This is Spinal Tap has the great line that “there is a fine line between being clever and stupid.” The same can be said with plan provisions that are what I call: “out of the box.” I call it out of the box because it reminds me of the boxes on a prototype plan document and so many times, there are plan provisions that a plan sponsor wants that doesn’t fit it.
While a good third party administrator (TPA) can effectively administer these type of provisions, mistakes can happen even with the best of them. For not so good TPAs, it happens more often than not. My suggestion is that if you can, avoid these out of box provisions as much as you can. Sure, there are times when you need those provisions, but I always suggest that you keep them to a minimum. I know plan sponsors may not want to make employer contributions on certain parts of W2 compensation, but I have had a handful of compensation problems for plans that need to be submitted to the Internal Revenue Service Voluntary Compliance Program at the plan sponsor’s expense.
The best to avoid trouble is to avoid it and I think a great way is to minimize the use of out of the box provisions that most 401(k) plans don’t have.
