ERISALawyr

@jenny: I agree with @ESOP Guy. If you don't see more replies to your comment, odds are it's because of what he said (and it's Memorial Day weekend). Your question raises a hornet's nest of issues, and the only helpful answer anyone can give you is that you need advice of a competent ERISA/benefits attorney. Just as an example: Do you know whether your plan document allows in-kind distributions? If not, you would not be able to transfer the property out of the plan as a benefit distribution, even if that ended up being your only viable option... Or else your risk violating the plan's terms and therefore the plan's tax qualified status (and, depending on whether it was an owner-only plan from the start) ERISA 404(a)(1)(D)).

Based on the above, the business manager's lack of authority does not affect the plan's status. If it would be an ERISA-covered plan otherwise, it likely remains so. The plan assets are plan assets, so are treated like any other plan assets. "Returning contributions" sounds like a bad idea to me. ERISA provisions apply regardless of the business manager's authority. With respect to returning contributions, the employer must follow ERISA and the plan terms, and court orders, if any. There is nothing in your summary that suggests a permissible reason for refunding contributions to participants. They would likely involve in-service distributions and/or distributions before normal retirement age, which would probably violate the plan terms and definitely violate qualification requirements, so you would be triggering ERISA fiduciary violations and plan disqualification (resulting in adverse tax consequences to the employees and employer). So much is based on the specific facts, this employer needs to find a decent benefits attorney (to address these questions in a way that the employer can rely on) and employment lawyer (to handle the business manager). (None of this is legal advice. Just some reflections to help give your reflections some structure.)

I have not encountered it before. I have some reflections. The short version is that I would not suggest arguing that the plan is not an ERISA plan (or otherwise disclaiming the plan, its existence or its ERISA coverage solely on the basis that the employer didn't authorize the plan), and the employer probably has some state law claims against the business manager, but frankly should be more concerned about the lack of internal controls that allowed this to happen without the employer's awareness. @Gina Alsdorf is right, a lot depends on the facts and circumstances. As is always the case with legal questions, "it depends.' From my armchair, between the participants and the plan, I doubt there is a valid argument against the plan's existence or contributions being plan assets. That ship has sailed. ERISA probably preempts state law contract and agency law principles with respect to participants' claims about the plan and its existence. The mere existence of a written plan established and maintained to provide retirement benefits under the auspices of the employer, even if it was without the employer's authorization, and to which employees contributed, would likely be enough to deem it a "plan" under ERISA. Also, employees would have estoppel arguments that the plan has been held out to exist, with reliance (contributions withheld) and operated under the auspices of the employer. The employer would be on very shaky ground trying to disclaim or undo the plan and even more shaky ground claiming it did not exist or was not established and maintained by the employer, even if the business manager did so without authority. The employer would probably be inviting ERISA claims if it did so, and should prepare to pay participants' attorney's fees if it goes down that path. To the extent state law (or federal law--courts have held ERISA contemplates federal common law contract principles), the business manager's apparent authority is usually enough to bind the employer to the participants and service providers. Unless participants (or service providers, if the employer is concerned about having to pay them) knew that the business manager lacked authority to act in this capacity for the employer, an agent's (business manager's) apparent authority is usually enough to bind the principal (employer). Between the employer and the business manager, the employer may have a claim against the business manager for acting outside of the scope of their authority, if there is a way of establishing the parameters of the agent's authority (burden is on the employer). The question is what the damages are. I'm guessing this is a small employer and a small 401(k) with a large TPA where the fees are minimal, so below $10K/year. That is unlikely to be worth litigating over. I imagine this is a small employer, but the fact that the business manager could set up a plan and arrange to withhold employee contributions for any period of time without the employer's awareness raises serious questions about the employer's internal procedures, oversight and financial controls. This whole situation should force some serious self-reflection on the employer's part. (None of this is legal advice. Just some reflections to help give your reflections some structure.)

Your question touches on state law questions and potentially federal law (if it is a plan covered by ERISA) enough that you really need to talk to a couple of attorneys, one for the state law issues and one for the ERISA issues (if an ERISA-covered plan is involved). Your questions are sufficiently dependent on the facts of your situation and will involve some detailed research to a degree, because I doubt even the most seasoned attorneys in these practice areas will have ready answers to your questions. Even then, I suspect the answers will be less clear than you would like. I say the following not as legal advice, but just as suggestions to orient you: First, you should find out if your judgment still valid and enforceable. You said your judgment for child support was dated 2007. It's now 2025, so 18 years later. Many states require you take some step to renew a judgment after a certain period of time (I've seen 10 years and 15 years, but there may be others), and if you don't take this procedural step periodically, the judgment expires and becomes unenforceable. I would check first with an attorney whether your judgment is still enforceable before you put time or money into pursuing an unenforceable judgment. Next, very generally speaking, assuming we are talking about an ERISA-covered plan, ERISA governs participants' interests in plan benefits, and state law governs money only after it comes out of the plan. If the benefit has not been distributed... ERISA does not allow creditors to attach/seize/assign/levy/garnish/etc. a participant's or beneficiary's plan benefits, except in a few narrow exceptions. This is ERISA section 206(d), called the anti-alienation provision. If the money (or interests in money) that a former spouse is trying to claim are in a plan, the only mechanism to reach any of the benefit was through a QDRO (qualified domestic relations order). If a court has not already entered an order assigning a portion of the deceased participant's benefit to the surviving spouse before the participant died, I doubt that a plan administrator would qualify the order so it is a QDRO. If the court entered an order assigning a portion of the plan benefit before the deceased participant's death, then there are still lots of questions an attorney who specializes in family law and QDROs in particular, and the plan administrator, will have to tease through to understand the status of the order (whether the plan can qualify the order posthumously so it is a QDRO), but the surviving spouse has a better chance at receiving the assigned portion of the benefit in that case. I did not get the sense that you had a QDRO. If you didn't, why? Did the participant begin participating in the plan only after the marriage? If the participant began participating in the plan during the marriage, then there are other questions you should be asking. After the benefit has been distributed... After the money is out of the plan--whether it is the participant's or beneficiary's--state law governs. This is a tricky area of state law where it can seem that creditors have rights, then another part of the law makes it seem like they don't. Community property claims (since Texas is a community property state) are a good example--it sounds like spouses have an equal and undivided right in all marital property, yet third parties who receive community property from one spouse often take it free of the other spouse's claims. Non-testamentary transfers are equally confusing. A good probate, family law or collections attorney can help you navigate this. You did not say whether the beneficiary had taken a distribution of their benefit. The answer to this question will determine whether you are dealing primarily with federal law (ERISA) or state law. I do not know with any certainty, but I have serous doubts that a former spouse is able to attach a judgment (including one for unpaid child support), if that old judgment is even still enforceable, to a beneficiary's distribution from an ERISA-covered plan, when the beneficiary is not the debtor, even if the participant designated the beneficiary. There are too many places where the deceased participant/spouse did not have a right to the actual assets in question (in the plan, a participant has an interest in the benefit but not ownership of assets (plan assets are held in trust); those assets could not be attached or assigned while in the plan (ERISA); the participant's interest likely extinguished at death (uncertain area--probably not much case law, but the plan terms and ERISA govern); after death, the interest is the beneficiary's, not the participant's; the beneficiary's receipt of the benefit is a non-testamentary transfer). It is possible that child support is one of those exceptional areas where the Texas legislature has decided to extend the long arm of the law further than usual. Only a family law attorney and/or probate attorney (because of the dead participant) will be able to tell you. The question is too fact-intensive and requires too much research in a nuanced and complex area that straddles state family and property law for anyone to answer it productively or very conclusively here. Even if you have a claim, you should expect it to be expensive to pursue it. If the benefit is still in the plan, and you demand it pay the benefit to you, I would not be surprised if the plan files an interpleader, which would then force you and the beneficiary to litigate your respective claims in federal court (which may limit your choice of counsel), and force you to pay the plan's cost of filing the interpleader. If it is outside of the plan, a beneficiary is unlikely to hand it over, so again, you will be looking at litigation. Even if you have a valid claim. Separately, I'm inferring that you contacted the attorney general because that is the state agency that enforces child support in the state of Texas. If my inference is correct, then my guess--again, not legal advice and not from knowledge, but just a guess--is that they closed the case because the debtor spouse died and, in the state agency's view, that death extinguished the deceased spouse's sole remaining asset (the right to a benefit from the plan). If there is no debtor and no assets to collect, there's nobody and nothing for them to pursue, so no need to keep the case open. Case closed. State agencies are not usually in the habit of making creative arguments to pursue child support for you. They will leave that to you and your family law attorney. I hope that helps. Again--none of this is legal advice, it is just background to give you an idea of the complexity and extent of the legal issues involved in your question. You really need to consult an attorney to advise you about your specific situation.

Agreed--file the version with the auditor's report as an amended 5500 under DFVCP. Too bad the plan sponsor paid the IRS penalty already. It's possible the IRS would rescind the penalty after the administrator files under DFVCP (which is only an option if DOL has not assessed a penalty. as @Paul I noted).

Ditto to the above. A request for full/partial waiver/abatement with a statement of reasonable cause (miscommunication between plan administrator and the CPA is probably some reasonable cause) is the way to address the IRS penalty. An experienced ERISA attorney should be able to put this together for well under $150K and probably reduce, if not eliminate, the penalty, particularly if this is the first late 5500/penalty.

As @fmsinc suggested, the surviving former spouse may not be entitled to anything, if the deceased participant had elected a single life annuity and was already in pay status. In a single life annuity, benefit distributions end at the participant's death. You should clarify whether, at the time of death, the deceased participant was still employed, or whether they had retired and begun to receive their benefit. If the former (participant still employed or not yet in pay status), then some plans (not all) may pay survivor benefits that a QDRO could allocate to the prospective alternate payee. If the latter (participant was already in pay status), and the participant was actually receiving a single life annuity, then the benefit ended with the participant's death and there is likely no remaining benefit to allocate to anyone, so the prospective alternate payee would be paying lawyers to work on a QDRO that will divide nothing. Also, it helps to clarify your terminology a bit. As others have suggested, what you have described is not a QDRO, but a draft or proposed DRO. A draft or proposed DRO (a draft that parties submit to the plan administrator to confirm that it would be accepted as a QDRO if entered by the court) doesn't get the "qualified" (or "Q") designation until two things happen: (1) it becomes an order, i.e., the court enters the order, and (2) the plan determines it is qualified, i.e., the plan reviews the entered order and determines it satisfies the statutory requirements in ERISA section 206(d)(3). The question about whether the state court can validly enter a DRO posthumously is an interesting question of state law, but it is purely academic until you settle the practical question of whether there is a benefit for a QDRO to divide. Turning to the plan administrator's role in all of this, if the state court enters a DRO and the plan determines that the DRO is qualified (i.e., a QDRO), then, as far as ERISA is concerned, the plan administrator does not have an obligation to research state law to determine whether the state court had the authority to issue the DRO posthumously in the first place. If the plan administrator is aware that a QDRO is disputed, then it's usually good practice to communicate to the parties that the plan is holding the distributions until the parties resolve their dispute, and if it gets dragged to court, file an interpleader action in a federal court with jurisdiction. Just my two cents, not legal advice.

The purpose of the data base is a benefit lost & found. It could arguably be imprudent and not in the exclusive interest of participants and beneficiaries for a fiduciary to fail to avail itself of a potentially reliable method of connecting lost & missing participants with their benefit. Since it's in early stages now, DOL's database may not be reliable, but the argument is there. @david rigby: Sharing Form 8955-SSA information, or simultaneously filing the form to DOL, would make sense. However, the IRC (Sec. 6103) prevents IRS employees from disclosing confidential taxpayer information (which covers just about anything submitted on an IRS form to the IRS, so probably covers the Form 8955-SSA information), even to other federal agencies like the DOL, with narrow exceptions. If the IRS discloses confidential taxpayer information to another federal agency under an applicable exception, the receiving agency must safeguard the information. Even within an agency that receives confidential taxpayer information, the receiving agency (DOL) may not disseminate the information freely (only DOL investigators working on the particular investigation may access the information, and there are severe penalties for disclosure beyond the statutory and regulatory parameters). The DOL would have to safeguard that information by following special procedures that would preclude DOL from being able to use or disclose that information to anyone, even the participant themself, in a public database. So your suggestion to use information already reported through Form 8955-SSA makes sense, and DOL probably should have gotten Congress to create a simultaneous filing (or information sharing exception to the IRC) for this database. One other thought is that plan administrators file Form 8955-SSA at separation. There are reasons to want that information before a plan administrator would file a Form 8955-SSA. For instance, employers go out of business without filing such forms, and these are often the instances that result in orphan plans and lost benefits. So this DOL database arguably captures participants' information before separation.

I'm a former EBSA supervisor. Based on my experience, DOL would typically view the contributions as late regardless of the reason, if they are truly late. Keep in mind that what you think is late might differ than what DOL determines is late (DOL is probably a shorter time). Also, plan fiduciaries have a duty to monitor and collect delinquent contributions regardless of the reason for the delay. If I were in a DOL regional office targeting plans for potential fiduciary investigations, a plan that amended their 5500 to erase delinquent contributions would raise my interest level much more than a plan that reported them. Based on what you said--not giving legal advice here--I echo other commenters' suggestions to correct through VFCP.