Plan document: the summary plan description
All 401(k) Plans have a plan document which contains a comprehensive detail of all the rules surrounding the Plan. This plan document can be lengthy and overwhelming and therefore, 401(k) Plans also have a Summary Plan Description (“SPD”) document. The SPD is a concise summary of the Plan’s key features, some of which include the following:
- Description of the employees that are eligible to participate in the Plan, when they become eligible to participate in the Plan and how they enter the Plan upon reaching eligibility.
- The types of employee and employer contributions that are allowed under the plan.
- The types of compensation that are used to calculate the Plan benefits.
- The limitations of the amount of compensation that can be used in benefit calculations.
- The limitations of the amount that can be contributed to the Plan.
- The administrative expenses associated with the Plan, as well as to how those expenses are funded.
- The Plan’s vesting schedule.
- The types of distributions allowed under the plan, and the timing of when those distributions can be taken.
- The rules and requirements surrounding Plan loans, including interest rates and repayment periods.
The SPD is a great reference for both the employer and the employee as it addresses the most common questions participants have regarding the Plan. Ultimately, the SPD is a helpful document that can be used to supplement and facilitate discussions regarding the Plan.
Michael Guido, CPA
