401(K) PLANS FOR SMALL BUSINESSES
3
Arrange a trust for the plan’s assets
— A plan’s
assets must be held in trust to assure that the
assets are used solely to benet the participants
and their beneciaries. The trust must have at
least one trustee to handle contributions, plan
investments, and distributions. Because the
nancial integrity of the plan depends on the
trustee, selecting a trustee is one of the most
important decisions you will make in establishing
a 401(k) plan. If you set up your plan through
insurance contracts, the contracts do not need to
be held in trust.
Develop a recordkeeping system — An accurate
recordkeeping system will track and properly
attribute contributions, earnings, losses, plan
investments, expenses, and benet distributions.
If a contract administrator or nancial institution
assists in managing the plan, that entity typically
will help keep the required records. In addition,
a recordkeeping system will help you, your plan
administrator, or your nancial provider prepare
the plan’s annual return/report that must be led
with the Federal Government.
Provide plan information to employees eligible
to participate — You must notify employees who
are eligible to participate in the plan about certain
benets, rights, and features.
In addition, a summary plan description (SPD) must be provided to all participants. The SPD is the
primary way to inform participants and beneciaries about the plan and how it operates. It typically
is created with the plan document. (For more information on the required contents of the SPD, see
Disclosing Plan Information to Participants.)
You also may want to provide your employees with information that discusses the advantages of your
401(k) plan. The benets to employees – such as pretax contributions to a 401(k) plan (or tax-free
distributions in the case of Roth contributions), employer contributions (if you choose to make them),
and compounded tax-deferred earnings – help highlight the advantages of participating in the plan.
A 401(k) plan may be established as late as the due date (including extensions) of the company’s
income tax return for the year you want to establish the plan.
For example, if your business’s scal year ends on December 31, 2022, and you led for the automatic
6-month extension, the company’s tax return would be due on October 15, 2023. You could adopt a
plan in 2023 as late as October 15 and make it effective on December 31, 2022. You’re not allowed to
have 401(k) salary deferrals prior to the date you adopt a 401(k) plan. However, you could make an
initial prot sharing contribution to the 401(k) plan for 2022, no later than October 15, 2023.