Plan provisions that every 401(k) plan should have

I probably have drafted and amended thousands of plans over the years and every plan has its little quirks. When it comes to plan design, I have always believed that some of the bundled providers have it wrong. There is no cookie-cutter approach to retirement plan design; so many plans being handled by bundled providers are underserved because the plan document doesn’t fit what the plan sponsors need or want to do. You’ll have a prototype, fill-in-the-blank document that doesn’t have all the choices that a plan sponsor may want or need. For years, I was recommended by one of the largest plan providers to draft amendments to their prototype documents because up until the EGTRRA restatement documents, they had no provisions for new comparability profit sharing allocation.

That being said, even with prototype and non-prototype, I am often amazed at what provisions that plan sponsors don’t have. I am not talking about required contributions like safe harbor, I’m talking about provisions that are common sense and help facilitate administration. I’m talking about 401(k) plan provisions that plan sponsors eventually end up needing one day they end up spending money to amend the plan to add these provisions. Here are some plan provisions; that I like to see in every plan document:

1. Allowing plan participants to rollover money into the plan and allow them to withdraw it at any time.

2. In-service distribution, allowing plan participants to access their money at age 59 1/2, even if they are still working.

3. Loans, not a big fan of them, but participants may need them for one reason or another.

4. Hardship provision, same view as #3.

5. Discretionary profit sharing and matching contribution provisions. Even if a plan sponsor never wants to make one, I feel having those provisions in there is better than not having a plan sponsor wanting to add them because, with the language needed for an amendment, you’ll need a new document.

6. Roth 40(k) provision. I see no reason for not offering it.

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