Are Your Retirement Plan Documents in Agreement?

By Anne Morris, CPA

February 15, 2018

What are the two legal documents that govern your company’s qualified retirement plan? It may not be a question that keeps you up at night, but it’s one that can trip up employers that sponsor such a plan.

The answer, of course, is: 1) The Plan Document and 2) A Summary Plan Description (SPD). But here’s an even scarier question — what if these two documents don’t agree with each other?

A Key Distinction
Plan Document’s contain the legal language setting up your retirement plan, providing the rules that govern the terms and conditions under which the plan operates. It must be in writing and contain all the information required by the Employee Retirement Income Security Act (ERISA).  It also must cover certain basic information about your plan.  It is not required to be distributed to the participants of your plan unless requested.
SPDs, meanwhile, describe the rights, benefits and responsibilities of participants and beneficiaries in ERISA-covered plans in “layman’s” terms. It is required to be written in such a way that participants can easily understand the information.  You must issue an SPD to each participant, and Department of Labor and IRS regulations require specific content.

Legal Concerns
When the two documents materially conflict, the employer sponsoring the plan may wind up in a legal battle with a plan participant. Some courts favor the SPD, while others favor the Plan Document. Most often, the document that provides the greatest benefit to participants will win out.
Obviously, as a plan sponsor, you would want to avoid any and all legal issues regarding your plan documents well before legal action is taken. Therefore, you should regularly review your SPD to ensure the terms are consistent with terms used in the Plan Document, and that the plan offers what was intended under the Plan Document. Make sure your SPD is up to date with new legislation and existing laws, too.  You also want to make sure that any amendments made to the Plan Document are also made to the SPD so that the participant is aware of the latest changes to the plan.
If you’re just launching a retirement plan or in the process of amending your current retirement plan, consider hiring quality employee benefits professionals to help in drafting your SPD. Review the documents and discuss any wanted or unwanted provisions. A carelessly drafted SPD can result in multiple problems for plan sponsors, for example funding benefits that were never intended. 

Potential Effect
Mismatched Plan Documents and SPD’s can trigger costly errors to the plan sponsor. Mistakes made from following inconsistent documents can result in violations, fines and penalties. The best way to avoid any issues in this area is to prevent an error from occurring.  Please contact our firm if you have any questions or need additional guidance on this matter.