Critical questions for plan sponsors: Have plan documents been read and understood by plan fiduciaries?

Am I Invested Properly

The plan documents are the governing documents that describe how a plan should operate. It’s important for plan fiduciaries to read all documents so they understand what they can and cannot do as well as what they’re required to do. If the documents aren’t read, it would prove difficult to know what is and isn’t allowed, which may create problems down the line. For instance, if a plan doesn’t allow for loans but a plan sponsor is allowing participants to take out loans from their 401(k), the plan sponsor can get into hot water, by doing something that is prohibited in the plan, which could lead to potential fines (among other things) for a lack of compliance with ERISA. Not knowing that something is prohibited in the plan, because the plan sponsor didn’t read the documents, isn’t an excuse.

One important aspect is Section 404(a), which says plan fiduciaries are required to disclose fees to participants in the plan. All plan participants must receive proper notifications from the plan sponsor through a series of documents and acknowledgement. Plan fiduciaries need to document that the required disclosures have been made available to all participants, current and inactive. Plan sponsors should keep records – by email or noted by file – of when a participant’s disclosures were distributed, and on what date. Consistent documentation is needed for compliance.

Nathan Boxx, Bradley Newman, Jason Seltzer

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