ISO article/document on why a plan sponsor should follow the plan document

I know...i know...I should be able to convince TPTB that there are a lot of bad consequences for failing to follow the plan document, but I am in need of something pretty basic on this topic for the top decision maker of my firm. She tends to know how she wants things done regardless of what the plan document says. And I have not been in this position long and am fighting a bit on "how it's been done" vs what the plan doc says. (I have a very strong 401k background, but it is from 1991-2000 or so..so my documents/knowledge can be out of date a bit)

I am in the process of setting up a meeting between our TPA, the exec, our financial advisor etc to go over the terms of the plan document as they exist versus what we want them to be. Our TPA isn't the strongest and seems to be okay with having knowledge that we are not following the plan document (tends to be that we can ask forgiveness later). Once they tell us something, there seems to be no followup (or an assumption that we cleaned up the mess on our side -- now granted much of it is due to prior HR employees and their lack of 401k knowledge or even opening the Plan Document/Adoption Agreement).

Would appreciate any help ......

https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities

"Basic responsibilities ... [of fiduciaries] ... include ... following the plan documents"

Thank you!  Saved me some searching time!  I knew there would be something basic out there!

A little generic history:  ERISA imposed the requirement that a PLAN be in writing, primarily because many "plans" previously were not written, thus enabling (nearly) unlimited abuse.  (IMHO, this is the single most important provision of ERISA.)

33 minutes ago, david rigby said:

A little generic history:  ERISA imposed the requirement that a PLAN be in writing, primarily because many "plans" previously were not written, thus enabling (nearly) unlimited abuse.  (IMHO, this is the single most important provision of ERISA.)

totally agree !!  Luckily we are moving forward and i got buy-in on at least one issue so far.  It's just tough to come in new and see it so very wrong and know that i have to work steadily but quickly to get them in line with the Plan Document (or it in line with them)!

Sorry, but that TPA should be fired, assuming that what you note as their position is indeed correct. You need advisors who will keep you OUT OF TROUBLE, not get you into trouble.

Would your boss keep an accountant who has you deduct things that are not deductible on your tax return?  

The legal basis is the "definite written program and arrangement" requirement of Treas. reg. 1.401-1(a)(2), which is a pre-ERISA reg that remains in effect. Suffice to say that one could argue that the requirement as stated in the reg (previous sentence) is not completely "definite" itself as to exactly what it requires or means, but the IRS has been very consistent over the decades in saying that it means very close and consistent adherence to a reasonable interpretation of what the document says. In situations such as the one you describe there are sometimes different reasonable constructions of the plan language, and, failing that, sometimes the ability to get a reasonable correction in VCP.

I'm of the opinion that the Plan Document is a contract between the Employer and Employees.  There is nothing outside of the four corners of the document.  Break the contract, no Plan.  Maybe contributions are an ordinary business expense deduction but certainly they would be non-qualified and taxable income to the employees.  But you can forget about all those other nasty qualification requirements...  You can fight over whether there's a Trust.

Logic would seem to dictate that you have no plan if you don't follow the terms of the governing document.

Well, maybe. I mean, I think the IRS's doctrine of perfect adherence to the document could be questioned theoretically, but would be pointless because the IRS (and independent CPAs doing plan audits) will never accept the counter argument, which is that any contract permits deviations, etc., if they are harmless or consented to by the other party.

Since plan documents are contracts that are totally within the control of one side of the deal (the employer), I can see why institutionally the IRS and DOL do not want to engage in the argument, other than at the plan audit and EPCRS level, where individual facts and circumstances come into play. The IRS and DOL understandably want as much order, and as little chaos, as possible in the space they have to regulate.

ERISA should not be overlooked.   As a preliminary comment, a plan sponsor for a single employer plan is defined as the employer.  A plan administrator is defined as the person designated as administrator by the document, and if none is designated, the administrator is the plan sponsor.   Unless designated as the administrator by the document or by default, the plan sponsor (typically) would not have the discretionary authority to administer a plan and would not be considered a fiduciary for that reason.  In this instance, I assume that the plan sponsor is the administrator.  All administrators are fiduciaries.

ERISA requires (among other things) that a fiduciary follow the terms of the document as written unless contrary to Title I or Title IV of ERISA.  Failure to follow the terms of the plan document is a fiduciary breach exposing the fiduciary to personal liability.  On the Code side, the IRS considers the failure to follow plan terms to be a qualification defect requiring correction.  I don't believe that a failure to follow plan terms by itself results in no plan.

Agree with Larry.

Failure to follow the terms of the plan is a qualification issue.

Have a look at RevProc 2016-51 aka EPCRS

Fire the TPA - the TPA is supposed to keep the client out of the fire, not draw him closer to it.