401k Plan Referral with No Plan Document In Place

[Emily]

We have a 401k safe harbor plan that was referred to us however they have no plan document in place.  2 participants, they started making deferrals and 3% safe harbor into the plan in 2024 and in 2025 had a rollover contribution of $500k+.  Has anyone ever dealt with having no plan document?  In my research, I can only find corrections for correcting missed restatements and none for entirely not having a plan document.

[Bill Presson]

I would recommend ERISA counsel immediately. We’ll help with missing restatements but not the lack of actually establishing a plan. 

[david rigby]

Nope.  Decline.  There is a reason for the referral, and it's probably a deeper problem than you know.

[ESOP Guy]

Add my voice to walk away.  Some revenue isn't worth the cost of dealing with their issues and attitude of not care about small things like the law.   

[RatherBeGolfing]

Agreed.  Let the referring party know that what they need is an ERISA atty, and that you would be happy to take it on once corrected.

 

[Peter Gulia]

If the might-be plan sponsor would consider, seriously, correcting document and other defects:

Engaging an admitted lawyer (or a Federally authorized tax practitioner) could set up an evidence-law privilege for confidential communications made to seek the lawyer’s or other practitioner’s legal advice. That might help set up a more comfortable environment for discovering what happened and discerning choices about whether and how to correct defects.

Adding that bit of information to a call-your-lawyer suggestion might be a nice courtesy, even if the approached service provider is completely unwilling to accept the prospective client.

[justanotheradmin]

If they are keen on keeping the plan, I have seen successful VCP for instances where the initial plan document was missing completely. A lot of supporting documentation was required to satisfy the IRS, which those plans had. Such as asset statements, filed Form 5500s etc. Getting an ERISA attorney is the right step. 

[Paul I]

As @justanotheradmin notes, there have been instances where the intent to establish a plan was exceptionally well documented and all operational activities were performed correctly as if the plan was adopted properly, so the plan sponsor was allowed to adopt the plan formally.  One persuasive piece of documentation is having signed trust documents with the institution holding the assets that acknowledges that the trust is for a qualified plan.  Placing the assets in an account that separates control of the assets from the company helps support the argument.

This is not DIY project.  You can consider accepting the prospective client when they have engaged an attorney and the attorney provides guidance on the path forward to resolve the issue.  Be clear that your services above and beyond routine services are not free regardless of whether or not they and the attorney are successful.

The incentive for the prospective client is, absent getting recognition that the plan can be adopted formally and retroactively, there is a $500,000+ rollover that will be considered a taxable distribution in 2025.