4. Failure to read the plan document.
The plan document serves as the foundation for plan operations; it is, quite simply, the operating manual for your program. Sometimes, particularly if you are relying on a document that has been prepared by a third-party service provider, certain “gaps” can emerge between what the document allows and how the plan actually is administered. As a result, it is a good idea to conduct a document/process “audit” every couple of years—do not assume that “the way we’ve always done things” is supported by the legal document governing your plan.
“Even after 20-some (very happy) years in this business, I am still surprised by clients who have never read their plan document and who attempt to administer the plan solely by referring to the Summary Plan Description,” notes Kathleen Odle, Manager of the Tax Department at Sherman & Howard L.L.C., in Denver. “This is the problem with the IRS’s ever-increasing demands that plan documents follow the LRM language, which is barely comprehensible even to those of us who do this for a living...clients can’t understand their plan and so don’t even try to refer to the plan document when a question comes up.”
There is, of course, the related issue of having language in the plan document that does not match the language in the Summary Plan Description. “This could be a potential problem for the employer under the Cigna v. Amara case, which states that the plan document governs unless the participant is impacted adversely by the SPD language,” notes Peter.
Another related issue, the “failure to amend plan documents on a timely basis, is a big problem, given the increasing complexity of the rules,” notes Robert B. Jones, CEO, Innovative Compensation and Benefits Concepts, LLC, in Bryn Mawr, Pennsylvania.
Remember as well that one of the primary duties of an ERISA fiduciary is to follow the terms of the plan document—a responsibility all the more challenging to fulfill if you have not read it.
Not depositing contributions on a timely basis.
“Lateness of contributions being applied to participants’ accounts has increased throughout the recession,” notes Jones.
The legal requirements for depositing contributions to the plan are perhaps the most widely misunderstood elements of plan administration, and a delay in contribution deposits is also one of the most common flags that an employer is in financial trouble—and that the Department of Labor is likely to investigate. Note that the law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so. Many have read the worst-case situation (the 15th business day of the month following) to be the legal requirement. It is not.