MoJo

"About your middle paragraph: If an employer/administrator does not allocate a function to a "3(16)", doesn't the employer/administrator retain fiduciary responsibility for its prudent performance of the function?" Yes, the existing fiduciaries would retain liability for the proper performance of the non-delegated task - but I would add two things: First, if the "process" is well defined, errors made in completing the process are not problematic from a fiduciary perspective. The standard is not perfection, but rather what one familiar with the task at hand (and "expert") would do under similar circumstances. Errors happen, and are fixable absent there being a "fiduciary breach." The key is to ensure the process undertaken by the non-fiduciary service provider is appropriate and in my experience, those that do it regularly - like a recordkeeper - have decent processes, and those that don't aren't in business long. Think of it this way - my employer services 5200 plans, and we provide DRO services. We do about 50-70 a month and know what we are doing. Most of our clients (plan sponsors) see one DRO every few years - if ever. I wold suggest that our "ministerial" process is better than that which our typical client would do. Second, I'm still not sold that these tasks are "fiduciary" functions. ERISA's definition requires discretion, or "management" (implied discretion) of plan's administration. Tightly drawn processes eliminate that discretion in 98% of the situations, and the remaining 2% might go back to the plan sponsor for a decision. Even so, if you "split" the ministerial part of the task from fiduciary part (discretion), and rigorously apply the process, you've complied with ERISA's "prudent expert" standard - EVEN IF an occasional error occurs. "About your third paragraph: Let's imagine a hypothetical situation in which the procedures and methods for doing the specified functions are exactly the same whether the functions are done as a fiduciary or as a non-fiduciary. Might it be worthwhile to the plan to spend a little extra to buy the economic value of the 3(16) provider's extra responsibility (and so its potential contribution to making good the plan's losses that result from the 3(16)'s direct breach, or from the employer/administrator's breach that the 3(16) failed to prevent or remedy)?" No. You are imposing a fiduciary function on another - over which you have very little control, and have a heightened duty to monitor under "co-fiduciary" standards. I think you haven't "offloaded" a piece of the fiduciary liability pie - as these purveyors of 3(16) services sell you - you've enlarged the entire pie. In addition, if you've got a good process, and rigorously apply it, I think you've complied with the prudent expert standard, as mentioned above. With respect to your last paragraph (reproduced above), I think it's all marketing - based on fear. The problem is, no one asks the right question: "Do you trust someone else who is selling you a service for profit to do the right thing more than you trust yourself?" It's not bad to be a fiduciary - it's just bad to be a bad fiduciary. I spent a lot of my career educating fiduciaries to be good fiduciaries....

Selecting any service provider- a fiduciary one or a non-fiduciary one is a fiduciary decision, and one that requires monitoring to ensure the selection is still a prudent one. The difference with selecting a "fiduciary" service provider is that it springs on the selecting fiduciary "co-fiduciary" liability - which in my mind requires a much higher level of monitoring scrutiny. A non-fiduciary who makes a mistake may be fired - but a co-fiduciary that makes a mistake causes the other fiduciaries to have responsibility to correct the error - as if they made the mistake themselves (admittedly, an over-simplification). As such, my position is, and has been, do not elevate functions that can be performed "ministerially" to the level of a fiduciary function, as that creates not only the liability for the prudent selection, but the co-fiduciary liability for on-going performance of those functions. Despite having heard the "pitch" from a number 3(16) service providers, I have yet to have any one of them answer the question of "what's different between your process and the process the recordkeeper engages in to perform that same function?" - except to have them proclaim "proudly" that they do it as a fiduciary.... Tautological reasoning doesn't go far with me....

I would agree that the lack of specific 3(16) service providers makes the fiduciary decision difficult - and would add that due to the nature of 3(16) services, it may be impossible to find the "one" service provider that is the best fit. That is, a particular service provider may be adept at service "A" but not so with respect to service "B" - and you may get into a scenario where you make a "fiduciary" compromise to stay with one provider, or have multiple providers (if possible) to provide the services you want - which can rapidly become unwieldy. I still think the basic decision about whether or not those service are, or should be, fiduciary in nature is the most difficult.

i can't tell you how many - but I know there are a number (half dozen or so I'm aware of) "independents" that offer some 3(16) services, and a few bundled providers that also provide the service (and the bundled provider I work for is in the "exploratory" phases of offering a suite of 3(16) services). The problem is, as you note, defining exactly what one means by 3(16) services. We currently offer termination, in-service, and hardship distribution outsourcing services, but do so as a non-fiduciary. We also do DRO qualification services - also as a non-fiduciary. These are service 3(16) service providers tout as being in their bailiwick - and that they can "do it better" as a fiduciary.. The question become, what "additional" value would be offered by doing these as "fiduciary" services. The "marketing" spin is that by being a "fiduciary" you reduce the fiduciary liability of the plan sponsor/administrator - although it can be argued that liability goes up due to the "prudent selection" and "monitoring" requirements that now attach to the more traditional plan fiduciaries. Key is "know what you are buying" and have prudent processes in place for making the decision and monitoring....

I agree with jpod. If the language cited is really operative (we don't know what B did - and even if they haven't become the defined employer - by assuming responsibility they may have become the effective plan sponsor. In any event, the plan would not terminate UNTIL the merger is complete, which means B is the "sponsor" for successor plan rules. The language should have said "immediately before" merger (and I express no opinion as to whether that would actually be effective either).

We provide in our services agreement what we do, and how we do it (spelling out the high level "ministerial" process we undertake), obtain approval in that agreement (or agreements for ancillary services) that 1) the process is appropriate, 2) the process is ministerial, and 3) if the process produces x result, we do y additional. So, we perform required testing (a ministerial function) and we provide the results to the client (with an "informational" only discussion of alternative corrective actions) and set a deadline for them to provide a desired solution or we will "ministerially" process corrective distributions. We do not seek "authorization every year for the distributions to be processed. It's negative consent (and virtually all of them just go with the flow).

At the risk of getting overly "technical" I would disagree that Plan A is going away. It will be continuing either through it's current existence amended to account for the new sponsor (a new entity, perhaps), and to spin out (or in your parlance "split" into two). The ONLY way a plan goes away is if it actually terminates. It may morph in form, and may change service providers, but absent a "termination" it continues in existence. In your scenario, without knowing the gory "corporate" details, it appears as though two new entities were formed, to which certain assets of the original company were distributed to (which may be intangibles, like "patients" etc) and employees. Those two entities then became participating employers (I hope) in Plan A. At the end of the year, I see two choices (possibly constrained by decisions previously made). The plan can be "split" and the two new entities can each become "sponsor" of their share (with now distributable event occurring) - and with "Plan A" continuing in existing in the form of two surviving plans - each now free to go their own way, or Plan A can be terminated - and then we can have a whole discussion about successor plans (since the new entities have a plan - as participating employers in Plan A).

The hypocrisy comes in determining what should, and should not be the subject of "federal" law, - while voicing at the top of their lungs that very little should be subject to federal oversight. Laws are based on "values" but they tend to reflect the values of the time at the point in time they are enacted. Various drug laws were based on the knowledge and the understanding as it existed in the past. Both science and values change - and laws should be revisited when that occurs. Case in point - LSD. Legal until the early/mid '60s, until science determined that long term consequences from continued use required some legislative changes. The flip side is marijuana - which was lumped in with other substances as not legal - but then science determined their was therapeutic value to the substance in some circumstances. Doubt that? Go watch "Reefer Madness" and discern how much of it is consistent with current scientific and/or medical thought. Not much.... The question here is not one of whether to comply with the "law" but rather comply with "which law" and whether current (federal) law is actually the "right" law - and that is more than one person's decision (like the AG's) based on their own preconceived notion of right and wrong. The "history" of this country, and one of it's founding "values" is constructive defiance of the law to precipitate change. You think dumping a cargo ship's load of tea in the Charles River was "law abiding"? And heeding Austin's admonition, in this case - the differences in laws and the inconsistency DOES impact the 401(k) world - in that my employer - as a financial services company, we can't under federal law, we have concerns of what the consequences are if we were to do business with such entities - and yet, what we do (401(k) plans and related stuff) is not impacted by the employer's business. Couple that with various state laws that prohibit to much selectivity in the provision of services, and we get caught between a rock and a hard place.

By definition, what is, and is not, moral is dependent on which side of the issue you are on.... I'm going to say it - especially in the context of "medically necessary usage" - "pro-life" apparently does not mean "pro-quality of-life"....

Um, we (politely) decline. While legal under "state law" in some places, they are still illegal under federal law - and therefore it is illegal for a (federally regulated) financial services provider to do business with them - and a state regulated financial services company - if your "state" isn't one of them that has legalized the "business." That's why they have trouble opening bank accounts, which could mean they have trouble paying their bills - including yours.... It will be interesting to see this play out. We are conservative enough that we'll take a wait and see attitude to see how it shakes outs. Just to put my two cents in - it's amazing that a certain segment of our political sphere screams about "states rights" and using the states to "experiment" and giving them the flexibility to do so, and then to ignore all of that on a perceived "moral" issue....

How much time does the new recordkeeper need? For incoming plans, we generally require AT LEAST 90 days. Keep in mind, a blackout notice needs to go out at least 30 days in advance, and fee disclosure and ... and... For outgoing plans (deconversions) we schedule them based on capacity. We have already closed 2/1/18. Next available dates are into February, or 3/1/18. We are a volume shop (500 or so plans in each year, 300 or so out). Fast and wrong is still wrong....

That's an "internal bookkeeping" issue and not one of relevance to the arrangement between the employee and employer - and in any event, not one that wold need to memorialized in any document. The "crediting of interest" issue you raise, would be something to be memorialized - but then you are getting into "a plan of deferred compensation" which resolves itself closer to a "plan document" is required. Still, the simple way to do so would be to say a "bonus of $260k" or $270k" or whatever, if the interest credited is constant and calculable.

Why people do this is beyond me. It would have been so much simpler if they had said that on his 5th anniversary, subject to whatever conditions they choose, he gets a BONUS of $250,000. By making it "$50,000 per year" makes it seem more like a "plan" and it is actually meaningless because it's "all or nothing" after 5 years - the only number that is relevant is $250k. I would argue it isn't a plan - it is an "employment agreement" inartfully drafted. Tell them not to do it again.

An appraisal/valuation by an expert is really the only way to go. In a former life, working for another bundled shop with lots of "brokerage" window accounts, they would accept the general partner's "statement" of the value of a limited partnership interest. Surprisingly, annual plan auditors routinely accepted that, but regulatory auditors did not. In my current position, we "allow" them, but always ask at the time of purchase which "paid for" valuation firm will be doing the ANNUAL valuation for reporting purposes, and whether that expense will be borne by the accounts of the holders, or the employer.... Self limiting tactic to say the least.

I'm not sure that's winning... and if it is, I'd rather lose! Keep us posted on progress/outcome....

Wonkiest? Yea. My "wonkiest" was the case of the owner of a business who had a sick employee, and he stood up at the company Xmas party to announce that he set aside $30,000 in a fund to cover otherwise uncovered medical expenses. When he sold the company 10 years later, it was uncovered, and I had to go back and prepare years of Forms 5500, craft appropriate documents, and shut it down, all within about a week before closing. Wonky is both fun and frustrating....

Pretty much everything you provide leads me to the opposite conclusion. 1) "Employees" is a factual determination. If they work for the employer, they are employees covered under ERISA. ERISA makes no distinction among those "covered" under it and those not covered under it (with the exception of sole proprietors covering only themselves and a spouse). If they meet the common-law definition, then they are employees for ERISA purposes. 2) Maintained is really not a precursor to ERISA coverage (hence my quip about "abandoned" plans). If it was establish by an "employer" (again, a factual determination, and maintenance of it was delegated to others, it was established and maintained. It was "established" and it still is in "existence" so it is being "maintained. Keep in mind a "trust" is a separate legal entity that has an existence for so long as it's purpose is still applicable. Here, that appears to be the case. 3) "Related" company causes me even more concern. So, people associated with multiple employers that were "related" took stock (presumably that they owned or controlled) and used it to fund a "benefit" for "employees" of another "employer", and essentially created an "employee benefit plan" - which, unless exempt is covered under ERISA. Keep in mind that companies don't "do things" on their own. They need "people" to do things as their agent. If those who establish this "scheme" did so as "agents" of the employer, that would make the establishment of it an "employer" undertaking. 4) If the trust is operating as a potentially "tax exempt" entity (remember, the trust is an entity unto itself) then that actually makes the problem bigger. It could then be a failed attempt to be a "qualified" plan that never complied. As a non-qualified plan, or as an entity that you say is not an employee benefit plan covered under ERISA, then there are either tax consequences to the employer (as the grantor of the trust), or to the trust itself, for which a 1041 is required (and possibly state equivalents). I understand you may not have that fact, but it is something that could help (or hurt) your argument. As I've said, factors to consider, but as an "employee benefit plan" (and it seems to be one), it is covered by ERISA unless exempt. So far, you seem to be concentrating on it not being an "employee benefit plan" but it was established by (agents of) the employer, for the benefit of employees, and is being maintained as intended (whether the "employer" has much control over it or not).

Um. Just spent the last hour dealing with "abandoned" plans. No employer. No remaining "fiduciary" and yet they still seem to be "ERISA" covered plans. You say the plan isn't an "employee" benefit plan and yet you say if you are are "employed" for the requisite period, you get the benefit. You say the plan is "maintained" by the trustees, and yet you say it's not "maintained." You say it wasn't established by the "employer" and yet you say it was funded by "stock." Who owned the "stock" (owners of the "employer"?) Is it "employer" stock or simply other investments? I'm guessing people "associated" with the "employer" set it up, and they may be deemed to be "agents" of the employer (at least in the DOL's eyes) - and it wasn't just some "disinterested" party (gee, I wonder if Warren Buffet would contribute stock to a trust to pay me a pension when I retire even though I don't work for one of his companies...). Who pay's taxes on the trust's income? Is there a 1041 Fiduciary Tax Return filed? I think there is no doubt that this isn't a "qualified" plan (if it were, it'd be "disqualified") but that doesn't mean it still isn't ERISA covered. I think all of the above are factors to consider, but I stand by the premise that it's ERISA covered (since it benefits employees) unless an exemption exists.

The section of EPCRS you cite governs *if* a plan sponsor must make a QNEC for the missed opportunity (and if the ee has enough time to "make up" the lost deferrals, then the answer is no). I don't read that as limiting what the ee can defer for what is left of the year....

OK. So it's a "plan of deferred compensation" (i.e. a "retirement plan") and it benefits employees - hence it's an "employee benefit plan." Why would it NOT be covered by ERISA? The fact that it may be non-compliant with Internal Revenue Code rules doesn't necessarily mean it isn't an ERISA plan. Start with the premise that it is, unless an exemption exists.... What exemption applies? Just playing devil's advocate here....

It's a QNEC, not a deferral, hence it doesn't "consume" any part of hte $18k limit.

Then draft the DRO to account for the taxes that could be withheld/are due.... One doesn't need to be "creative" to accomplish this. Simple is ALWAYS better....

Without researching it, I think a "corrective" contribution is a "QNEC" and not a deferral subject to 402(g)....

I would simply reject any DRO that "requires" a PA or plan to do something it can't legally do. That alone is sufficient grounds to deny the DRO. So, we agree on the conclusion, not necessarily on the reason (and one should trad cautious when trying to explain to a Court what they have authority to do and not do - that tends to land people in jail for contempt as well).

Well, to answer you question as to whether a PA or TPA would pay any attention to such a DRO is that IT IS AN ORDER OF THE COURT, and once accepted by the PA as a valid "Q"DRO, the plan (and the PA) becomes bound to the order, subject to the contempt powers of the Court issuing it. The time to object to the invalidity of the order is BEFORE it is accepted as a QDRO. I do agree with your subsequent post that "grossing up" the distribution to account for the tax consequences is a legitimate way to accomplish the goal - but that must be clearly spelled out in the order.