What language must be in a plan document?

[Guest Grumpy456]

Issue 1. Obviously not all of the provisions created by ERISA or the applicable sections of the IRC have to be in a plan document. Despite that, plan documents are still BIG documents that (1) regurgitate some of those provisions, (2) incorporate others by reference and (3) leave the remaining provisions out of the document completely. How do I (or anyone) know which of those provisions MUST be regurgitated in a plan document, which may be incorporated by reference and which MAY be included in a plan document, but are not required to be included?

I know there are different types of plan documents for purposes of the IRS D-letter program. If the type of plan (e.g., prototype, VS or individually designed) is relevant to the answer, how?

Issue 2. A qualified plan, once installed, may be amended from time to time at the election of the plan sponsor (a so-called discretionary amendment). There is no reason that I can see why a plan sponsor cannot amend its plan retroactively unless doing so is specifically prohibited by law (e.g., the law prohibits an amendment from taking away vested or accrued benefits). However, the IRS has said in recent guidance that discretionary amendments must be adopted no later than the last day of the plan year in which they become effective. Huh?

Thanks so much for your help!

[J Simmons]

The IRS publishes Lists of Required Modifications that might be a good starting point for what types of plan provisions must be included in the documents. The LRMs do require different provisions for master/prototype, volume submitter, and individually designed, as spelled out in the LRMs. To give definiteness and proof that the plan was in fact intended the way it was on discretionary plan design issues, or 'discretionary amendments', the IRS requires that the plan be amended by the end of the plan year or as to some issues on a prospective basis only. This is so that an employer may not, willy-nilly, choose after the fact whatever is convenient. As to mandatory amendments in remedial amendment periods, amendments may be made later than the end of the plan year in which the effective date is required by the new pension law.

[Guest Sieve]

IRS regulations require a plan to be a "definite" written program, and therein, I believe, is where Treasury finds the requirement that plans must be operated according to their terms. So, the IRS, by giving the sponsor until the end of the year to make discretionary changes, is actually giving the employer the ability to operate the plan contrary to its terms for a while, as long as the change is made within the time limits specified. I'm sure the IRS believes they are being generous!!

In the day, we used to make all amendments, discretionary or not, by the extended due date for filing the tax return and consider them as effective as of the first of the taxable year--no more, however (except mandatory changes).

Also back in the day, if I recall correctly, incorporation by reference was allowed only for the DOL regs re: certain hour of service language. Now, that obvioulsy has changed, and there is much that is incorporated by reference--but I don't know if there's any official word from the DOL of IRS as to what can (and cannot) be incorporated into a plan doc.

In additon to LRMs (which probably is your best source), there are at least 3 ways I know that you can determine what (or at least some of what) ought to be in a plan document:

• Look at the Code, and often it says that a plan is not qualified unless it contains certain provisions--see, e.g., IRC Sections 401(a)(2), (8), (9), (12), (13), (14), (25), (30), (31), etc., etc.
  
• Put the documents together and then submit for a favorable determination letter. You'll find out pretty quick what you left out.
  
• See what others have done. You'll get a pretty good idea, that way, of what others think is important to put in the plan.
  

[Guest Grumpy456]

Thanks for the comments and suggestions. Part of the reason I ask is curiousity and part is practicality. I'm told that some plan documents are very short--around 15 pages--because they only include provisions which the statute says must be included (as Sieve mentioned). Does the IRS have the legal authority to require plan documents to include provisions (even if a plan, in operation, satisfies all of the rules) not mandated by statute? I recognize that if a plan wants a favorable D-letter, the plan is practically speaking forced to include whatever the IRS says (given that the D-letter program is an IRS-run program). The LRMs, as I understand them, relate to what plans that want D-letters must include, not what all qualified plans must include (we'll all agree that a plan can be qualified, but not have a D-letter).

I was just interested in what folks are doing. Maybe everyone gets D-letters anymore so the 15 page documents are an endangered species.

An attorney friend has told me that all qualified plans are subject to ERISA and that Sec. 402(b)(1) through (4) of ERISA mandates that certain things must be in the plan document(s) and that Sec. 402©(1) through (3) of ERISA permits other things to be in the plan document(s). She told me to start there and once I was satisfied the document contains the requirements imposed by Sec. 402(b), to move on to what additional things the IRS requires. Her view is that unless the statute says a provision cannot be incorporated by reference, the IRS has no legal authority for requiring a plan document to include this or that. She reminded me that Title II of ERISA consists of the IRC sections applicable to retirement plans.

One reason I brought this up is that Code Sec. 415 and the final IRS regs say that the 415 rules may be incorporated by reference unless there is an optional provision that must be specified (in which case the specification must be in the plan document). Given this ability, why are all of the document providers sending out thick, fat 415 amendments that do the very opposite--regurgitating virtually all of the 415 rules/regs instead of taking advantage of this option? Does anyone know?

Also, does anyone know whether, as the grantor of the plan's trust (assuming a trust is used as the funding vehicle), the plan sponsor or maybe the trustee has a fiduciary duty to obtain a favorable D-letter in order to ensure that the plan is qualified?