The first common error highlighted in the IRS 401(k) Fix-It Guide is the failure to maintain the plan document. All qualified plans are required to have a written plan document. As laws change due to Congressional or regulatory action, employers are required to update their plan document to conform to new laws. About once every five to six years, every plan is required to be restated in its entirety to reflect all law change since the last restatement.
In between required restatements, employers may be required to adopt interim amendments to keep their 401(k) plan document current. Generally, interim amendments must be adopted by the end of the applicable plan year, but sometimes different deadlines apply. When Congress, the IRS and the DOL are busy, an interim amendment may be required every single plan year. When there are fewer law changes, a 401(k) plan may go a few years without requiring an interim amendment.
Most employers will want to retain advisors who will be responsible for maintaining the plan document. Some 401(k) record-keepers offer plan document services as part of an overall package, and most 401(k) TPAs offer plan document services. Some employers may choose to have an ERISA attorney prepare and maintain their 401(k) plan document. The employer will need to stay in contact with that whichever provider is chosen to maintain the 401(k) plan document and read correspondence from that provider to make sure that their 401(k) plan document stays current.
For most employers it is impractical to maintain the 401(k) plan document themselves. However, if an employer choose to maintain their own documents (or if they want to check on their document provider), they should review the IRS annual Cumulative List of Changes in Plan Qualification Requirements, which is published towards the end of each calendar year. The Cumulative List provides guidance on law changes and amendment deadlines.
If an employer would like some assurance that their plan document is up-to-date, he or she may choose to file an application for an IRS Determination Letter. When an employer files for an IRS determination letter, the employer sends the plan documents and other information to the IRS, the IRS reviews the plan document and other information, and if it the plan is up-to-date, the IRS issues a favorable determination letter. There is usually an IRS user fee to file for an IRS determination letter, but many small plans qualify for a user fee exemption for the first five years of the plan’s existence.
EPCRS can be used to correct document issues.