Fiduciary Guidance Counsel

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  1. My experiences advising those who administer troubled plans are like BG5150’s observation. A few years ago, submitting a .pdf in the slot for an independent qualified public accountant’s report got a helpful lag. In the past two years, the file-or-else letter comes noticeably quicker than before. Don’t expect the Labor department to excuse an audit with no more explanation than that the plan trust lacks money to pay the CPA firm’s fee. If your client is or includes a fiduciary who decided that the plan’s trust would pay or deliver final distributions without setting aside a reserve for plan-administration expenses, consider whether each fiduciary wants his, her, or its lawyer’s advice about whether so deciding breached the fiduciary’s responsibility, and whether the fiduciary might be liable to restore the plan’s assets as needed to meet the plan’s expenses. If you are a service provider that would draft a Form 5500 report on 2016, consider whether the plan paid your fees or what advance retainer you might require before you commit to a service.
  2. As many BenefitsLink people might say, a starting point is RTFD – read the Fabulous document. This matters on your query because a plan might provide more service crediting than applicable law requires. If one thinks service crediting or avoiding a break-in-service might be required by a State’s law (rather than under the plan’s provisions), the plan’s administrator might want its lawyer’s advice about whether the plan is governed by ERISA and, if so, whether ERISA preempts the State law. While I don’t give advice, I’m not readily imagining how a State’s mainstream employment law about family or medical leave would be an unpreempted law that regulates insurance, banking, or securities. ERISA § 514(b)(2)(A). Is the State law you’re concerned about a generally applicable criminal law? ERISA § 514(b)(4)?
  3. If one does not apply for the Internal Revenue Service's written determination, is there any Internal Revenue Code rule that requires restatement of a plan?
  4. If ERISA governs the retirement plan, a State’s community-property law ought not to apply in deciding the plan’s payment. However, States’ laws might apply in sorting out whether the plan’s distributee must pay over to a person who is a rightful taker under State law. Although ERISA preempts State laws, some courts treat a State’s slayer rule as not preempted or finds a slayer rule is included under the Federal common law of ERISA. For example: Mendez-Bellido v. Trustees of Div. 1181, A.T.U. Pension Fund, 709 F. Supp. 329 (E.D.N.Y. 1989); New Orleans Elec. Pension Fund v. DeRocha, 779 F. Supp. 845 (E.D. La. 1991); New Orleans Elec. Pension Fund v. Newman, 784 F. Supp. 1233 (E.D. La. 1992); Addison v. Metropolitan Life Ins., 5 F. Supp. 2d 392 (W.D. Va. 1998); H.E.B. Inv. & Ret. Plan v. Harris, 217 F. Supp. 2d 759 (E.D. Tex. 2002). At least one court held that ERISA preempts States’ slayer laws. Ahmed v. Ahmed, 817 N.E.2d 424 (Ohio 2004).
  5. Even if the public-schools employers attend to these issues, often there might not be much to do. A typical public-schools employer's 403(b) plan is salary-reduction-only. Most often, there is no Form 5500 report to do (or undo). Most often, there is no plan trust to change. Combining two or more governmental plans' written plans into one written plan shouldn't be too difficult. If the combining employers are in a State that has collective bargaining or discussion, each employer should attend to those duties. For example, it's unusual to discontinue an investment alternative without the assent of each union or association.
  6. I've heard some practitioners suggest not restating a plan if doing so might make it more difficult to show that the plan remains the same as what obtained the most recent determination letter. Others hate the distraction and inconvenience of piecing together a plan from more than one document. If you found no amendment is needed, doesn't that mean there is no document failure to correct?
  7. What, if anything, does the health and welfare trust's document provide? If you don't find a right there, get a participant or beneficiary, who can use his or her rights under ERISA section 102-104 and 502.
  8. RatherBeGolding, jpod, and My 2 cents, thank you for helping me sharpen my thinking.
  9. Consider this situation (hypothetical, but I hope grounded in enough reality to be useful for our BenefitsLink conversation). An employment-based retirement plan’s fiduciary seeks a rollover-IRA for default rollovers. The fiduciary receives three offers. Each offer presents a form of agreement closely based on 29 C.F.R. § 2550.404a-2(c)(3), including contract promises and warranties on all five conditions. Every offer represents and warrants that the IRA’s and its investments’ fees and expenses don’t and won’t “exceed the fees and expenses charged by the individual retirement plan provider for comparable individual retirement plans established for reasons other than the receipt of a rollover[.]” Yet these offers differ not only in their illustrations of the capital-preservation investment’s past performance (which anyhow might not predict future performance) but also in the current fees and expenses. If the fiduciary does no analysis, chooses one offer, and over the years it turns out to have had the highest fees and expenses and the worst investment performance, is the fiduciary nonetheless protected by the rule’s safe harbor? (Assume full disclosures, and that neither the selection of the IRA nor investing a rollover into it results in a nonexempt prohibited transaction.) If the fiduciary has some responsibility beyond what the safe harbor deems “satisfied”, what is that responsibility?
  10. Despite an employer/administrator’s worry (as perhaps advised by its lawyer or independent qualified public accountant) that the IRS might tax-disqualify even a plan that adhered to the IRS memo’s conditions, could there be circumstances in which a loyal and prudent fiduciary might decide the plan should take that risk to gain for the plan expense savings? Imagine a plan has been paying its recordkeeper a fee to collect the hardship claims, to image those documents (including underlying source documents), and to review the claims under a procedure the administrator set. Imagine further the plan allocates its expense for that service by charging a $25 processing fee to the account of each participant who gets a hardship distribution. The recordkeeper offers the plan electronic processing of the hardship claims under a method that meets the conditions of the IRS memo. For those claims, the incremental fee is $0. (To make this hypo simpler, assume the plan receives no contribution beyond salary-reduction contributions, so the employer gets its tax deduction whether the plan is qualified or isn’t.) Could a fiduciary decide the harm to participants caused by a tax disqualification (adjusted for probability) is smaller than the burden of the processing expenses made necessary by not allowing participants a choice of the newer claims-handling method?
  11. As Bill Presson explains, recognition as an ERPA can be useful for one who lacks the wider rights of practice that come with the first four categories of practitioners. 31 C.F.R. § 10.3(e)(2): Practice as an enrolled retirement plan agent is limited to representation with respect to issues involving the following programs: Employee Plans Determination Letter program; Employee Plans Compliance Resolution System; and Employee Plans Master and Prototype and Volume Submitter program. In addition, enrolled retirement plan agents are generally permitted to represent taxpayers with respect to IRS forms under the 5300 and 5500 series which are filed by retirement plans and plan sponsors, but not with respect to actuarial forms or schedules. http://www.ecfr.gov/cgi-bin/text-idx?SID=26de942d1f173f514d88111e2fe63237&mc=true&node=se31.1.10_13&rgn=div8
  12. The not-so-hypothetical situation I described yesterday is based on a real situation I worked on. Unlike ESOP Guy’s illustration of a different fact pattern, there was no investor before the retirement plan’s purchase of all the corporation’s original-issue shares. Rather, the retirement plan paid the corporation an amount for 100% of the corporation’s original-issue shares. The appraiser’s report said the corporation’s value was identical, to the penny, to the amount the retirement plan paid in for the shares. So if, as the appraiser’s report concluded, the corporation had no value beyond its money (which it didn’t have before the only investor put it in), why would an investor part with money with no expectation of a return? RatherBeGolfing is right that investors generally, and investors in these businesses particularly, might not be coldly rational. But meeting ERISA and Internal Revenue Code rules for doing transactions at fair-market value calls for a valuation grounded on what such a hypothetical arm’s-length investor would do. There can be proper ways to value the fair-market price of a share of a start-up business. But that isn’t what was done in the appraisal I saw.
  13. Wouldn’t a rational investor pay no more than fair-market value based on what a share’s value is when the investor makes the purchase (rather than what the value becomes after the investor made her purchase)?
  14. Here’s a question to ponder: If a corporation invites an arm’s-length investor to purchase 100% of the corporation’s original-issue shares before the corporation has any customer, any business activity, any franchise right, any intellectual property, any other property, any money, or any other asset (beyond the corporation’s right to be a corporation), how much should the investor pay for the shares? If your answer is anything more than $0.00, why?
  15. If a plan has a significant number of participants who get postal-service mail (rather than e-mail), some such plans bunch many required notices (at least for retirement plans, or for all health, other welfare, and pension benefits) so they can be mailed in one envelope - often in late November, to include notices to be delivered at least 30 days before a new year begins. (Please understand that I don't advocate for or against this idea; I seek only to learn more.) Has anyone made a list of the many notices and other required or desired communications one could put into such a Thanksgiving envelope?