The Plan Sponsor University (TPSU) is offering a series of the Top 10 Most Common Mistakes in 401k plans. Today, 401kTV addresses Mistake # 3 – Failing to Follow the Plan Document. The video cites examples of where plan sponsors frequently stumble when they should be adhering to the terms of the plan document, such as Eligibility Requirements, Contribution Segmentation, How Contributions Vest.
Ms. Esposito also offers advice on how plan sponsors can alter internal procedures to become more confident that they are following the terms and language contained in the plan document. Above all, the plan document rules the actions and processes around the administration and oversight of every retirement plan – unless, of course, the terms of the plan document fail to comply with ERISA.
Ms. Esposito stresses the need to have someone in the plan sponsor’s organization who is fully aware of the plan document language.
FULL TRANSCRIPT HERE
Colin Clark: Hey, this is Colin Clark. I am a retirement planning consultant with the Washington Financial Group. I’m really excited to be here today with Jewell Lim Esposito, who’s a partner and ERISA attorney with FisherBroyles. You’re a nationally renowned speaker, strategist, and all things ERISA. Welcome, Jewell.
Jewell Lim E: Thank you, Colin.
Colin Clark: Is it okay if we ask you a few questions today?
Jewell Lim E: Absolutely.
Colin Clark: We’re down to number three in our top 10 list of the 10 biggest mistakes that 401(k) and 403 plan sponsors making according to advisors. We’re down to the end here, and we’ve covered a lot of ground so far. This is, I think, one of the more important topics. It’s really the idea that plan sponsors, in my experience, they fail to review and update their plan documents. Jewell, what is a plan document, and what types of things do they cover in retirement plans?
Jewell Lim E: A plan document will always have which employees are eligible to participate in the plan, if employee money can go into the plan, if employer contributions like matches or profit sharing will go in the plan, the vesting schedule associated with any contributions, and so on.
Colin Clark: Okay. Why is that important? Why would it be important for a plan sponsor to understand, and review that, and regularly update it?
Jewell Lim E: What happens sometimes with plan fiduciaries is they don’t remember what their plan document says. Let’s say, for example, an employer is supposed to include temporary employees in the plan and then the employer forgets to include those temporary employees. To cure that type of problem is a very costly mistake. Now you said, why should they keep reviewing their plan document? The laws regarding retirement plans continue to change, and the Internal Revenue Service has stopped its determination letter program in a number of ways. A lot of document providers, a lot of document vendors that plan sponsors have have stopped helping change and amend those plan documents, and yet those documents must be amended to conform with ERISA and the latest tax laws.
Colin Clark: It sounds like they need to be right on top of everything. What should plan sponsors be doing?
Jewell Lim E: Sure, the laws do require that certain amendments be timely amended and adopted. The plan sponsors have to be mindful of these changes as they go on. The only way that they can do this is really to get some training on this or read about which laws are applicable and which document decisions they want to make with respect to their plan.
Colin Clark: That’s great, Jewell. Thank you so much for your insight and expertise. This is Colin Clark with Washington Financial Group. On behalf of 401kTV, thanks for watching today. Stay tuned for the top two biggest mistakes of our top 10 that 401(k) and 403 plan sponsors make according to advisors.