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DMcGovern

death of sole prop, who is able to terminate the plan?

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401(k) Profit Sharing Plan, employer was a sole prop with employees. Upon the death of the owner (a lawyer), the business is no longer in existance. The plan document does not provide for what happens if there is only one Trustee and no one is appointed prior to his/her death.

The spouse was appointed as Representative of the Estate. As such, she signed paperwork with investment companies to become the authorized signer on the accounts and did distributions to the other participants.

Spouse also has an attorney helping her with the estate, and the attorney says she does not have the authority (nor will they recommend she take on the authority) to sign the amendment to terminate the plan (since the business no longer exists). Side note on the plan - the deceased owner may have had some prohibited transactions involving the assets of the plan. We are thinking that the attorney is trying to protect the spouse from dealing with this.

The two actions seem contraditory to me.?? Either you have the authority to approve distributions AND to terminate the plan, or you cannot do either. Yes, No?

Would the plan have been considered an abandoned plan? Is there something in the regs that I can cite with this attorney to explain the spouses position here?

Thank you in advance for your help!

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Just finished up one of these. We took the position that the Adminsitrator (court appointed) of the estate had responsibilities to wind up the affairs of the decedent, INCLUDING the winding up of the business of the decedent INCLUDING termination of the plan (settlor functions) - but they accepted no "fiduciary" resonsibility (and whether that was effective or not at their not actually having any fiduciary responsibilities, who knows). Bottom line, a plan can't be without a fiduciary, and the estate as an entity was probably one - but the Administrator only operated in a ministerial capacity (with respect to the plan) bu nonetheless was a fiduciary with respect to the estate - so had to do that which would protect the estate (including winding up of the decedent's/estate's responsibilities to the plan and it's participants). Makes your head spin.... Plan was terminated, distributions occured, and the matter was put to rest.

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Since the business of the decedent was his property, upon his death the business is part of his estate which is to be administered by the executor or administrator of the estate. The executor can be the plan fiduciary or can appoint a fiduciary/PA to wind up the plan. Otherwise the plan becomes an orphan plan whis is not a preferred outcome since the owner's estate wants the benefits under the plan so that distributions can be made to the beneficaries. In order to pay distributions someone must become the plan fiducary under ERISA with authority to distribute plan assets.

The fact that the party who winds up the plan and authorized distributions did not accept fiduciary responsibility is meaningless. Under ERISA anyone performing a fiduciaty function such as distribution of plan assets is a fiduciary under ERISA, regardless of a denial of acting in a fiduciary capacity under the plan.

In other words anyone performing a fiduciary duty under ERISA is a fiduciary regardless of whether they accept no fiduciary responsibility in any written document they sign.

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The fact that the party who winds up the plan and authorized distributions did not accept fiduciary responsibility is meaningless. Under ERISA anyone performing a fiduciaty function such as distribution of plan assets is a fiduciary under ERISA, regardless of a denial of acting in a fiduciary capacity under the plan.

In other words anyone performing a fiduciary duty under ERISA is a fiduciary regardless of whether they accept no fiduciary responsibility in any written document they sign.

No doubt. But an Administrator of an estate is functioning only as a respresentative of the estate, and not in their own capacity - hence, while the DOL may argue the point, I wold argue the estate is the fiduciary, operating through the signature of the Administrator. Would it work? Better than "admitting fiduciary responsibility" - at least it can be litigated, if need be.

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Acting as fiduciary under ERISA is a functional test- did the party perform the duty of a fid under ERISA 3(21) e.g., dispose of plan assets. If so then the party is subject to the fid rules. It doesnt matter that the person says I was acting in the capacity of executor of the estate not as plan administrator in distributing the assets. If the executor does not want exposure to fiduciary risk then hire a another party to perform the fiduciary duties of winding up the plan. But there is no way for a plan to authorize the distribution of plan assets without being the plan fiduciary under ERISA. Since the executor is the alter ego of the estate the estate can only act through the executor.

Under your logic any party performing a fiduciary duty could claim that they were acting in another capacity to avoid fiduciary liability.

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MBOZEK: I understand completely the functional test of ERISA for fiduciary status - and lecture on the issue nationally. However, the executor of an estate is an individual operating in the capacity of the Estate - not in an individual capacity. As such, under state laws, the function o the executor, to the extent it is consistent with the standards of the jurisdiction in whcih they are operating, is not "personally liable" for those activities that are truly the purview of the estate as successor to the decedant. There is a fiduciary obligation under state probate laws that make the administrator one with respect to the bene's of the estate, but undertaking ERISA fiduciary liability simply because the decedent was a fiduciary with respect to the plan would cause most of those who act as an administrator to refuse to do so.

Is that at odds with the functional test of fiduciary responsibility/liability? I can make the argument either way (depending on who my client is) and would, if I represented the administrator of the estate, have them take the position that the estate is the fiduciary and that they are administering the estate which in turn is administering the plan. Is it a winner? I don't know, but I do know that simply admitting that they are a fiduciary by virtue of signing a distribution form is a losing proposition - from the start.

As a practical matter, if the plan is to be terminated, and *if* I had no way to even argue that the adminsitrator fo the estate was acting in a ministerial capacity with respect to the plan, then I would ALWAYS tell the administrator to either resign as such, or notify the DOL that the business has abandoned the plan for want of a fiduciary. Neither option does anyone any good. In most cases, as well, it isn't feasible or cost effective to hire another to function as a fiduciary with respect to the plan. The cost would eat too many estate/plan assets.

So, what's an administrator of an estate to do? My advice is to approach the tasks ministerially (if that is a word), document it as such, never admit that it may be a fiduciary function, but be prudent in the exercise of that function, and if caught, defend first and foremost that the function wasn't a fiduciary function, secondly, that the actions undertaken were ministerial on behalf of the real fiduciary (that being the estate), and thirdly, that it was done appropirately, nonetheless.

Otherwise, we'd have a whole lot of abandoned plans out there.

Acting as fiduciary under ERISA is a functional test- did the party perform the duty of a fid under ERISA 3(21)

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Under ERISA there is no such concept as a ministerial decision to distribute plan assets by the person who has authority to disburse the funds. About 20 years ago there was a case where the wife of the owner who was the company bookkeeper made a decision to distribute plan benefits to participants and wrote the checks. Plan participants complained about the payments and case went to trial. Bookkeeper claimed she was only acting in her capacity as the company bookeeeper and not plan administrtor. Court held her to be the plan fiduciary because she exercised authority to distribute plan assets. See reg 2509.75-5 D-1

ERISA determines fiduciary responsibility by the acts a person performs for the plan, not the label under which that person operates. In addition, ERISA preempts state laws including laws that would prevent personal liability of the executor, to the extent such laws relate to the plan and its operation in distributing benefits. An executor/administrator electing to distribute plan assets under the authority of letters testamentary issued by a state court is a fiduciary under ERISA.

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