If I had a dollar for every time a plan sponsor asked me a question that was already answered in their plan document, I’d probably have enough money to retire.
The retirement plan document isn’t something you sign once and toss into a filing cabinet. It’s the legal blueprint for how your 401(k) plan is supposed to operate. Yet many plan sponsors have never read it beyond the signature page.
That’s where problems begin.
I’ve seen employers accidentally exclude eligible employees because they misunderstood the eligibility provisions. Others have made matching contributions that didn’t align with the formula in the document. Some have allowed distributions or loans that weren’t even permitted under the plan’s terms. None of these mistakes were intentional, but good intentions don’t eliminate fiduciary responsibility.
Your service providers should know your document inside and out, but ultimately the plan sponsor is responsible for ensuring the plan is operated according to its written terms. That’s one of the fundamental requirements of ERISA.
I’m not suggesting every business owner become an ERISA lawyer. I am suggesting you spend an hour every year reviewing the provisions that matter most: eligibility, entry dates, employer contributions, vesting, distributions, and loans. If something doesn’t make sense, ask your TPA or ERISA attorney to explain it.
A plan document shouldn’t be a mystery. It should be a resource. The more familiar you are with its provisions, the less likely you’ll encounter operational failures that require costly corrections.
Your retirement plan is one of the most valuable benefits you provide your employees. Make sure you understand the rules that govern it. Reading your own plan document may not be exciting, but it could save you a great deal of time, money, and frustration down the road.
