PLANSPONSOR - October/November 2018 - 70

ERISA EXAMINATION
What Does
The Plan Say?
Understanding the documents is key
A
frequently overlooked fiduciary duty is that of acting in
accordance with plan documents to the extent consistent
with the Employee Retirement Income Security Act
(ERISA). While it may not be light reading, committee members
should be familiar with the terms of those documents governing
the plan, including the plan document. Even though the
committee may delegate daily plan administration, knowing the
plan's provisions is still relevant for retained responsibilities, as
well as for monitoring the people delegated those administrative
responsibilities.
Often clients call to ask us a question regarding how a
benefit should be calculated or who should receive a benefit,
etc. Our first response is always, " What does the plan say? "
Just because something is legally permitted doesn't mean it
is permitted under the terms of the plan document. And just
because " we've always done it this way, " doesn't mean the plan is
being administered in accordance with its terms.
Committee members aren't
the only ones who should
read the plan document.
Keep in mind that the plan document means the most
recent restatement plus any subsequent amendments that have
been adopted. Too often, clients look at a plan document only to
discover they are missing an important amendment changing
the provision in question. For prototype plans, the plan document
generally means the base document, the adoption agreement
and any amendments. Look at those adoption agreements
carefully, as they reflect the key points of the plan. Frequently, a
box is checked incorrectly, creating a drastically different result
than intended. Additionally, these documents can be long and
confusing, as they try to cover a variety of plan options-sometimes
leading a committee to move toward a more streamlined,
individually designed plan.
Committee members aren't the only ones who should read
the plan document. The company's benefits employees who
handle the plan's day-to-day administration should also review
it. They are the ones on the front line dealing with what compensation
is included or excluded, how the match is calculated, who
is eligible, and more.
The failure to follow the terms of the plan, even when it
benefits the participants, is an operational error. If discovered
on audit by the IRS, this can lead to costly penalties and possibly
even plan disqualification. OK, plan disqualification is pretty
draconian and rare-we've never seen it-but the cost associated
with it is generally the IRS's starting point when determining
the appropriate penalty.
If you determine that the plan document hasn't been
followed, rather than run the risk of the IRS discovering a problem
and imposing penalties, we recommend that the committee take
appropriate steps to correct the error. The IRS's Employer Plans
Compliance Resolution System (EPCRS) sets out procedures to
correct plan operational errors, either through self-correction-
just what it sounds like-or a voluntary submission to the IRS for
a fee. The easiest and least costly correction is generally to retroactively
amend the plan document to reflect actual administration.
However, subject to a few exceptions, this requires a submission
to the IRS. Further, retroactively amending the plan to take away a
benefit is generally not allowed.
In addition to understanding the plan document and what
it provides, the committee should regularly review other planrelated
documents including the investment policy statement
(IPS). Investment policy statements are not required but can be a
great guide path for the committee in selecting investment options
and can be evidence of its good process. But-and this is a big
but-having an IPS the committee doesn't follow is worse than
not having one at all. If the IPS says funds will be replaced after
three quarters on the watch list and the committee doesn't do that,
you arguably have a fiduciary breach even if there's a good reason
not to replace the fund. To avoid issues like this, we recommend:
1) that investment policy statements be drafted as guidelines for
the committee to use in its investment selection and monitoring
process rather than as hard and fast rules, and 2) that the statement
be reviewed on a regular basis.
Understanding what the documents governing the plan say
is another tool to make sure the plan is operated appropriately. So
pull up a comfy chair-not too comfy-and read away.
Summer Conley is a partner in the Los Angeles office of
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner
in the firm's Chicago office.
70 PLANSPONSOR.com October-November 2018 Art by Joseph Ciardiello
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PLANSPONSOR - October/November 2018

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