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As a follow-up to my original post... We had a meeting last night and the Trustees were urged to eliminate the bank stock as an available investment option. Due to the relatively strong performance over the last 5 years and the popularity of the investment, the Trustees do not want to exercise that option. Instead, they will be freezing any further purchases of the stock through new contributions or reallocations. The idea is to begin to reduce the overall allocation over the next 2-3 years. Our best estimate is that the percentage would move from 50% to 20% in 3 years. Not great, but on the right path. Meanwhile, we are moving forward with 404© compliance efforts and papering the participants with information about the need to diversify.

One of our multiemployer health plans has always had language in the SPD about the ability of the Administrator to offset future benefits against monies owed to the plan as a result of erroneous payments, subrogation situations, etc. Since [/i]Knudson the Plan has begun to more actively use the offset provisions to collect monies due the Fund. Recently a participant submitted a complaint to the DOL/EBSA. After collecting the documents, the office decided to take no action, but also would not explicitly "bless" the offset. The participant was given a 502 letter. My first question then, is whether anyone knows of guidance by the DOL regarding equitable offset by a health plan? Also, this plan is considering changing its "Dollar Bank" rules to compel participants to quickly pay any debts to the plan. The Dollar Bank is a non vested account from which the Plan withdraws the monthly cost of the health premium. Once the changes are approved, the participant who refuses to repay the Plan will not be able to "bank" his excess work hours, nor will he be able to use the Dollar Bank to continue eligibility once he is laid off. Essentially, his continued coverage will depend on the prior month's work hours. Does this raise any red flags to anyone? My research has yielded very little.

My initial reaction would be yes, I think he would be entitled to retiree coverage. Assuming the trust/plan document allow the trustees the authority to interpret any ambiguities, I think the Board could conceivably come down on either side of this issue. However, depending on your Circuit, a federal judge may be willing second guess the Board and declare their decision arbitrary and capricious.

With respect to the separate benefit of an AP in a DB plan... If the AP predeceases the participant prior to establishing an effective date of benefits, does this always result in a reversion to the participant? What would other options be?

We have a multiemployer plan that uses a large bank as its "directed trustee." The bank maintains custody of the assets and provides the daily valuation software. This is a participant directed DC plan (with a negotiated hourly contribution rate). Although participant directed, the plan is not 404© compliant, nor does the SPD claim compliance. When this plan was established in the mid-1990's the trustees opted to include the bank's stock as one of the eight or nine investment alternatives. Due to the relatively stable performance of the stock over the last few years, approximately 50% of all plan assets are in that single security. My (conservative) view is that this creates a serious diversification problem. Moreover, as the plan is not 404© compliant it seems the trustees would be "on the hook" if this stock were to pull an Enron, WorldCom, etc. We met with one of the bank's ERISA attorneys to address this issue. He indicated that this would not be a diversification problem since the stock has a long history of stable performance versus the S&P 500. He also argued that by making the actual decision to allocate their assets the stock, the participants would have great difficulty in stating a claim against the fiduciaries. While this explanation made the administrator feel better, I know that the bank is not fiduciarily responsible for investing the participant contributions. I am also concerned about the inherent conflict in relying on a bank's attorney to provide advice about his employer's stock. I would appreciate knowing where others stand on this situation.

Unless you have an identifiable sum of money in the AP's account, I think Knudson is going to cause you some serious headaches. Any action you file will be legal, not equitable. Good luck.

I have a plan that is still on a quarterly valuation system. About two years ago (when losses were mounting) the plan was amended on the advice of a consultant to require the retiring plan participants to share the pain of all investment losses as of the date of their departure. Basically, the plan takes the required IRS withholding from the distribution. Then it withholds an additional 15% until such time as the administrator can determine the true value of the person's account on the day of his distribution. This generally takes 60-90 days. When the administrator has the final number he will subtract any losses (or add gains) to the remaining monies and make a final distribution. Recently a participant became irate and threatened to sue. How is this problem handled by other plans? Is our method correct? Any IRS or DOL concerns? Thanks for the input.

I would disagree that the opinions and regulations dealing with Section 205 of ERISA would be irrelevant. I think a court would place a great deal of faith in the "reasonable reliance" standard imposed on administrators in this situation. I also agree with the post above that mentions the administrator's duties to follow the plan documents. If he has done so, the spouse will have great difficulty stating a claim against the plan. However, I would still argue that the plan (even though it has clean hands with respect to the distribution) has a duty to file and seek a constructive trust over any monies still in the possession of the participant.

I think it is section 205 that speaks to spousal consent. It is my understanding that spousal consent is not required where a participant can reasonably establish that he is unmarried or that the spouse has abandoned him. This arose in one of our plans a couple of years ago. I believe plan was in the clear so long as the administrator required an affidavit or other satisfactory proof. (Which ours did.) However, once the plan learns of the problem (and assuming any monies remain in the possession of the participant) I think the plan fiduciaries would have a duty to seek a constructive trust through the courts.

Does a plan have any affirmative duty to notify its contributing employers when the actuary has determined the plan has significant withdraw liability? More specifically, I am referring to employers that plan to continue in business and contribute to the fund...not those who may actually be considering stepping away from the plan.

I took another look at the DB regulations over my morning coffee. (Somebody already had the sports page.) The regs mention "bona-fide fringe benefits." They contain the usual requirements: plan must be in writing; contributions must be irrevocably made by employer; contributions must be made to 3rd party; plan must be communicated to employees, etc. However, I cannot find anything that deals with vesting. The one glimmer of hope the regs provide is that the employer may not be a "simulation or a sham for avoiding compliance with the act." Therefore, if one could identify a truly abusive practices with respect to vesting, I assume it would be subject to challenge. Unfortunately (from the employee perspective), if you work short-term for a national contractor and simply don't have enough years of service to vest, I think you are out of luck. Like I said above, I think many employers are wise to this. Even though the state and federal prevailing wage laws allow the employer to put the value of the contribution directly on an employee's check, very few contractors are willing to do this.

I work on multiemployer trusts and have some experience in prevailing wage problems. I rarely see immediate vesting of any DBA payments...but I also don't have any true profit sharing plan experiece. I would say that there are a significant number of nonunion contractors who make the contribution to a DB plan knowing that many employees will never vest. Typically, an employer will hire local workers for the duration of the job and then leave town. Very few of the local employees will travel with the contractor to the next job. This issue has been raised in a few states (with respect to their mini-DBA statutes), but to my knowledge has never met with success. In Ohio for example, the statute of limitations to file a prevailing wage action would pass before we would know if a person ever became vested in the benefits. The same problem took place in the 60's and 70's with union work, but almost all Taft-Hartley plans in the construction industry now use reciprocal agreements that allow an participant to send his contibutions back to his "home" fund. If anyone has any authority requiring immediate vesting I would love to get my hands on it.

I guess it would depend on the type and size of the plan. We have retained a large consulting outfit to conduct mock DOL audits to ensure plans are compliant. Typically our plans have approx. 500-1000 participants and the fees (for very comprehensive onsite work and a follow up report) have been $12,000-$15,000.

The settlors have the right to dictate how the trustees will use the assets of the trust. The plan is simply an offshoot of the trust. The settlors have established areas in which the trustees are free to act, and areas in which they must defer to the expressed intent of the settlors. Trustees are free to operate within the expressed framework but may generally may not amend a plan so as to be in conflict with the trust. Therefore, in cases where the plan conflicts with the terms of the trust I believe the trust controls. But hey, thats just my opinion. Get to your own attorney.

I have a plan that has been in existence since 1994, but did not have any fidelity bond until very recently. This arose as a misunderstanding between the insurance company and the plan as to what coverage was required. The plan is administered and the assets are held by a large bank. The bank is properly bonded. However the trustees of the plan are not bank employees. My question is whether this is a problem that needs to be reported to the DOL? Doesn't the 5500 form require the administrator to confirm the bonding requirements? Any suggestions on how to proceed?

I misunderstood your original question. Our HW plans (also multiemployer) do give the employee the option to continue coverage at his cost, through self payments or a dollar bank. If he chooses not to exercise this option, then at day 31, he is given a COBRA notice. (What I was addressing above is the liability for contributions for days 1-30. The plan makes the "contribution" and continues his coverage for the first 30 days.) I believe this is consistent with the Act. It was also the advice given at the 2002 IFEBP administrators conference. Also, you say your plan is in financial trouble. Doesn't that cover nearly every union health plan in the US?

The participant in a health and welfare plan is only entitled to coverage during the first 31 days of military service. At that point he switches to Tricare and has the COBRA option. But, my impression from the Act is that the member has the right to the contributions for his military time during that 31 day period. We treat these hours as a plan expense. However, I don't believe that we could shift the burden to the participant as the whole purpose of USERRA is to ensure the activated member is "made whole" for all contributions to hw and retirement plans which the "employer" would have otherwise made. Let me ask you this....how are your multiemployer plans funding the DC contributions that must be made?

I think you are on point. If I were reviewing this order my opinion would be that it was not qualified since "creditors" do not fall under the definition of an AP.

One of our plans has a trustee who until very recently was receiving full-time pay from a contributing employer. This made him ineligible to receive compensation for the time he spent on plan business (meetings, conferences, etc.) This person has now retired and wants to be paid for his time. He is drawing a monthly annuity from the plan in question. My understanding of ERISA 406 and 408 is that a fiduciary may receive "reasonable compensation" for services rendered so long as he does not receive full-time pay from an "employer, or association of employers whose employees participate in the plan, or from an employee organization whose members participate in the plan." The plan itself does not fall under the definition of "employer, employer association or employee organization." Therefore, it appears to me he may receive compensation for fund business Am I overlooking anything? Is this analysis correct?

We have been intervening only if the potential recovery justifies the cost of being actively involved in the suit. Otherwise my experience has been that few PI attorneys are aware of, or willing to attempt to take advantage of Knudson. The goal of the intervention is to get to court to exercise jurisdiction over the settlement/verdict proceeds via a constructive trust. Unfortunately, (or fortunately), we have not been forced to fully litigate this issue. All cases have settled.

For the multiemployer (union/management) trust funds, you need to look at the International Foundation of Employee Benefits website. THere is one in Orlando in early March for attorneys, admins and advance trustees. However, the larger conferences are usually in the fall.

I represent a number of multiemployer funds. Our consultant performed a "fiduciary audit" and I found it to be well worth the cost. When marketing yourself, I would recommend providing a model report along with a few problems commonly identified by the DOL. You would be suprised at the number of administrators who don't understand everyday issues such as the QJSA, or hardship distributions. You may also wish to consider an exhibitor's booth at one of the larger conferences. This allows you to meet directly with the plan trustees (who call the shots.)

I am not the administrator of any of these DC funds, but I believe the process works as follows: The contributing employers send their monthly remittance to the custodian where it is briefly held in a money market account. All expenses are then taken out of that "pot" of money prior to the allocation being made into the accounts. Once the expenses are paid, the monies are allocated to the employee accounts. In my experience, trustees of multiemployer funds bend over backwards to prevent from "charging" accounts once the money has already been allocated. Participants are aware of this procedure...via minutes read at union meetings. However, I strongly push our trustees to be sure all avenues of collection have been explored and exhausted prior to treating a delinquency as a plan expense.

It is generally treated as a plan expense. (Which I know can create another host of problems.) This is similar to the way a number of DC plans are funding the USERRA requirements...which have been included in plan documents and blessed by the IRS. In the multiemployer setting, I'm not sure there is a good answer.

Our multiemployer plans award credits to a participant's account, or benefit accrual regardless of whether we are able to collect. This is based on DOL Adv. Op. 76-89 which held a DC plan participant had a right to the contributions even though the employer did not pay. If they will not give you credit or accrual, file an appeal (in writing) immediately. They must consider the issue and respond back to you in writing. Goodluck.