Spring Cleaning your Plan Documents

Overall, the IRS’s guidance on how to prevent mishaps related to not updating plan documents is sound advice at any time of year. Most of their recommendations fall under good project management processes.

Recently, the Internal Revenue Service (“IRS”) published guidance for Plan Sponsors concerning updating plan documents, helpfully called the 401(k) Fix-it Guide.[1] The IRS’s guidance aims to find, fix and avoid the mistake of not updating plan documents to capture recent changes to law and regulatory guidance. The IRS looks to two main potential mistakes – either not complying with IRS forms or not making amendments to reflect tax law changes. The IRS’s guidance continues on and includes information on to how to fix mistakes. But the advice from the IRS on finding mistakes may be a good reminder for Plan Sponsors to Spring clean their Plan documents. This is true, the IRS urges, even for Plan Sponsors who operate on a cycle system, updating their plan documents every five years.

For many plan sponsors the Spring season coincides with a pre-budget planning phase that often starts in September. Many companies may have followed financial advice to use the COVID-19 crisis to delve into a new way of budgeting and fund allocation.[2] Plan Sponsors can capture this calm before the storm with by using the enhanced attention and interest of their finance or planning departments to survey their Plan Documents for potential areas in need of updating.

Two years ago, we wrote about Spring Cleaning investment plans. That advice, tailored to employees and their investing, may well be worth reviewing for Plan Sponsors. For example, we noted that: “The first step may be in recognizing that Spring Cleaning is necessary at all. Plan sponsors can start by bringing employees’ attention to the fact that evaluating their investment and financial plans regularly is important. It may also be helpful for plan sponsors to help employees know that evaluating doesn’t have to be overwhelming. Some sponsors may want to create a generic checklist of items.” The same may be true for Plan Sponsors. You may want to use the advice below to act as a checklist to organize that review so that no one, including you, feels overwhelmed.

The IRS recommends that you review the following documents, whether you have an individually designed plan or a pre-approved plan:

·       Original plan document;

·       All subsequent plan amendments or restatements;

·       Any adoption agreements;

·       Any IRS opinion or advisory letter;

·       Any IRS determination letter; and

·       The Board’s records related to the plan in minutes or resolutions.

Aside from the IRS recommendations, Plan Sponsors may want to consider the Department of Labor in deciding how to Spring clean their plan documents. On that topic, other experts advise that reviewing the above documents and these additional documents:

·       Summary plan description;

·       Summary annual report;

·       Hardship withdrawals and participant loans;

·       ERISA Fidelity Bond and

·       Fee Disclosures.

As to the summary plan description and any summary of material modifications, the IRS recommends ensuring that summary plan description matches the actual plan. The IRS recommends naming a person (or job title to ensure proper hand off if turnover occurs) as responsible for maintaining plan documents and revisions to them.

Building this review into your company’s budgeting process can help gather all of the key details on whether you want, or need, to consider changing who can enroll in the plan. To that end, reviewing your investment policy statement can help you determine if you want to modify the employees who can be participants. So too can reviewing fee disclosures if the fees for third party administrators or other service providers are lessened with additional participants.

Overall, the IRS’s guidance on how to prevent mishaps related to not updating plan documents is sound advice at any time of year. Most of their recommendations fall under good project management processes. It includes: doing an annual review of plan documents; specifying a person (or job title) responsible for the specifics of adopting amendments; and ensuring all relevant stakeholders are informed of the need for updating the plan documents. Other recommendations from the IRS on Spring cleaning documents include contacting your service providers and professionals involved in drafting the plans to ensure all modifications or amendments are formally adopted and recorded.

[1] For the entire publication, see this link:

[2] For more information on this guidance see McKinsey’s report here:

These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

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