Melissa had just started managing HR for a growing company, and she’d inherited the 401(k) plan oversight role. We were chatting about common pitfalls when she leaned in. “David, I’ve been reviewing our plan document, and though I’d probably get fired if I told my boss this, I don’t understand half of it. How big of a deal is that?”
I set down my coffee cup. “It’s a very big deal. Your plan document is the instruction manual for how your retirement plan is supposed to operate—eligibility rules, how vesting works, whether bonuses are included in deferrals and matches. If it’s written one way and operated another, you’re exposed—and that means fines, penalties, back payments … not just a slap on the wrist. Now that will get you fired!”
She raised an eyebrow. “I’m sure you’re talking from experience. What kind of differences do you see between plan documents and reality?”
“One company came to me for help because they didn’t want bonuses included in deferrals or matches, but no one clarified that with their TPA when the document was created. That left them on the hook for matching on bonuses and for making corrective contributions for employees who should’ve been able to defer on them.”
“Ouch,” she said.
“Another wasn’t aware that automatic enrollment was baked into their plan setup. And then no one auto-enrolled the employees who didn’t opt out. That meant another round of corrective contributions.”
Melissa shook her head.
“And there’s more: Take your profit sharing, for instance. If the document says everyone gets the same percentage, that might not match your actual goals. You might have wanted higher contributions for owners or key employees—but if the plan document doesn’t reflect that, that’s money wasted—and there’s nothing quite so much fun as a leadership team that feels ripped-off!”
“So what about part-timers? We didn’t intend to include them, but I can’t make heads or tails of what the document actually says about that.”
“That one’s tricky. If your plan document allows them to participate and you never gave them enrollment material, you could owe them money. The new SECURE 2.0 Act rules require offering the plan to long-term part-time employees who work 500+ hours per year for two consecutive years. And if your plan went further and you didn’t realize it, you could be liable now.”
Melissa took a deep breath. “So basically, if I don’t read the document with someone who knows what they’re doing, we’re setting ourselves up to fail?”
“Exactly. When a plan document is created—or restated—it must be a conversation, not just a handoff. Your TPA can’t guess your intent.
“But Melissa, don’t let this make you feel like you’re unqualified for your new job. Every HR manager needs someone on their side who knows what questions to ask—an expert who has a thorough understanding of the constantly-changing tax laws.
“Will that help us put a plan document together that isn’t written in Klingon?”
“Yes … and if you do have a question, I’ll be a quick phone call away.”