One of your most important responsibilities is to ensure that your plan documents are updated as required by law and are consistent with the way the plan is actually being administered. Plan documents include, but are not limited to, the plan document, trust document, summary plan description (SPD), and loan documents. While your review of the plan documents should be an ongoing process, you generally need to make sure that any amendments or restatements are executed by the last day of the plan year if you intend for them to be effective for that plan year. You should start by answering the following questions and using your answers as a starting point to a discussion with your ESOP consultant or ESOP counsel:

Are all your plan documents consistent?

Do your plan document and SPD provide for consistent plan provisions? For example, does your SPD provide for different eligibility provisions than your plan document? Now is a good time to work with your ESOP consultant or counsel to resolve any Conflicts Between the Plan Document and the Summary Plan Description (SPD), because Courts Will Not Always Enforce Plan Document Provisions If They Differ From SPD. In fact, SPD Language Providing Less Plan Benefits can sometimes overrule the Plan Document Language. It is also important to remember that Verbal Plan Terms Cannot Modify the Written Terms of the Plan.

Do you have signed copies of your plan documents and amendments? Are they organized and easily accessible?

If not, now is a good time to work with your ESOP counsel and other advisors to organize a complete set of signed plan documents. Make sure all your advisors also have a complete set of the plan documents to ensure that the plan is being administered consistently and correctly. This is also a good time to revisit your records retention procedures to make sure you will easily be able to obtain a backup copy of the plan documents, if needed.

Do any of your documents need to be updated or restated?

• PLAN DOCUMENT – IRS Revenue Procedure 2007-44 – Rulings and determination letters established a 5-Year Remedial Amendment system of staggered cyclical remedial amendment periods for every individually designed qualified plan. Plan sponsors need to apply only once every five years within their applicable 5-year remedial amendment cycle for an opinion, advisory, or determination letter. The 5-year remedial amendment cycle is determined by looking at the last digit of the plan sponsor's EIN. Plan sponsors with EINs ending in "4" and "9" are in Cycle D and their 5-year remedial amendment cycle generally runs from February 1, 2009 through January 31, 2010. Plan amendments, restatements, trust agreements, and any other relevant documents must be included in the filing. The IRS just released IRS Notice 2009-98 – 2009 Cumulative List of Changes in Plan Qualification Requirements.
  
  
• SUMMARY PLAN DESCRIPTION (SPD) – ERISA requires that you update the Summary Plan Description (SPD) every 10 years, assuming there are no plan changes. Most likely, your plan will have made some changes and you will need to update it every five years. In addition, you must provide a Summary of Material Modifications (SMM) "no later than 210 days after the close of the plan year in which the modification or change was adopted." The SPD and SMM requirements are examples of What a DOL Auditor is Looking For When Auditing an ESOP.
  
  Also, remember that a recent court case found that posting the SPD on an Intranet was not sufficient to ensure a participant received it, and that failing to ensure receipt can have a bearing on the Standard of Review.

Are your plan documents consistent with how the plan is being administered?

You need to discuss any inconsistencies with your ESOP consultant or counsel. As we mentioned in our previous item, Verbal Plan Terms Cannot Modify the Written Terms of the Plan.

Are there plan provisions that are not documented that should be?

Examples include a distribution policy and how your plan handles the reallocation of repurchased shares.

Have you received any amendment recommendations from your advisors that have not been addressed?

An example would be a recommendation made during the allocation process to amend the plan to improve the compliance testing results in future years. If recommendations have been made, this review is a good opportunity to revisit the recommendations and determine whether or not they are going to be made (assuming you have not already made them). If you are not going to make the changes, it is a good idea to discuss the reasons with the party who made the recommendations and ensure that everyone is on the same page.

What plan disclosures are required to be delivered to participants between now and your next plan documents review?

Examples include the above-mentioned SPD and the annual Safe Harbor Notice. If you have any intentions of Reducing or Eliminating Safe Harbor Matching Contributions or Freezing or Eliminating the Match and Using the Maybe Nonelective Notice during the plan year, you should make sure you are familiar with the requirements, as well as what to do if you Fail to Provide a Safe Harbor 401(k) Plan Notice.

Has your plan been amended for changes in legislation?

Since an ESOP plan document is individually designed, it is your responsibility to ensure that the plan document is updated for legislative changes. There have many changes in Employee Benefits Legislation since ERISA, including the following legislation enacted since the PPA:

• American Recovery and Reinvestment Act of 2009
• Children's Health Insurance Program Reauthorization Act of 2009
• Lily Ledbetter Fair Pay Act of 2009
• Worker, Retiree, and Employer Recovery Act of 2008
• Michelle's Law 2008
• Emergency Economic Stabilization Act of 2008
• ADA Amendments Act of 2008
• Heroes Earnings Assistance and Relief Tax Act of 2008
• Genetic Information Nondiscrimination Act of 2008
• National Defense Authorization Act for Fiscal Year 2008
  

2009 End of Year Checklist provides links to a checklist of items for the plan sponsor to address by the end of 2009. Post-Gust Required Amendments contains a list of required amendments and due dates for defined contribution plans since the GUST restatement. If you have a different plan year, some of the due dates will be different. Here are some upcoming legislation and related amendments:

• HEROES EARNINGS ASSISTANCE AND RELIEF TAX ACT OF 2008 (HEART ACT) – An amendment for the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act), including treating Differential Military Pay as Wages, must generally be made by the end of the 2010 plan year.
  
  
• SECTION 415 AMENDMENT – For many companies the Section 415 Amendment had an extended tax deadline of September 15, 2009.
  
  
• WORKER, RETIREE, AND EMPLOYER RECOVERY ACT OF 2008 (WRERA) – Some WRERA technical corrections to the PPA, including the Non-Spouse Rollover rules and Rollovers to Roth IRAs, generally must be amended by the end of the 2009 plan year. Other WRERA provisions such as the 2009 Required Minimum Distributions must be amended by the last day of the 2011 plan year. 2009 Safe Harbor Notice of Tax Treatment (402(f) Notice) should be updated.
  
  
• IRC SECTION 409(p) SAMPLE PLAN LANGUAGE – Although the language is not required, a best practice would be to include the Updated 409(p) Transfer Plan Document Sample Language in an amendment or the next plan restatement.
  
  
• PENSION PROTECTION ACT OF 2006 (PPA) – Mandatory and optional PPA amendments must be adopted by the last day of the 2009 plan year. The Pension Protection Act of 2006 (PPA) was signed into law on August 17, 2006, and according to some experts, contains the most comprehensive reforms since ERISA was enacted in 1974. Here are some of the major changes provided by the PPA that are related to ESOPs:
  
  
  • Made the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent (more favorable contribution limits, improved portability of retirement accounts, etc.)
    
    
  • Accelerated vesting requirements to at least a three-year cliff or six-year graded vesting schedule (There is an exception for ESOPs with a loan outstanding.)
    
    
  • Increased the ERISA Fidelity Bonding maximum from $500,000 to $1,000,000 for most plans with employer securities.
    
    
  • Added regulations requiring additional diversification requirements for public ESOPs. The definition of publicly traded in the IRC Section 401(a)(35) Proposed Regulations has an impact on many ESOP provisions including IRC Section 401(a)(28)(C) - Use of independent appraiser, IRC Section 409(h)(1)(B) - Right to demand employer securities; put option, IRC Section 409(l)(1) - Employer securities defined, and IRC Section 1042(c)(1) - Sales of stock to employee stock ownership plans or certain cooperatives - Qualified securities. The regulations also create some challenges for thinly traded ESOP companies and ensuring that the ESOP receives adequate consideration. IRS Notice 2009-97 – Extension of Deadline to Adopt Certain Retirement Plan Amendments delayed this requirement, along with a few other (but not all) PPA amendments, until the end of the 2010 plan year.
    
    
  • Created a requirement to provide Participant Benefit Statements to participants on an annual basis (or quarterly when assets are self-directed).
    
    
  • Added a Qualified Automatic Contribution Arrangement (QACA), which is
    another 401(k) safe harbor option that allows contributions to be fully vested in two years (which may be more desirable than the existing safe harbor options that require immediate vesting).

  There were many additional changes and opportunities provided by the PPA. The ESOP Law Blog addresses six of the ESOP-related PPA provisions. PPA amendments are generally not due until the last day of the 2009 plan year. The PPA does not distinguish between required and discretionary amendments.

There may be other requirements and desirable opportunities from prior legislation that should be added to your plan documents. There are many complexities to be considered when making sure your plan document remains compliant. This discussion is not intended to be all encompassing and is not intended to be a substitute for legal advice. Contact your ESOP consultant or counsel for more information.

The ESOP Planning process includes planning for both the current year ESOP administration process as well as the various events that take place over the life of an ESOP. This article is one in a series of ESOP Planning 2009 articles authored by Aaron Juckett. Aaron Juckett is an ESOP consultant and the founder of ESOP Insourcing LLC, an ESOP administration and consulting firm dedicated to providing ESOP companies with a first-class ESOP experience throughout the entire ESOP lifecycle (feasibility and implementation, ongoing administration and compliance, employee communications, distribution planning, and repurchase obligation forecasting). If you need assistance with the ESOP Planning process, please call Aaron at 800-837-3112 or email him at ajuckett@esopinsourcing.com.