What Type of 401(k) Plan Document Do I Have and When Do I Need to Update it?

December 20, 2016

By Craig Erickson

When you establish your company’s 401(k) plan, you have to make a range of decisions, from the type of plan and investment tools you’ll offer to participation requirements and guidelines.

Once you’ve done this, you need to put it in writing. This is your plan document, a mandatory part of your plan that details its provisions and clearly communicates them to participants.

There are three levels of plan documents:

Prototype. This off-the-shelf version of a plan document is pre-approved by the IRS and requires no additional approval by any government agency. This type of document offers virtually no customization to the plan sponsor.
Volume submitter. This middle-ground version is built on the foundation of the prototype form but includes some customization. Use this when your plan strays somewhat from prototypical planning and requires greater flexibility in description. But keep in mind that this form must be submitted for IRS approval only in the cases where the document strays from the norm.
Individually designed. This type of plan document is custom written by you and your ERISA attorney and has not been pre-approved by the IRS. This is the preferred choice in situations where the plan is so uniquely designed that it can’t be expressed in a standard pre-approved plan document or the plan type, such as ESOPs or cash balance plans, which cannot use the pre-approved form. Individually designed plans must get approval from the IRS.

Updating plan documents

Laws change, and so do the rules and regulations governing retirement accounts. That’s why the IRS mandates that, certain types of plan document, must be regularly updated.

If you use a prototype or volume submitter document, your administrator must restate the document every six years. These pre-approved documents may sometimes adopt IRS required amendments on behalf of the employers. Thus, it may not always be necessary for plan sponsors to sign every amendment of a pre-approved plan document.

If you opt for an individually designed plan document, your company must follow IRS Revenue Protocol 2016-37.

Understanding the different types of plan documents, which one you have and the requirements for each is vital to creating and maintaining a successful 401(k) plan.

As partner-in-charge of the Employee Benefit Plan Group at Wiss LLP, Craig Erickson can assist your company in understanding your plan document. Reach him at [email protected].