Determining Plan Document date for a non-ERISA 403(b)changing to an ER

[Guest]

A client currently has a non-Erisa 403(b)Plan (salary reductions only) and would like to establish an Erisa 403(b)Plan with employer contributions. Does the Erisa required Plan Document need to be in place before they make a contribution? during the year that they want to make a contribution(ie, 2% of salaries from 7/2000 to the end of the year)? How does that transition work?

[Guest RJT]

There is no tax code requirement that a plan document be in place, thus, there will be no tax effect on failure to have a timely and signed document in place on the new benefit's effective date.

ERISA 402(a)(1) requires a plan document, and it is a fiduciary violation NOT to have one. But there are no penalties associated with not having one, except where a participant requrests a copy of it and you can't produce it. Participants are also entitled to a reference to the plan term upon which a benefit denial is based, should you ever deny a claim.

As a practical matter, the timing of the adoption of the plan reflecting the new benefit is not critical-as long as you are administering the plan in accordance with what the written terms will be. So, for example, formally signing a plan document in 2001 for a benefit which was effective in 2000 may not be a smart thing to do from a risk management perspective, but it has no tax effect and has arguably little other liability associated with it.

But the best advice to give, always, is to have the plan document in place concurrent with the commencement of the accrual of that new benefit. This keeps any confusion, and thus adverse claims by participants related to the terms and conditions of the benefit, down.