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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.