A prototype plan is a type of retirement plan which is sponsored by a financial institution, rather than an employer or another sponsor. Such plans have some advantages and disadvantages which need to be considered before adoption. The rules about how prototype plans are administered and handled vary from region to region.
One advantage to such a plan is that it can be adopted for an entire company with a simple written agreement between the company and the sponsor. In addition, if changes need to be made to adhere with changes to the tax code and other events, these changes can be easily and efficiently enacted. Adopting a prototype plan also allows companies to leave the details of the plan up to the sponsoring institution, and the plan is usually approved by tax agencies, requiring no additional review to be accepted as a qualified retirement plan.
Problems can include the fact that the sponsoring institution may not necessarily assemble the best plan, and sometimes the plan has limitations which make it unsuitable. While the company can sometimes make adjustments, or select a more flexible plan which they can customize, this may result in the plan becoming unqualified, requiring review by tax agencies before it can be approved as a retirement plan. In addition, sometimes a prototype plan actually does not conform with the tax code, and this may cause problems for people enrolled in the plan.
Also known as a master pension plan, a prototype plan can also be adopted by an organization such as a union in addition to an employer. Numerous financial institutions offer such plans and can provide information about the specifics of their plans upon request. It is advisable to compare and contrast several before picking one to adopt, and to consider consulting retirement planners to get specific advice which can help with plan selection.
Employees can get information about the specifics of their company or union retirement plans through officials who are in charge of handling financial planning and human resources. It is wise to get documentation on the plan being used to have a full understanding of how the plan works, and people who plan on engaging in private retirement planning to supplement a prototype plan obtained through work should bring this documentation to meetings with a financial adviser so that a private plan can be properly customized to address the specifics of the situation.