Sometimes overseeing a retirement plan might feel like navigating a minefield. With proper precautions, however, you can get through safely. Case in point: Making sure your plan is operating consistently with its plan documents.

ERISA requirements
Although running your plan consistently with plan documents might sound like a straightforward proposition, this isn’t always the case. As a reminder, 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.”

An employer defending itself in a recent class action suit primarily involving alleged violations of the Fair Labor Standards Act was blindsided by an accusation that it had also violated ERISA. How? Because the disputed wages were “eligible compensation” under the employer’s retirement plan, as described in its plan document, ERISA applied as well.

Applicable documents
ERISA’s mandate requires employers to know the directives of their plan documents and run the plan accordingly. To do so, you must first confirm that your plan documents are ERISA-compliant.

Underlying those two imperatives is the assumption that you know which documents are the governing “plan documents.” There’s no doubt that the core document explaining how the plan operates comes under this heading, but you may have other written pronouncements tucked away that could be deemed plan documents in litigation.

For example, investment policy statements, as well as plan loan and qualified domestic relations order procedures, might also be plan documents if audited or subjected to legal scrutiny. Even an unsigned plan amendment might. While of course you wouldn’t knowingly write a document that violates ERISA, inconsistencies could easily arise if you don’t 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.

Also, don’t draft documents, such as investment policy statements, because you think you should, but then not actually follow them. What would be worse: having a document, such as an investment policy statement, and not following it or not having one at all? It’ll be a case-by-case determination.

And here’s another sobering reminder: The IRS Employee Plans Compliance Resolution System won’t necessarily get you off the hook with respect to plan document violations involving a fiduciary breach that causes financial harm to the plan. That’s because such matters generally fall under the purview of the Department of Labor, not the IRS.

An ounce of prevention
As you review your various policy statements, consider explicitly and legally identifying which ones are plan documents and which aren’t. Doing so will not only ensure that everything’s ERISA-compatible, but also prevent you from inadvertently making promises that you can’t keep.

Jenise Gaskin - CPA - Advisory

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