Most employee benefits require a written plan document setting forth the terms of the plan. ERISA requires that every employee benefit plan be established and maintained pursuant to a written instrument. In addition, the Internal Revenue Code also requires many employee benefits be pursuant to a written plan. For example, cafeteria plans must be in writing under Code Section 125; self-insured health plans must be written under Code Section 105(h); dependent care assistance plans are required to be in writing under Code Section 129; and Code Section 409A requires nonqualified deferred compensation plans to be operated and maintained pursuant to a compliant written document.
The terms of the benefits plan don’t necessarily have to be contained in a single document, more than one document taken together can make up the plan. A common example of this is a pre-approved qualified prototype plan which usually consists of at least two documents, a basic plan document (BPD) and an Adoption Agreement. The BPD contains all the qualification requirements and boilerplate language to be a qualified plan under the Internal Revenue Code. The Adoption Agreement contains various options for the employer to choose regarding the design of the plan and is completed and signed by the employer indicating it has adopted the BPD as part of its plan. The National Office of the Internal Revenue Service (IRS) approves the BPD and blank Adoption Agreement and issues an opinion letter to the pre-approved plan sponsor upon which adopting employers can rely. Both these documents make up the “written plan document.”
It is important for an employer to keep its plan documents in a safe place where they can be easily retrieved for a number of reasons. First, for a plan governed by ERISA, plan participants may request the plan document from the plan administrator and if it is not provided within 30 days, the plan administrator can be liable for a penalty of up to $110/day that it is late. Second, the language of the actual plan document may need to be consulted to properly administer the plan, decide claims or settle disputes. Finally, if your retirement plan is audited by the IRS, the agent is likely going to ask for every plan document since the plan was originally adopted. That is, the IRS will want the employer to prove that the plan was always a qualified plan in form and was timely amended and restated for changes in the law. It is also very important to be able to demonstrate that the plan documents or amendments were actually adopted by the employer. To do so the employer should have signed copies of the plan documents and minutes, resolutions or consents evidencing the action of the appropriate body approving the documents on behalf of the employer.
I write this article because throughout my years of practice, I have had occasion to have to remind employers of the importance of maintaining plan documents. Many times I have asked for retirement plan documents and was provided only an unsigned Adoption Agreement and have to ask for the BPD. On occasion a client may then have to obtain the document from a third-party administrator (TPA) or other service provider. Also, at times, clients simply cannot find a signed version of the plan document. Once, I had a client inform me they had to retrieve their current document from storage.
Often employers mistakenly rely on their TPA or other service provider to maintain signed copies of their plan documents. Many TPAs have a policy not to maintain signed copies of plan documents but inform clients that it is the responsibility of the adopting employer to safeguard documents. Additionally, if the employer changes TPAs, the former TPA has no real incentive to help its former client find old documents. Ultimately, legally, the responsibility falls on the employer even if it has contracted with a service provider to be responsible for maintaining the plan document.
The act of adopting plan documents or amendments should be well documented like any important employer action. If the employer is a corporation, minutes or consents reflecting the action should be kept in the corporate book or filed where records of shareholder and directors meetings are kept. Other types of entities such as limited liability companies and sole proprietorships should also keep them with their important records. This is important because in an audit or investigation, if the employer cannot find a signed plan document, if it has a blank document and a signed resolution showing that it was approved, this might suffice.
I recommend that one or more persons be assigned the duty of maintaining the complete plan document for each written benefit plan of the employer. This could be the Secretary of the corporate employer or a similar officer. It could be the plan administrative committee that acts as plan administrator. It could be an administrative fiduciary. The point is that the employer should take action to ensure that someone is monitoring the plan documents. Many service providers are now offering to store electronic versions of plan documents. The agreements for such services should be reviewed to determine what responsibilities the provider has with respect to the plan documents. For example, who is responsible for ensuring that the provider has the most current plan documents? That they are signed? Are they stored on multiple servers in the cloud to reduce the chance of them being lost or destroyed upon a server failure? What happens if the provider loses documents? Even in such an arrangement, someone from the employer should be designated to ensure that the most up to date documents are provided to the service provider for storage.
Ultimately, it is the employer’s responsibility to establish and maintain the written employee benefit plan document. Therefore, employers should ensure that all of their employee benefit plans have up to date plan documents that have been properly adopted and are easily retrieved.