Connections for Success

 

07.25.18

Plan Documents: Be Proactive to Avoid Violations
James Pellino

Anyone administering a retirement plan quickly realizes that it can be a daunting task. There are a multitude of regulations and rules that must be followed. A key requirement that many administrators inadvertently miss is operating the plan in accordance to the plan documents. The Employee Retirement Income Security Act (ERISA) requires plan fiduciaries to discharge their duties solely in the interest of participants and their beneficiaries “in accordance with the documents and instruments governing the plan.”

Adhere to your plan documents

A recent class action lawsuit alleging violations of the Fair Labor Standards Act also surprised the defendants when an acquisition of an ERISA violation also came to light due to the plan’s definition of eligible compensation. Again, the key takeaway is to make sure you are adhering to your plan document. Do not assume the plan document reads how you or your predecessor intended the plan to operate.

Review your plan documents

As a best practice, review your plan documents and ensure that the plan you are currently operating agrees to the definitions and elections made in those documents. Also, be aware of any other written pronouncements that may have been made after the initial plan document and adoption agreement were executed. For example, investment policy statements, plan loans and qualified domestic relations order procedures might also be considered plan documents if audited or subjected to legal scrutiny. Even an unsigned plan amendment might fall into this category as well. While of course you would not knowingly write a document that violates ERISA, inconsistencies could easily arise if you do not subject it to the same level of review as a core plan document. Ask your attorney to look at all such items and help you decide which ones are plan documents.

It is also important to not draft any documents that you do not plan on following or implementing. Creating an investment policy and not following the policy could be more detrimental than not having an investment policy at all.

Keep your retirement plan in accordance

It may seem like common sense that you have to operate your retirement plan in accordance with the plan documents; however, this is a common error found with plans. Many plan administrators assume that the plan document stipulates how the plan was intended to be run, but they do not go through the documents to ensure how the plan is being operated is in agreement with the plan document.

For more information, contact Jim Pellino at jpellino@orba.com, or call him at 312.670.7444. Visit ORBA.com to learn more about our Employee Benefit Plans Services.
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