I just recently restated the plan document of a plan sponsor that was leaving a payroll provider third party administrator (TPA), one of the 2 big playersin the market.
The plan document looks like it could have been drafted by the folks at the Olympia Cafe on those old Saturday Night Live skits. Maybe the choices were a little bit more than Pepsi or cheeseburger, but the fact is that many of the provisions were very stringent and limited the choices in the prototype that the employer could select.
If the employer wanted a safe harbor 401(k) contribution, it had to be a matching contribution. If the employer didn’t want to offer hardship distributions, that wasn’t an option. Neither was there a choice for a cross tested/new comparability allocation of profit sharing contribution.
It’s nice that a payroll provider TPA wants to limit choices and facilitate administration by having a limited amount of differences between plans. While this plans must “fit the box” approach does wonders to cut down issues on day to day plan administration for the payroll provider TPA, I believe this box approach hurts plan sponsors that have the bank account and the demographics to support a plan that doesn’t fit that payroll provider TPAs’s box. A plan sponsor may leaving money on the table because they didn’t fully maximize their contributions or make some contribution unnecessary.
The plan sponsor client should always come first, the plan document should fit the needs of the employer and not of the TPA doing plan administration.