Plan Documents and Procedures: Better When They Work Together

By ASPPA Net Staff • March 03, 2016 • 0 Comments
There are plenty of laws and regulations governing defined benefit plans, and that includes what needs to be included in a plan document. Even so, there is some flexibility regarding how to meet those rules and standards. A recent paper suggests that it is best if the plan document reflects not only the letter of the law but also the operations by which those rules are met and applied.

In “United Defined Benefit Plan Documents and Administration in Perfect Harmony,” an article appearing in the February 2016 Milliman Benefits Perspectives, Dominick Pizzano writes that real compliance demands not only obedience to laws and regulations — it also means meeting the terms of the plan document.

To accomplish that, says Pizzano, “great care must be taken when initially composing the plan document so that the terms accurately reflect the manner in which it will be administered.” And he warns: “Too often, what seems like a preferred provision on paper proves to be an impractical administrative headache once the plan goes live.”

Pizzano offers some suggestions on how to keep plan documents in sync with legal requirements and plan administration, and how a plan can avoid and address potential problems with accomplishing both at once.

Suspension of Benefits Without Suspension of Compliance
Pizzano notes that there benefits may be suspended and not run afoul of the rules when participants (1) work beyond the normal retirement date (NRD); or (2) return to work after beginning to receive retirement benefits.

Timing is central to both circumstances, Pizzano argues. He suggests that it is more possible to ensure that benefits begin at the right time if one confirms that language of the plan documents, as well as their operational procedures, are in sync when establishing provisions concerning benefit commencement dates, as well as when they are administered. For instance, Pizzano says, “the plan should say when the benefit may start as well as when it must start.”


Pizzano argues that it is important to consider how the plan document addresses cashing out and to make sure that there are administrative provisions that will facilitate compliance. He suggests that steps that will help include:

  • periodically review distribution paperwork and compare it to plan document rules;

  • review auto-enroll IRA vendor contracts to see what requirements are legally mandated; and

  • make sure there is a regular cash-out sweep procedure if the required by the plan document.

Benefit Requests

Not only is it important to remember that employees receive election and rollover forms, optional benefit descriptions and other required disclosures, it also is key to stay within the IRS notification rules, Pizzano reminds. In addition, the plan may consider putting in place procedures to handle unexpected delays in meeting benefit commencement dates.

Be Ready

Pizzano cautions that the IRS and the Department of Labor audit thousands of employee benefit plans every year, and notes, “Both agencies have a consistent pattern of issues they look for when they audit a plan.” Pizzano suggests that it is advisable to “constantly stay in tune with legal and regulatory updates that may require changes to the plan document language and/or plan administration.”