credit for Startup Costs

4. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company4 Commonly called “determination letter” IRS ruling that plan provisions meet Code requirements for being qualified Not required for plan to be qualified, but highly recommended If plan later found on audit to have disqualifying provision, generally too late to amend. Advance Determination Letter

5. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company5 A determination letter generally protects the plan from a later finding that the plan document lacked an essential provision or contained a disqualifying provision. Does not protect plan from finding of noncompliance in operation. Employee Plans Compliance Resolution System (EPCRS) programs allow correction of plan errors at all levels without disqualification. Advance Determination Letter

6. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company6 Retroactive plan amendments permitted under the Internal Revenue Code up to the employer’s tax filing date for the year Determination letter requests extend the time for retroactive amendments for as long as the request is pending Advance Determination Letter: Retroactive Amendments

7. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company7 Offered by financial institutions as inducement to use their products to fund the plan Examples: banks, insurance companies, mutual funds, various service providers Of interest to smaller employers because they reduce cost of plan drafting and installation Master and Prototype Plans

8. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company8 Plans are standardized, use language already approved by the IRS Master plan usually uses a single financial institution for finding Prototype plan usually does not refer to any particular funding institution or medium Master and Prototype Plans

9. Installing a Qualified Plan Chapter 10 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company9 Greatly simplifies plan adoption Fees much lower than those for custom designed plans Determination letter process simplified Document preparation services can be customized by use of checklists of plan provisions from central word processors. Master and Prototype Plans