Every qualified plan needs a written plan document. A pre-approved document is one a provider has submitted to the IRS for review. The IRS issues an opinion letter on its wording, and a business that adopts it, by completing an adoption agreement that records its own choices, can generally rely on that letter. The alternative, an individually designed document, has to stand on its own and costs more to draft.
For a one-person cash balance plan, the adoption agreement records choices such as the pay credit formula, the interest credit method, the normal retirement age and the plan year. Form 5500-EZ asks whether the plan uses a pre-approved document and for the date and serial number of its opinion letter.
The IRS reviews pre-approved documents in cycles. When a new cycle is approved, plans on the older document are restated onto the new one within a set window. Maxed uses IRS pre-approved documents from an established document provider. See how to set up a cash balance plan.