Plan document

What a plan document is

ERISA requires every plan to be established and maintained under a written instrument, and the tax code requires a qualified plan to follow its written terms. Most small and mid-sized employers use a pre-approved document that has two parts: a basic plan document with standard provisions, and an adoption agreement where the employer selects options such as eligibility, match formula, vesting schedule, and whether to allow loans and hardship withdrawals.

Related documents include the trust agreement, the summary plan description given to employees, and written policies for loans and investments.

Why it matters to employers

“Failing to follow the plan document” is one of the most common errors the IRS finds. Day-to-day operations are run by payroll and provider systems, and those settings drift away from the document over time. When they differ, the document wins and the difference is a mistake that must be corrected.

The document also has to keep up with the law. When Congress changes the rules, as with SECURE 2.0, plans must adopt amendments by set deadlines even if operations changed earlier.

Example

An adoption agreement defines compensation as total W-2 pay, including bonuses. Payroll calculates deferrals and match on base salary only. Every bonus payment creates a missed deferral and a missed match that the employer has to correct, usually with a contribution and earnings.

Common mistakes

• Not having a signed, dated copy of the current document and every amendment.

• Changing how the plan works, for example a new match formula, before amending the document.

• Setting up payroll from memory, not from the adoption agreement.

• Missing a required amendment deadline.

• Letting the summary plan description go out of date after an amendment.