Leaderboard

Great discussion and good points. The sad truth is most business owners in the small to mid-size market wouldn't care it they are able to save a penny. We targeting TPA services, but what about banks? I've had clients and prospects move their Plan because the bank was waiver a favorable letter of credit in front of them. I am confident we do the right thing and regulations are geared at correcting a lot of these wrongs, which only impacts those that follow the rules. We press on and remember, we can only lead that horse to water!!!!!

You get to a certain age and you lose your "filters." I deal with enough ... from the DOL that it's time I turn them loose on something really egregious....

And I think it has to be that way because a failsafe provision needs to be defined/automatic without employer discretion, which would be available via 11(g) amendment if failsafe was not chosen in AA. 11(g) has requirements of its own (vesting concerns for terminated employees) whereas I don't believe failsafe provisions have that. However, if you have a large group terminated as part of a transaction then you may also have partial termination and associated vesting anyway.

Thank you again Peter for more valuable insight and I don't disagree with anything you said. With respect to your poll, I don't have a feel for that. I suspect it is a very high percentage who innocently (probably not the best term there) do not know they are engaging in a fiduciary breach - and many likely do not equate a conflict of interest as a fiduciary breach. But that is just a hunch without any experience to support, FWIW.

CuseFan, there can be circumstances in which fees might relate to shared or coordinated services, with an experienced fiduciary’s prudent attention to protective conditions and reasoned accounting. But in the situation your opening post describes, wouldn’t a good fiduciary ask the service provider whether it would charge the employer a regular fee for the payroll service, and lower the fee charged to the retirement plan? Does the service provider’s offer of “free” payroll services suggest that the retirement plan’s fiduciary might not have selected or negotiated the best deal the plan could obtain? (Whether with the same provider, or by selecting a different provider?) When one fee otherwise would burden the employer and another fee burdens the plan, shouldn’t whatever combined fee lowering is available favor the entity the ERISA-governed fiduciary owes its exclusive-purpose loyalty to? And shouldn’t the retirement plan’s assets not benefit an entity about which the plan fiduciary might, even indirectly, have a compromising interest that could interfere with the plan fiduciary’s unimpeded decision-making for the plan’s benefit? Observe that the conflict might be less (but not completely removed) if the employer pays the retirement plan’s fees from the employer’s assets, with nothing charged to the plan. I concur with your observation that one might not call out a seeming breach, at least not without having collected and analyzed the facts. (Even if I saw an obvious breach, I wouldn’t say anything other than to my client.) Knowing that many plan fiduciaries do not get a lawyer’s advice (even when the retirement plan properly could pay that fee) motivated my question: What percentage of small-business employers innocently do not know that it is improper to allow a retirement plan to subsidize a lowered expense for some other service?

That's a fair question and valid point, and maybe why they can "get away with it." Of course that means that ABC Company's plan, with a plan but not payroll services, is subsidizing MNO Company with both plan and payroll, and XYZ Company with only payroll service.

I think it is black and white. The plan is subsidizing the company. Kind of ironic that these same companies will push fiduciary liability insurance for a few extra basis points ("you want fries with that?") and then do something so blatantly wrong that puts the fiduciary at risk.

Meeting § 457(b)-(e)’s application of § 401(a)(9) is not an exclusive explanation of a provision that refers to the April 1 after a severance. For example: In the 1980s, many § 457(b) plans were designed to allow a period—often, 60 days after the severance (or 60 days after the end of the year in which the severance occurred) for a participant’s election to defer payment to her specified date. Absent an election, a plan provided payment on the first of the month after the end of the election period. Some plans set provisions of this kind in terms of calendar dates. You’re right that Internal Revenue Code § 457 does not preclude provisions more limiting than those needed to state a § 457(b) eligible deferred compensation plan. For a governmental plan, church plan, or other plan for which ERISA does not supersede and preempt State law, a plan’s sponsor might consider relevant States’ laws. For a governmental § 457(b) plan, providing an involuntary distribution sooner than is needed to meet a condition for tax treatment as an eligible plan is unusual. For a nongovernmental § 457(b) plan, providing a distribution after severance from employment, with little or no choice to defer longer, is somewhat less unusual.

Hardships are not eligible for rollover so the 20% mandatory withholding does not apply to them but otherwise agree with justanotheradim. Also some plans allow in-service distribution of rollover accounts for any reason at any time and would not require a hardship event but could be used to satisfy one, but read the document as again that is an optional provision. Also that would be eligible for rollover and would be subject to 20% mandatory withholding.

Does the plan use a pre-approved document? If so most have a section on which sources are available for hardship. Do the regs allow it? yes. But the plan document has to also allow it, as it is not a required provision. The plan can restrict hardship, including sources, which is common for sources that are not 100% vested even if hardship is otherwise allowed. Most also have a section that specifically addresses distributions from Rollover sources. A decent number of plans allow distributions from Rollover money at any time, no hardship required. So if a participant has rollover money, they can just take a regular withdrawal and it doesn't matter if it is for hardship or not. The tax impact (though not the withholding) is the same. If they don't want withholding they could always roll it over to an IRA and then take the distribution from there.

Almost makes you want to call the DOL and report them.....

Among the many issues in the ABB fiduciary-breach litigation, the plaintiffs asserted that allowing Fidelity to lower fees for other services, including payroll services, because Fidelity was getting more than enough revenue from retirement plan investments and services was a fiduciary breach and a nonexempt prohibited transaction. From Judge Laughrey’s opinion: “[O]nce Mr. Scarpa became aware that the PRISM [401(k)] recordkeeping fees appeared to be subsidizing ABB’s corporate programs, he had a fiduciary obligation to investigate and prevent any future subsidy.” Tussey v. ABB, Inc., No. 06-cv-0430-NKL, 52 Empl. Benefits Cas. (BL) 2826, 2850, 2012 BL 84927, 2012 U.S. Dist. LEXIS 45240, 2012 WL 1113291 (W.D. Mo. Mar. 31, 2012) (finding loyalty and prudence breaches), further proceedings not cited (the case litigated for 12¼ years).