Pension Season Is Upon Us

If you have business owner clients who need a tax deduction for the 2019 calendar year now is the time to help them to consider implementing some type of qualified plan. The problem is they cannot wait until after December 31 to make that decision. They need to make that decision now. Why? Because the IRS says that if the business does not have a properly complete plan adoption agreement that has been signed and dated by no later than December 31, the business does not have a qualified plan for the 2019 calendar year.

That December 31 date can also be misleading. In order to get a properly completed plan adoption agreement, the business must work with a third party administrative (TPA) firm. The TPA firm will have to create the plan adoption agreement before the plan trustee (generally the business owner) can sign and date that document. And creating the document takes time.

How does the TPA firm complete the plan adoption agreement?

By receiving a completed installation workbook from the business. The workbook asks questions about the business and about the plan that is going to be implemented. With the information from the workbook the TPA firm can populate the plan adoption agreement and other required installation paperwork. Most TPA firms will require all installation paperwork and the plan installation fee, by no later than mid-December so that they have time to complete all required paperwork and return it to the plan trustee for signature and dating. TPA firms do charge a fee for their services. They will generally not complete the paperwork to implement the plan until they have the required installation fee along with the completed installation workbook. So the TPA firm must have received both in order to move forward with completion of plan documents.

There are many different types of qualified plans.

In order to complete the appropriate plan adoption agreement the TPA firm must know what type of qualified plan the business wishes to implement. How does the business owner know what plan is best for the business? By getting plan designs.

How does the business get plan designs?

By working with you to get plan designs to determine what type of plan is going to work best for the business. So before installation paperwork can be submitted to the TPA firm, the owner needs to see various plan designs to determine what plan is going to work best for the business.

A fact finder has to be submitted to request plan designs. The information contained in the fact finder would include dates of birth, dates of hire and salaries of all owners and employees of the business. Depending on the number of employees, getting plan designs could take a few days. Then the design options have to be presented to the business owner. Additional revisions might be required to get to a plan that is suitable for the business. Again, this takes time. Yet another reason not to wait.

Let’s recap these important dates:

• December 31– last day the plan trustee can sign and date a plan adoption agreement for the 2016 calendar year.
• Mid-December– last day a third party administrative firm can accept plan installation paperwork to generate a plan adoption agreement.
• Any time prior to mid-December–request plan designs to help a business owner select the appropriate plan for their business.

If you delay discussing qualified plans with your business owner clients, they may have to wait until 2020 to implement a plan. Trying to implement a plan at the last minute can lead to plan options being selected that are not what the owner desired. It could lead to the business getting a plan that isn’t appropriate for them. And it can lead to a great deal of stress and frustration. So why wait? Now is the time to discuss qualified plan options with your business owner clients.

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