More Late Adoption Lessons

You might remember that our first article on late adoption lessons appeared in the Winter 2022 issue. We are continuing to learn lessons about how late adoption of profit sharing and/or cash balance plans affects our clients and our businesses—not to mention our sanity. So here we go with some new lessons we’ve learned!


Do you have children? Do they put off their homework until the last minute? How many times have you asked, “Do you have your homework done?” The response I usually get is: “I have everything done that’s due tomorrow. I mean, I have some other stuff due in few days,but I’m not going to work on that today.” Because why do today what you can put off until tomorrow, right? I must admit that I have been known to be a “deadliner” and work better under pressure at times. But let’s face it, I have also chosen to spend my life in an industry built around multiple recurring and overwhelming deadlines. I think you must be a deadliner to work in our industry—what fun would it be to file no extensions on July 31 or have any 5500s to prepare after July 31? And what would we do with all our free time the rest of the year?

What does this have to do with adopting retirement plans? Well, many of our clients and their advisors are also deadliners.

The focus of our Winter 2022 article was how we pushed the limit as far as we possibly could—because who wants to turn down new business? We tried to accommodate clients and their financial advisors. We took on new business with only two weeks to gather accurate information, prepare calculations, get client approval, create a plan document, have the financial advisor establish a new account and get the plan funded before the September 15 deadline—all while working through our busiest time of year, with the final 5500 filing deadline looming on October 15. The actuaries we work with were also under pressure, from the September 15 funding deadline for their clients and the September 30 AFTAP deadline as well as the 5500 filing deadline.

What we learned from that experience was that we needed to set a true deadline and stick to it. Our deadline needed to be well before the regulatory deadline to give us the time we needed to do our job right and maintain our sanity. Our actuaries started setting and enforcing early deadlines as well. If we did decide to take on a new client after our deadline and rush something through, we needed to charge a rush fee. There’s a penalty for turning in your homework late; there should also be an additional charge for our expertise and the stress that it causes when we have clients and potential clients wait until the last minute to decide.

So this year we set a deadline for retroactive plan adoption. When Theresa had advisors call after the deadline, she explained that she needed at least 45 days to complete everything that is required to establish and fund a plan by September 15. When you think about it, 45 days is still a very short period considering we are in busy season and focused on our long-term clients.

Even the large record keepers require at least 45 days to set up a new plan and be ready for it to be funded. No one balks when they set limits and time requirements. Why do TPAs feel like they should kill themselves trying to meet unrealistic deadlines because the law allows it? Just because you can doesn’t always mean you should.


Theresa had a client that she had run illustrations for early in 2022. They waited until early August to decide to move forward with implementation of the plan. When Theresa’s team started truly “digging” into that actual data once they had given the go ahead, they discovered that the client didn’t have enough income to make the plan work, nor did they mention the other entities they owned (which they had been asked about previously). The team spent a considerable amount of time at a very busy time of year to have it blow up and not be able to charge the client for the work.

In the future, the answer may be to charge for multiple subsequent illustrations after the original if you don’t charge for the original proposal itself. You may also want to consider collecting an installation fee up front that is kept if the plan falls apart or the client decides at the last minute not to move forward. One firm that we work with charges a rush fee for late illustrations but then waives the plan installation fees if the client decides to move forward.


We have noticed that some advisors may be “pushing” clients into plans that they aren’t ready for. In particular, sometimes the responsibilities
and consequences of adopting a
cash balance plan have not been thoroughly explained to the client. Before we spend time on illustrations that may not be necessary, we have found it a best practice to make it extremely clear to the client that the funding is required—and for multiple years. We also explain that the plan sponsor bears the investment risk.

We have had several potential cash balance clients back out before we even run the illustrations once they understand the responsibilities. At a 2022 ASPPA Annual Conference workshop, Shannon and Kevin Donovan spoke to DC plan administrators about DB plans. Kevin told the audience that having a cash balance plan is scary—it should be considered seriously before setting it up. He’s right.

Theresa’s firm has added a page to their plan installation paperwork addressing cash balance and defined benefit plans. Clients must initial it, indicating they understand that:

• there are required contributions for approximately five years;

• the illustrations that were run are not final numbers;

• changes to the final census data could yield different final numbers; and

• setting up a plan using the late adoption rules will result in them being billed for two years in the current year (the prior year and the current year).

After seeing these rules, they have had clients back out and tell them that these things had never been explained to them.

In our experience, most of the challenges of late adoption of plans have revolved around the new adoption of cash balance plans. It may be procrastination on our clients’ part, or the CPA may suddenly realize there is a tax issue in August—or the fact that committing to sponsoring a cash balance plan is frankly scary. It’s almost like deciding whether or not to marry someone, for better or worse until death do you part.

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