Governing plan document: Overview, definition, and example
What is a governing plan document?
A governing plan document is the official, binding document that outlines the terms, conditions, rules, and provisions for a specific plan, such as an employee benefits plan, retirement plan, or health insurance plan. It sets the framework for how the plan operates, detailing how benefits are provided, eligibility requirements, contributions, distributions, and the rights and responsibilities of both the plan sponsor (usually the employer) and plan participants (employees or members).
In the case of retirement plans like a 401(k) or pension plan, the governing plan document is crucial for ensuring that the plan is compliant with relevant regulations and tax laws, including those set by the Internal Revenue Service (IRS) and the Department of Labor (DOL).
Why is a governing plan document important?
The governing plan document is important because it provides the official guidelines for how the plan operates and ensures that all participants understand their rights and obligations. It serves as a reference for how the plan is to be administered and helps ensure compliance with applicable laws and regulations, reducing the risk of legal or financial issues for both the plan sponsor and the participants.
For businesses, having a well-drafted governing plan document is essential for regulatory compliance and avoiding penalties related to the administration of the plan. For employees or plan participants, the document provides clarity on the benefits and procedures, helping them make informed decisions about their participation.
Understanding governing plan documents through an example
A company offers a 401(k) retirement plan to its employees. The governing plan document outlines the rules for eligibility (e.g., full-time employees who have been with the company for six months), how contributions are made (e.g., automatic payroll deductions), the investment options available, and how the funds can be withdrawn or rolled over. It also specifies the responsibilities of the company and the plan administrator to ensure the plan complies with IRS rules.
In another example, a company provides an employee health insurance plan. The governing plan document outlines the types of coverage available (e.g., medical, dental, and vision), how premiums are paid, the eligibility criteria for employees, and how claims are processed. It also includes provisions for any legal protections and requirements under healthcare laws like the Affordable Care Act (ACA).
An example of a governing plan document clause
Here’s how this type of clause might appear in a retirement plan document:
“The Plan Administrator shall manage the Plan in accordance with the provisions set forth in this Governing Plan Document, which is intended to comply with all applicable federal and state laws, including the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. All participants will receive benefits in accordance with the eligibility and contribution rules described herein.”
Conclusion
A governing plan document is a crucial element of any employee benefit or retirement plan, as it defines the terms, conditions, and operational guidelines. For businesses, maintaining a clear and compliant governing plan document ensures that the plan runs smoothly and meets legal requirements. For employees or participants, it provides the necessary information to understand their rights and responsibilities within the plan. Whether it’s for a retirement savings plan, health insurance, or another benefit, the governing plan document serves as the foundation for how the plan is structured and administered.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.