Adoption Agreements That Work in the Real World: 9 Choices That Make or Break Your Plan

Intro
Your written plan controls everything. These nine adoption-agreement choices determine whether your 401(k) or Profit Sharing plan runs smoothly—or needs re-papering the first time operations meet testing.

1) Eligibility and Entry Dates

“12 months/1,000 hours” vs. immediate eligibility isn’t a style choice. It affects turnover, participation, and top-heavy. Align eligibility with real hiring patterns and pick entry dates (monthly/quarterly) payroll can support.

2) Compensation Definition

W-2 vs. 3401(a) vs. “plan compensation” sounds minor—until bonuses or pre-tax deductions are excluded by accident. Pick the definition payroll and your recordkeeper can produce consistently, and list any exclusions.

3) Highly Compensated Employees (HCE)

HCE status drives testing. Know your officer counts and ownership; set family attribution assumptions now so you’re not surprised at year-end.

4) Safe Harbor Design

Basic vs. enhanced, QACA vs. non-QACA, notice timing—these choices decide whether you avoid ADP/ACP failures. Choose the design that fits culture and cash flow; mirror the recordkeeper setup.

5) Automatic Enrollment and Escalation

Auto-enroll increases participation and pairs well with QACA. State the default percentage and escalation schedule and confirm payroll can implement it.

6) Roth and After-Tax

Roth deferrals, in-plan Roth, and (if allowed) after-tax + mega-backdoor need the document, payroll, and recordkeeper to match. Confirm testing boundaries before you turn features on.

7) Profit Sharing Formula

Pro-rata, integrated, age-weighted, or new comparability—each changes testing. If a Cash Balance plan may be added later, choose a formula that plays well in combo testing.

8) Loans and Hardship

Decide whether to allow loans and which hardship standard to use (safe harbor or facts-and-circumstances). Put operational steps in writing so they match the document.

9) Late Deposits and Consistency

State internal timelines (e.g., “as soon as administratively feasible, no later than X business days”). Consistency today prevents EPCRS tomorrow.

Wrap-up
Document first, then operations. We draft adoption agreements around your payroll flow, recordkeeper features, and testing goals—so what’s written matches what’s operated.