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The Adoption Agreement: The Plan Administrator’s Best Friend…provided you follow plan terms

Plan Sponsor Best Friend

There are several documents that, as a Plan Administrator, you should be very familiar with because they drive the administration of your company’s retirement plan. One that you should be very familiar with – like a best friend – is your Plan’s Adoption Agreement.

When was the last time you read your Plan’s Adoption Agreement and its amendments?

This legal document outlines the provisions unique to your plan. Care must be taken to ensure that, as the Plan Administrator, you are operating the plan in accordance to how your Adoption Agreement states you will.

Over the next couple of months, we will be highlighting different sections of the Adoption Agreement. We encourage you to pull out your Adoption Agreement each week and make sure that you are clear with your Plan’s specific provisions. Topics that will be covered include:

  • Compensation Definitions
  • Employee and Employer Contributions
  • Vesting and Forfeitures
  • Distributions during Employment
  • Distributions upon Termination of Employment
  • Loans, including defaulted loans and “deemed distributions”
  • Rollover Contributions: Indirect vs. Direct Rollovers and tax implications

If you discover a plan mistake has occurred, the process of correcting that mistake can be costly and time-consuming (plus, it could trigger a visit from the Department of Labor). The best strategy is to be well-informed, work closely with your payroll department, and to stay abreast of new regulations.

Common plan mistakes include:

  • Failure to apply the correct definition of compensation. Did you know that there were different options?
  • Failure to follow matching contribution provisions.
  • Failure to include all eligible employees.
  • Failure to follow the plan’s loan provisions.
  • Failure to follow plan’s hardship distribution terms.

When in doubt, check your Plan documents or contact Monterey Wealth or your Third-Party Administrator for clarification.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.