What is a plan document?
A 401(k) plan document is a formal written document required for every 401(k) retirement plan. It outlines how the plan operates, reflecting the organization's objectives in sponsoring the plan. This includes details such as eligibility requirements, contribution formulas, vesting schedules, loan provisions, and distribution rules. As regulations change or plan features are modified, the document must be updated accordingly.
How do I find the plan document?
Your plan document is usually located in your Betterment account under Resources > Documents. It was also sent to the person who originally signed it, typically your plan administrator or HR representative. If you can’t find it or need another copy, contact our support team for assistance.
Why is it important to understand and follow the plan document?
Following the plan document helps to ensure compliance with Internal Revenue Service and Department of Labor regulations. Failure to operate the plan in accordance with the document can result in penalties.
Who is responsible for the 401(k) plan's operations and administration?
The plan document identifies the "Named Fiduciary," who has the ultimate authority over the plan's administration, operations, and investments. Typically, the employer serves as the Named Fiduciary and acts as the plan administrator responsible for governance.
What are the key fiduciary responsibilities under the Employee Retirement Income Securities Act (“ERISA”)?
Fiduciaries managing plan investments and decisions must follow five key ERISA rules:
- Act solely in the interest of plan participants and their beneficiaries.
- Carry out their duties prudently.
- Follow the plan documents (unless inconsistent with ERISA).
- Diversify plan investments.
- Pay only reasonable plan expenses.
Documenting decision-making processes is an essential part of fulfilling these fiduciary responsibilities. Many employers establish a formal 401(k) Plan Committee to help to ensure decisions are properly discussed and recorded.
What types of 401(k) plans are available, and how do they differ?
The plan document identifies the plan type, which may include:
- Traditional 401(k) plans: These offer flexibility in employer contributions and vesting schedules but are subject to annual nondiscrimination testing.
- Safe Harbor 401(k) plans: These plans automatically satisfy certain nondiscrimination tests but require mandatory employer contributions that must vest immediately, with an exception for QACA Safe Harbor plans, which allow up to a two-year cliff vesting schedule.
Each plan type has its own benefits and requirements, depending on the organization’s goals.
Understanding your 401(k) plan documents is important to maintaining compliance and operating the plan effectively. Regular reviews and updates help align it with current regulations and company objectives.
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