New Plan didn't actually start

I have a client that set up everything for a 401(k) effective 5/1/22. It is unclear how much, if any, communication was provided to employees about the start of the 401(k) plan. The Plan Sponsor didn't actually start deducting any deferrals and nothing has been paid to the Custodian. They are interested in moving forward with it finally. What are the consequences of having a plan in place, but not using it for that plan year? What are the consequences of having a plan in place and not telling participants about it? How would you recommend that they move forward?

Go to your nearest pay phone, make a collect call to the employer, ask if they distributed the spd and/or had any employee return a deferral election.  If no, proceed with operation sweep it under the rug.  If yes, consider appropriate late deferral correction.   Also have them consider a minimal (1%, $1000, one share of Twitter each???) non-elective for 2022.

The employer might want its employee-benefits lawyer’s advice about these (and other) possibilities:

For the periods for which the plan (if a plan was created) had not been communicated to employees, it might not be a tax-qualified plan. “A qualified pension, profit-sharing, or stock bonus plan is a definite written program and arrangement which is communicated to the employees and which is established and maintained by an employer[.]” 26 C.F.R. § 1.401 1(a)(2) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401-1#p-1.401-1(a)(2).

But if neither the employer nor any participant paid in a contribution (including a rollover-in contribution if the plan allows them), how much should one worry about the plan not being tax-qualified?

From creation (if a plan was created), the plan might be a plan governed by title I of the Employee Retirement Income Security Act of 1974, and one or more of the plan’s fiduciaries might have breached a responsibility to communicate to employees the plan’s existence and essential provisions. If so, a fiduciary might be liable to make good a participant’s loss (for example, a lost elective deferral opportunity) that resulted from the fiduciary’s breach in not meeting a communications responsibility ERISA’s title I requires.

But the employer that serves as the plan’s administrator might evaluate how likely or unlikely it is that a participant is aware and mindful of her ERISA rights.

Or an IRS-recognized correction about a failure to provide an elective deferral opportunity might reduce a fiduciary’s ERISA liability to make good the participants’ losses.

I might worry that a Form 5500xx might be due.