aristotle said:
I was told the government requires a minimum 5 year
commitment to a defined contribution plan. My income will
be substantial for the next few years and I want to
establish a plan but are unsure of about five years.
Treasury Regulations §1.401-1(b)(2) provides "The term
"plan" implies a permanent as distinguished from a temporary
program. Thus, although the employer may reserve the right
to change or terminate the plan, and to discontinue
contributions thereunder, the abandonment of the plan for
any reason other than business necessity within a few years
after it has taken effect will be evidence that the plan
from its inception was not a bona fide program for the
exclusive benefit of employees in general."
While there is no hard and fast five-year rule, I have seen
5 years touted as a rule of thumb for being adequate to meet
the permanent plan requirement.
Those regs go on to provide:
""it is not necessary that the employer contribute every
year or that he contribute the same amount or contribute in
accordance with the same ratio every year. However, merely
making a single or occasional contribution out of profits
for employees does not establish a plan of profit-sharing.
To be a profit-sharing plan, there must be recurring and
substantial contributions out of profits for the employees.
In the event a plan is abandoned, the employer should
promptly notify the district director, stating the
circumstances which led to the discontinuance of the plan."
Hope this helps.
Brian Bivona