Know What is in Your Plan DocumentsSubmitted by BCR Employer Plans on June 14th, 2017
What documents are associated with a 401(k) plan? Do you know what is written in these documents? Even though these documents are mind-numbing to look through, it may be worth a quick review. These documents describe how the plan is set up and the key figures associated with how your specific plan operates.
Here are the basic documents and their purpose:
- Adoption Agreement – An employer must legally adopt a plan by having an adoption agreement. This document should include:
- The name of the plan and trust, for example, XYZ Company 401(k) Profit Sharing Plan and Trust
- The following information about the employer:
- Type of business (ex. Partnership or Corporation)
- The state under which the business operates
- The date of incorporation (if a corporation) or the date the business began (if a partnership or sole proprietor)
- Miscellaneous information, such as business address, phone number and employer identification number (EIN)
- Name and address of the trustees
- Name of the plan administrator responsible for the operation and administration of the plan
The adoption agreement reflects the specific choices the plan sponsor makes for the plan, such as:
- Eligibility requirements
- Types and amounts of contributions allowed
- The allocation method for employer contributions
- Vesting schedule
- Distributions options
The adoption agreement is not the complete document and must be paired with a basic plan document.
- Basic Plan Document – the basic plan document is a comprehensive, written document that describes the operations and administration of the specific retirement plan. ERISA requires that plans must be established and maintained according to a written document.
The basic plan document must describe certain information about the plan, including:
- The allocation of responsibilities for the operation of the plan between the plan sponsor and the plan provider
- Source of plan contributions
- The named fiduciary who will have the authority/responsibility to administer the plan
- Procedures for the amendment and termination of the plan
This document is not required to be distributed to the participants unless it is requested by an employee. The next document must be available for the participants.
- Summary Plan Description (SPD) – The summary plan description is a simplified version of the plan document and is required to be:
- Written in a more basic format for easier understanding for participants
- Distributed to plan participants
The information in the summary plan description includes:
- Name and type of administration of the plan
- Identification number and location of the plan
- A description of what the plan provides for employees and how it operates
- The rights of the employee under ERISA
- The timing of participation in the plan
- Circumstances under which an employee may lose or be denied benefits
- How an employee can receive payment or benefit and in what form
- How an employee’s service and benefits are calculated
- When an employee’s benefits become fully vested.
Your employees should read the summary plan description to learn more about the specific provisions that apply for your particular plan. If the provisions of a plan are changed, the employees must be notified in a revised summary plan description or a separate document called a summary of material modifications (SMM).
Ensuring that you know the information in your specific plan’s documents will give you better peace of mind with the operation of your plan.