Designing a 2020 plan when adopted in 2021

Hello to all

This might be a rhetorical/stupid question but have been thinking about it.

Let's assume, the plan year=corporate year aka calendar year 2020.

SECURE Act now allows pension plans to be set up after corporate fiscal year end and prior to the due date of the 2020 tax return. Let's assume 9/15/2021 is the extended due date.

A candidate approaches for a new plan in July 2021 for a new plan effective 2020. Profit sharing combined with cash balance - no can do on the 401k for 2020.

I get a census for 2020 and also thru July 2021.

I notice that some eligible employees on the 2020 census are no longer there as of July 2021 i.e. terminated sometime during 2021.

With this knowledge, I do not see a problem designing the 2020 plan in July 2021 with the events taken place in 2021. This way, I can anticipate any issues for 2021 and take that into consideration for the 2020 design/testing, done in advance.

What do you think?

Thank you.

On 1/5/2021 at 11:17 AM, Jakyasar said:

What do you think?

I think it's a great question.

Assuming there's no predecessor plan, you might exclude years prior to the existence of the plan for vesting purposes. Though the terminated participants might get 2020 allocations (and you might want them to, depending on demographics), they would be 0% vested.

Hi Ken

Excluding prior service for vesting is always a given as long as no prior plan that was terminated within 5 years of 1/1/2020. Up to the sponsor to decide whether to exclude or not.

0% vesting depends on the partial termination issues too. This is something already known in 2021 when you design a plan for 2020 in 2021 thus may affect some of the decisions.