Do Pre-Approved Plan Adopters Still Need Benefits Counsel?

September 5, 2014 ( - With ever-increasing law firm billing rates, it may be tempting to forego retaining an employee benefits attorney to review pre-approved plan documents along with the myriad of other materials from third-party administrators (TPAs) and other plan vendors.

Adopting a TPA’s pre-approved document is a cost-effective way to curb certain plan expenses; however, the Employee Retirement Income Security Act of 1974 (ERISA), as amended, requires fiduciaries to be cognizant of potential conflicts while exercising oversight of plan operations. At the onset of a recordkeeper’s engagement, for example, there is mutual interest in demystifying the maze of recordkeeping operations in an effort to simplify plan administration. Although the relationship may remain amicable throughout the term of the agreement, the distinct roles and responsibilities of the employer and vendor inevitably lead to divergent (and sometimes conflicting) interests. 

To stay abreast of plan operations and potential compliance concerns, an employer adopting a pre-approved plan should consider reviewing, at least, the following items with benefits counsel: 

Administrative Services Agreement 

Vendors draft their agreements to protect their own interests. Although it is possible that a services agreement could propose balanced terms, many agreements do not. Employers should review the entire agreement critically, with special attention devoted to the agreement’s (i) scope description; (ii) duration (and any automatic renewal terms); (iii) fee structure (and any unilateral authority to change fees during the term of the agreement); (iv) notice requirements; (v) authority for periodic plan operational adjustments (and any negative consent provisions); (vi) termination and resignation terms; (vii) limitation of liability; and (viii) indemnification provision. 

Skilled ERISA counsel will be attuned to the issues related to these terms and can incorporate more balanced language into the contract. Service providers oftentimes hesitate to alter the terms of their standard contract templates. Employers, however, should reconsider partnerships with vendors unwilling to accept minimal changes (or otherwise negotiate balanced terms). The inflexible and rigid stance arguably is indicative of the position the vendor will take if (or, more accurately, when) plan operations go awry. In this economic climate, employers need flexible, strategic partners in plan administration. 

 Basic Plan Document, Adoption Agreement, and Prototype Amendments 

Particularly when converting from an individually-designed plan document to a pre-approved document or from a pre-approved document sponsored by a different TPA, it is imperative to compare the governing documents to ensure that the terms selected in the new pre-approved plan are consistent with the prior version. Unless there is an intentional change to plan terms (i.e., intent to adopt an amendment by executing the new pre-approved plan), the provisions of both plan versions generally should match. Along the same lines, the selected terms in the new pre-approved document should be consistent with plan operations to the extent that the pre-approved plan includes operational language. 

Employee benefits attorneys can identify less obvious inconsistencies and advise on potential effects. Pre-approved plan adopters generally may rely on the document sponsor’s Internal Revenue Service (IRS) opinion letter or advisory letter, but that reliance may be limited if there is a need to adopt a more stylized/custom plan provision to reflect accurate plan terms. In that case, the plan may need its own individual IRS determination letter. Also, even though pre-approved plan sponsors provide prototype amendments for required law changes to plan adopters, employers must timely execute those amendments so that they become effective for their plans. In addition to confirming consistent plan documents, competent benefits counsel can provide value by reviewing the prototype amendments for legal sufficiency and educating about the deadline for adoption which could vary depending on the plan type, express statutory language concerning amendment deadlines, and any exceptions that apply to the plan’s remedial amendment period. An attorney also can advise about the consequences of late adoption and, if needed, submit a short-form application for an IRS compliance statement to the IRS Voluntary Correction Program.

Onboarding and other Conversion Documents  

Plan service providers, such as recordkeepers, oftentimes require an onboarding checklist when a new client transfers operations from another vendor. Any onboarding or conversion documents should be reviewed carefully in comparison with plan operations because it may be difficult to adjust the plan’s operational infrastructure (for example, on a recordkeeping system) after conversion. Inconsistencies not rectified during the onboarding process may yield compliance concerns. 

TPAs and other plan vendors generally charge employers with knowledge about plan operations and about the impact of transferring operations to another vendor. Benefits counsel can help provide thorough oversight of the conversion process which can hedge against compliance risks. A vendor may prefer to streamline all pre-approved plan adopters into a general procedural flow at conversion, but that approach could expose plans to systemic compliance issues with the vendor’s system (for example, untimely automatic enrollment initiation or erroneous plan loan repayments processing) that precede both the date the employer adopted the pre-approved plan and the conversion date. Benefits counsel can assist with managing these conversion concerns. 

Administrative Services Manual

The administrative services manual (ASM) arguably is the vendor’s go-to guide for plan-specific operations. The ASM represents the employer’s instruction to the vendor about how to operate the plan. It could be a single document that lists in excruciating detail each operational requirement, or it could consist of a compilation of plan-specific procedures that outline unique plan operational requirements. Regardless of form, a service provider generally refers to the ASM when establishing a plan’s operational infrastructure on its system. In the event of a compliance issue or operational error, the provider looks to the employer’s direction (as outlined in the ASM) to determine its responsibility and any resulting liability rather than interpreting the terms of the plan. 

Confirmed consistency among the ASM, pre-approved plan document, and other vendor materials is vitally important, especially in a contest between a directed recordkeeper and employer/plan sponsor. An ERISA attorney can perform a comprehensive check for consistency and help confirm that any reliance on the employer’s direction is reasonable and not based on a misstatement or other erroneous ASM entry. To the extent that operational errors arise, the attorney can help distinguish plan qualification failures from vendor processing errors, propose tenable solutions, and (if needed) revise ASM language to more closely match plan operations in light of the resolution. 

Pre-approved plan documents provide a cheaper alternative to individually-designed plans, but they generally do not relieve responsibility for oversight of plan administration. Employers adopting pre-approved plans still must “remain in the game” with respect to plan operations. Although there may be a current trend to bypass legal review, pre-approved plan adopters still should consider at least periodic consultations with an employee benefits practitioner.


Christina M. Crockett, Esq., attorney at law, specializing in employee benefits

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.