Retirement Plan Blog

06 | 30 | 2009 Posted By Jerry Kalish

This is the fourth in our EGTRRA Restatement Series, the purpose of which is to help retirement plan sponsors handle the required amendment and restatement of their retirement plans. Last week, I discussed plan document choices.

Today's post is about the Summary Plan Description ("SPD") and its distribution requirements - electronically speaking. For many retirement plan sponsors the SPD that's part of the EGTRRA Restatement process may be the first in several years. So for purposes of this post (and brevity), I'll conveniently cut through all the technical rules about content, timing, etc., and get right to distributing the SPD in the electronic world.

The Department of Labor (DOL) is the federal agency, of course, that has oversight responsibility for complying with ERISA's reporting, disclosure and fiduciary rules. One of which is that Plan Administrators provide participants and beneficiaries with a copy of the SPD and Material Modifications of the Summary Plan Description (MMSPD) in a manner that is "reasonably calculated" to ensure the actual receipt of the documents.

But in an electronic business environment with email, websites, etc., how do you actually met this requirement. Like many aspects of ERISA that are facts and circumstances based, the regulators provide safe harbors.

The DOL issued safe harbor regulations permitting Plan Administrators to distribute SPD through electronic media as long as certain requirements were met. First issued as interim regulations in April, 1997, the DOL issued final regulations on April 9, 2002. These regulations apply not to just SPDs, but also to permit electronic distribution of COBRA notices, qualified domestic relations orders (QDROs), and qualified medical child support orders (QMCSOs).

Here's a brief overview of the DOL's safe harbor rules: First, retirement plan participants must be able to access electronic information as an integral part of their duties, and they must be able to access documents in electronic form anywhere they are reasonably expected to perform work. If not, then they must consent to electronic delivery.

The DOL safe harbor says that

1. The electronic delivery system must confirm actual receipt of the transmitted information.
2. The system must protect the confidentiality of participants by incorporating measures designed to designed to stop unauthorized access or receipt of the information.
3. The electronic version of the document must be consistent with the style, content and format normally required.
4. Notice of the document's significance must be provided at the time of electronic delivery.
5. The participant must be apprised of his or her right to receive a paper copy of the document free of charge upon request.

Note that all along I've been saying "distributed" and not just "made available". Thus, just simply posting it on the company intranet, for example, doesn't meet the distribution requirement. Such was one of the holdings in a recent court case.

What are the consequences of a Plan Administrator to properly distribute an SPD? As with most ERISA disclosure requirements, there's the potential for substantial financial penalties. It's one of  those "kids don't try this at home" ERISA matters. Check with your advisors first.

Next up, to submit or not to submit the Plan to the IRS for a determination letter, that is the question.

06 | 22 | 2009 Posted By Jerry Kalish

See larger image.

This is the third in our EGTRRA Restatement Series, the purpose of which is to help retirement plan sponsors handle the required amendment and restatement of their retirement plans. Last week, I discussed the written plan document requirement, Put It In Writing.

Today’s post is about what type of plan document to use. And like the clothes pictured in the closet above, you can buy them off-the-rack or have them custom made.

In ERISA terms, off-the-rack plans are those plans that are pre-approved by the IRS. They can be either Master & Prototype or Volume Submitter.

Master &  Prototype (M&P) consists of a basis plan document and an adoption agreement. The basic plan document contains all the non-elective provisions, and the adoption agreement contains provisions that may be selected by the Plan Sponsor. Any change in the pre-approved plan provisions causes the plan to lose its master or prototype status.

A M&P Plan can either be

• Standardized which allows only limited choice and is designed to satisfy the coverage requirements of the Internal Revenue Code, or
• N Non-Standardized which offers additional plan options and more flexibility than a standardized M&P Plan, but does offer the same protection.

Volume Submitter (VS) are also pre-approved by the IRS. A VS in the form of a specimen plan may include an adoption agreement. Once IRS has approved the specimen plan,
employers who adopt the same plan and meet certain conditions will be able to rely on the IRS determination letter.

In contrast, a custom made plan is called Individually Designed (IDP). These are plans that are custom designed to meet the needs of the plan sponsor by providing the maximum amount of flexibility, or are not available through a M&P or VS such as an ESOP or Cash Balance Plan. IDPs must be individually reviewed by the IRS to obtain approval.

Which type of plan document is best? There is, of course, no “best” type of plan document any more that there is a “best” type or retirement plan itself, e.g., profit sharing, 401(k), or defined benefit. It depends on the facts and circumstances of your individual situation and what you are trying to accomplish. But which ever one you select, make sure it fits.

On deck for Friday is the Summary Plan Description requirement.

06 | 17 | 2009 Posted By Jerry Kalish

This is the second in our EGTRRA Restatement Series, the purpose of which is to help retirement plan sponsors handle the required amendment and restatement of their retirement plans.

On Monday, I discussed Why A Law Passed In 2001 Is So Important To Retirement Plans In 2009.

Today’s post is about the written plan document requirement. Seems obvious, doesn’t it, that in order to have a plan, you have to have it in writing? Obvious, yes, but also it’s one of the fundamental requirements that make a retirement plan “qualified”.

A “qualified retirement plan” means that the retirement plan is afforded special tax treatment for meeting a bunch of requirements of the Internal Revenue Code (the “Code”). Some of the qualification requirements have to be met in the document, and others of which have to be met by the manner in which the plan is operated.

The plan document defines the rights and obligations of the plan sponsor, participants, and beneficiaries. It's also the basis for the IRS determining that the plan is tax-qualified in its form.

Here's a few things you may not know about plan documents:

First, contributions to a qualified plan's trust must be made to a trust that is valid under "local law". That is, created and maintained as a domestic trust in the United States. So no offshore stuff.

Second, that doesn't mean that all qualified retirement plans have trustees. The plan can be funded solely through annuity contracts issued by an insurance company or custodial account held by a bank. 

Third, the plan doesn't have to first be submitted to the IRS for approval to qualify for tax-favored status. Whether to submit the plan or not is one of those facts and circumstance questions. But that's a matter I'll discuss later.

Now here's where the EGTRRA part applies. Just because a plan is not submitted to the IRS for approval, it still must be amended periodically. The plan can lose its tax qualified status if the plan sponsor fails to make required plan amendments on a timely basis - even if the changes don't affect the plan's operation.

So where do you get a plan document? The retirement plan marketplace offers a number of alternatives: individually designed or plans pre-approved by the IRS. And that will be the subject of my next post on Monday. 

In the meantime, who says ERISA isn't cool. The picture above is the My Document Laptop Case inspired by the My Document Windows icon. Well, maybe more geeky than cool. It can be found on the designboom website and can be bought directly from the designer in Taiwan. 

06 | 15 | 2009 Posted By Jerry Kalish

Back at the end of last year, 403(b) plans had a looming deadline. It was the January 1, 2009 effective date for the new IRS 403(b) regulations.  I blogged about that deadline in our series of posts we called 403(b) Crunch Time.

I was joined in that series by our blogging buddy Bob Toth, Of Counsel to the law firm of Giller and Calhoun. Bob, Evan Giller, and Monica Calhoun now have their own blog, The Business of Benefits, which you should check out.

One of the significant requirements added by the new IRS 403(b) regulations was that of a plan document. And now looming on the horizon is another IRS document requirement. This one is much more comprehensive since it covers all ERISA retirement plans.

It's the requirement that retirement plans need to amended and restated no later than April 30, 2010 to comply with the 2001 tax law, The Economic Growth and Tax Relief and Reconciliation Act. That law “acronymized” to EGTRRA made significant changes to the Internal Revenue Code as it affected retirement plans.

It’s a complicated matter which I’m going to blog about in a series called The EGTRRA Restatement Series. Part 2 on Wednesday will be about the written plan document requirement for a qualified retirement plan. So  stay tuned.