Problem #1 (cont): Signing the Plan Document

It sounds easy. It does not seem like the kind of thing that anyone would mess up. It only takes a few minutes. But, experience tells us that people somehow get it wrong all the time. What simple task are we talking about? Signing 401(k) plan documents! Here are Nova 401(k) Associates’ tips to help with this seemingly simple task and make sure that you keep your plan document up to date.
• Read emails and letters from your 401(k) TPA or provider. Pay particular attention to action items and deadlines. Occasionally, a new client will insist that their old 401(k) provider did not send them an amendment. When we start going through the files, we find the amendment in an unopened envelope from the 401(k) provider!
• Require that 401(k) providers send documents requiring signature at least thirty days in advance. Nothing is worse than getting a document that must be signed by the company’s president within a week when the company president has just left for a two week vacation.
• Work with providers who follow-up. It is the plan sponsor’s responsibility to execute plan amendments, but working with a 401(k) TPA or provider who will follow-up to make sure that you have received and signed amendments certainly increases the odds that everything will be done on time.
• Make sure that everyone required to sign does indeed sign the document. If there are multiple trustees, each trustee may be required to sign. We often see restatements that come back missing one or more trustee signatures.
• Sign everywhere. When plans are restated, it is often necessary to sign the restatement and several amendments. We sometimes see restatements signed, but none of the required amendments are signed. This used to happen even in the day of paper delivery with “Sign Here” stickers, but it is happening more with electronic delivery of plan documents.
• Have the right people sign. Some amendments must be signed by a representative of the company, and some must be signed by the trustee. While these are often the same people at small companies, they are sometimes different people. Make sure to understand who needs to sign the amendment so that you can get the right person to sign the amendment.
• Sign the document on time. Timing does matter, and there could be penalties if a document is signed even a single day late.
• Use a tickler system. Many amendments are due by the end of the each calendar year. Put a tickler on your calendar to ask your 401(k) TPA or provider in late November or early December if there is going to be anything that must be signed by year end.
• Date signatures. There is no technical requirement that amendments be dated, but if amendments are not dated, how do you demonstrate that the amendment was timely adopted? As a practical matter, it is better to date each amendment or restatement when it is signed.
• Do board resolutions. Many plan amendments require that a company representative signs the plan amendment. For corporations, it is great documentation to have a board resolution demonstrating that the person who signed the amendment was authorized to do so. Additionally, if there is a question about when the amendment was signed or if the signed amendment cannot be located, the IRS will sometimes accept board resolutions as supporting documentation. Partnerships, limited liability companies and other entities can prepare similar documents in whatever format that they use to document important items.
• Keep copies. The amendment has been signed on time by all of the right people. Don’t relax until you have that amendment safely filed with the plan’s records. Some 401(k) TPAs and providers require that a signed copy be returned to them, but even if your 401(k) provider does not require this, it is a good idea to send them a copy. Additionally, it is a good idea to keep a scanned copy of the signed amendment.