Recently, a client brought me in to review a defined contribution plan document given to them by a service provider to create their new plan. In the document, it makes reference to regular investment committee meetings, a benefit committee and an appeals committee. When I asked my client about who would serve on those committees, he confessed to me that not only had he not thought about it, but he was not really aware that the document said these committees would even exist. I would imagine he is not the only person with a benefit plan that might not be aware of the requirements of administration contained in his plan.
Whether or not committees are necessary to have or good for plan administration is a topic for future debate. But what this anecdote does bring up is a reminder that plan administration is governed by the terms of the written plan. ERISA provides some pretty broad protections to diligent plan fiduciaries, but those protections are limited in that a fiduciary has to follow the terms of the plan document to get them. In many respects, the plan documents serve as a promise to participants about the constancy with which the plan will be administered and courts, when reviewing fiduciary decisions, hold fiduciaries to those promises.
Obviously, a plan can change over time, which is why there is a process for amending plans and a process for notifying participants of changes to the plan. Consequently, over the years, the way a plan is actually administered can begin to differ from how the plan documents say it will be administered. I find this happens quite often when companies merge or make acquisition in inherit benefit plans that are not being terminated. Unfortunately, inconsistencies between actual plan administration and what the plan says will be done on a regular basis usually dont come to light until there is litigation against the plan and it turns out the terms were not being strictly followed.
Lately, I have been recommending that plan sponsors undertake a self-audit of their plans to see how the plan document says they are administering their plans. Make a ledger that has, on one side, how the current administration process works and, on the other side, all of the things the plan document says are used in administration. Then work to reconcile the two. Use this review as an opportunity to get with your plan services providers to develop best practices and, if necessary, update your plan documents accordingly. Just make sure to follow whatever process you develop.
I once read a case where the participants were suing the plan sponsor for mismanagement of a 401(k) plan and the plan document provided that that an investment committee would meet at least annually to review the investment options offered by the plan. It turns out the committee had never met and in fact was never actually formed. As you can imagine, things did not go well for the fiduciaries in that case. Better to review and revise your plan now then to get caught not following your terms.
Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at
The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.
