The Importance of Documented Retirement Plan Procedures
Offering a retirement plan as part of your company’s benefit package comes with a responsibility to operate the plan consistently and in compliance with IRS and Department of Labor rules. One often overlooked but critically important requirement is having established practices and procedures for administering your plan. The best way to achieve this is by documenting clear practices and procedures that guide the day-to-day activities associated with the administration of the plan.
Why Operational Practices Matter
These practices serve as the operational framework of the plan. They help ensure that eligibility is determined and tracked accurately, contributions are calculated and deposited on time, and distributions are processed in accordance with legal requirements and plan rules. They also create continuity when staff transitions occur, reducing the risk that knowledge is lost and errors occur. For example, procedures can describe when and how often you verify that employees meet eligibility requirements, how payroll is coordinated with the contribution deposit process, and how plan loans and distributions are evaluated so that they comply with the terms of the plan.
Managing Beneficiary Designations
Another critically important area is the management of beneficiary designations. Because retirement plan benefits are often among an individual’s most valuable assets, it is essential that they be properly handled upon a participant’s death. Clear procedures for collecting, tracking, and preserving beneficiary forms, along with reminders to participants to review and update them after major life events, help protect the plan, the employer, and the participant’s family from unnecessary conflicts, costly delays, or disputes.
Required Practices for Compliance
It is also important to note that practices and procedures are not just a matter of good governance; in some cases, they are expressly required. For example, the IRS’s Employee Plans Compliance Resolution System (EPCRS) allows plan sponsors to self-correct certain operational errors and preserve the tax-qualified status of their plans, but only if the plan has established compliance practices and procedures in place.
Strengthening Fiduciary Oversight
Documented procedures are a key component of a plan’s fiduciary oversight. Establishing and maintaining clear, practical written procedures helps ensure the plan is administered correctly, compliance requirements are met, and day-to-day operations are handled consistently and effectively.
