Setting in Stone

Many service providers offer a standard prototype plan document to their retirement plan clients. So, it might seem plan advisers do not have much of a role to play when it comes to helping plan sponsors with their plan documents. 

That is far from the case.  

The prototype document might work for some plans, but other options—a volume submitter document or a customized document—often can provide more value to a retirement plan, sources say.  

What is more, a plan document cannot simply be filed away and forgotten. Restatements are mandated by the Internal Revenue Service (IRS) about every six years.  Also, when new regulations or laws are imposed by the IRS, or when changes in the plan design or operating procedures are made, the plan document must be updated. The adviser is the one who must keep sponsors abreast of their need to be in compliance with the rules affecting plan document updates.  

The adviser also is often the individual best positioned to recommend to the sponsor what type of document the plan should adopt, if a new plan, or whether an existing plan should switch from prototype to volume submitter because of the greater flexibility.  

“A plan sponsor may need something more specialized [than a prototype document]. The adviser must be able to recognize the opportunities for that,” says Gerald J. Wernette, Director of Retirement Plan Services for Rehmann, a consulting and financial services firm based in the Midwest. 

Changes made a few years ago by the IRS in the volume submitter document make it more flexible for many plans than a standardized prototype, according to Dean Carey, Assistant Vice President of Advisory Services for MassMutual’s retirement services division. Because of that greater flexibility, “you’re starting to see a change where clients are switching from a prototype to an IRS pre-approved volume submitter,” says Carey. That flexibility can be helpful to sponsors with unique plan designs, so it is important for an adviser to evaluate which type of document is the best fit for each client. 

Advisers also need to evaluate the cost of the document type. The value of switching to a volume submitter document might be overridden by the cost because, with a volume submitter or customized plan document, ­sponsors often need to hire an ERISA attorney. Some plans decide that it is more cost-effective, therefore, to remain with the prototype document, the least expensive option, sources say. However, plans with more complex plan designs might find the ­prototype unable to accommodate those complexities. Each case must be looked at separately, depending upon what the sponsor’s needs are, the complexity of the plan, and the financial structure of the plan, say Wernette and Carey. 

Moreover, just because a plan’s service provider offers a prototype document does not mean that is the best option. Sometimes, it makes sense to go to an outside vendor, including recordkeepers, for plan document services, say Wernette and Carey. 

Robert Kaplan, Vice President of Corporate Markets for ING’s U.S. Retirement Services, says there are four principal issues for the adviser to consider with a sponsor when the plan document is written or restated: eligibility provisions of the plan, the type of employer contributions, the way participants can take assets out of the plan (such as loans), and discrimination testing and compliance with safe harbors. Once the document is in place, anytime changes are made in these areas, the adviser should alert the sponsor that the plan document must be updated.