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Adoption Agreement

Last Updated March 21, 2009

Definition

The section of a retirement plan document that allows the employer to choose the provisions that apply to its (employer sponsored) retirement plan. For instance, an employer may indicate in the adoption agreement that only employees who reach the age of 21 would be considered eligible to participate in the plan. For IRAs, the IRA owners complete the IRA Adoption Agreement

An adoption agreement is generally completed for qualified plans, SEP IRAs, SIMPLE IRAs and other employer sponsored retirement plans.

The adoption agreement reflects specific choices made by the employer for the plan, including eligibility requirements, the types and amounts of contributions allowed, the allocation method for employer contributions, the vesting schedule applicable to employer contributions, and the distribution options. The adoption agreement is not the complete plan document and must be accompanied by a basic plan document, which provides in-depth details of how the plan should operate.

 

Adoption agreements are also completed by account owners for their traditional IRAs, Roth IRAs, Education Saving Accounts and Health Savings Accounts. However, the information provided in these adoption agreements are usually limited to that which applies to the account owner.

Referring Cite

The retirement plan kit

Additional Helpful Information

  • By completing and signing the adoption agreement, the plan sponsor or account owner agrees to  adopt the plan, and abide by the terms and conditions of the plan.
  • An employer is limited to elections that can be made in the adoption agreement. For instance, as provided under the Internal Revenue Code, the eligibility requirements that employees must meet in order to participate in a qualified plan cannot exceed the following:
      1. Age 21- for age
      2. 2 years of service [1 year of service for 401(k) plans]
      3. 1,000 hours per year, to constitute a year of service

Other requirements may apply to other areas of the plan.

  • Prototype plans and some volume submitter plans consist of both an adoption agreement and a separate basic plan document.