Should Each Recordkeeper Use Its Own Plan Document?

“We sponsor an ERISA 403(b) plan with two recordkeepers. Should each recordkeeper be using its own preapproved plan document as the plan document for the plan, so that the plan essentially has two documents?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: No. Even in multiple recordkeeper plans, there is one document per plan.  If you have multiple plan documents, you have multiple plans.  Though this sort of thing (each vendor using their own document) was common years ago before the most recent 403(b) regulations were finalized, it is much less common now.

The document would either be a preapproved document, typically provided by one of recordkeepers in the plan that consists of a separate base plan document and adoption agreement for that base plan, or an individually designed plan, consisting of a single plan drafted by counsel. Regardless of approach, the plan document would need to incorporate provisions allowing multiple recordkeepers in the document.  In addition, other information may be incorporated into the plan, such as documentation relating to the annuity contract and/or custodial account funding the plan. 

The advantage of a preapproved document is you have the approval of the IRS as to form, and it is cheaper. The advantage of an individually designed plan is that it allows for greater customization of plan features. The Experts have seen either approach used in multiple-recordkeeper plans, though individually designed is more common with larger plans, since they tend to have more in the way of customized features that would make them ineligible for the vendor preapproved plan. 

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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