MoJo

I can't really answer your question directly, but I'm adding this to my portfolio of "reasons one should not pre-fund plan contributions."....

Lou: I agree it would be "prudent" practice to include language in a loan policy that precludes another loan when a defaulted one exists, but I can tell you from experience that even if such a prohibition exists, many recordkeeping systems can't track that. Essentially, if a plan allows 2 loans but prohibits another loan when one is in default, some rk systems will look and see that only one loan exists and issue a second one when the first was in default. So while I agree with you, I think it is worse if the loan policy contains the prohibition and it's not enforced - and I'm working right now on correcting that situation....

I would agree with you that many would do this - but it is in essence a "scrivner's error" and once the plan document is signed, it can't "legally" be changed but through an amendment. The next obvious question is "what is the risk" of just correcting it as you speak?" The answer is: "it depends." Every situation is different, and the IRS through it's EPCRS VCP program accepts applications and in appropriate cases grants relief to "retroactively" amend such scrivner's errors. We've got three of those pending right now for clients of ours. The final question is what are the costs of such a "non-approved" correction, if you get caught? I would suggest the IRS or DOL or Courts would not necessarily look kindly on someone who had a legit corrective but ignored it in favor of slipping a page.... Classic "cost/benefit" analysis. Depends on the nature of hte "box" to be checked/unchecked.

That would be "fraud." I would fire the TPA and then file a complaint with any "credentialing" organization they subscribe to.

There doesn't NEED to be basis in the plan to zero out the alleged after tax repayments on the loan. Let me give another example (without interest, to keep the numbers simple): You take out a loan for $10,000 and put it in your left pocket. You earn $15,000 taxable, pay $5,000 tax, and put the remaining $10,000 in your right pocket. You then take $5,000 out of your left pocket, and $5,000 out of your right pocket and pay back the $10,000 loan. The plan (your account) is in the same position it would have been had no loan been taken out. In your pockets (both of them combined) you STILL have $10,000 (the net after tax total of your taxable income). Upon distribution of your account, you will pay taxes on the $10,000 (say, $3,000) in there - but that is taxes YOU WOULD HAVE PAID HAD THEIR BEEN NO LOAN AT ALL, leaving you with a net of $7,000. Had you NOT taken the loan, you would have paid $5,000 on the $15,000 income you earned anyway (leaving $10,000 in your pocket), and $3,000 in income taxes on the $10,000 plan distribution when you take it, for a total tax of $8,000, and $17,000 left in your pocket ($10,000 net earnings and a net $7,000 of your distribution).. Since you take the loan, you pay $5,000 in taxes on your $15,000 income (putting $10,000 in your right pocket), ZERO taxes on the loan proceeds (leaving another $10,000 in your left pocket). You then take $5,000 out of each pocket to pay back the loan (leaving $5,000 in your left pocket and $5,000 in your right pocket), and now restore your plan account with the $10,000 repayment. At this poiint you take a distribution of the $10,000 from the plan, pay your $3,000 tax, and put the net amount - $7,000 in your pockets (I don't care which one). GUESS WHAT? Under either scenario (no loan or loan) and EVEN WITH at least "partial" repayment of the loan with "after tax money" (your right pocket money) YOU HAVE EXACTLY THE SAME AMOUNT OF MONEY IN YOUR POCKETS (a total of $17,000), and YOU HAVE PAID EXACTLY THE SAME AMOUNT IN TOTAL TAXES ($8,000). No difference. None, nada, zip, zilch. NO DOUBLE TAXATION OF LOAN REPAYMENTS. QED... Add in interest, and that does cause some money on which you have paid taxes on to be taxed at distribution, BUT YOU HAVE ALSO HAD TAX FREE USE OF THE LOAN PROCEEDS DURING THAT TIME - which is a time value of money discussion (essentially, that's the "rent" you pay for having the use of the loan proceeds TODAY as opposed to waiting for a distributeable event.)

Because you WITHDREW the amount of hte loan from the plan through the loan WITHOUT PAYING TAXES. You have that money in your pocket ON WHICH YOU HAVE NEVER EVER PAID TAXES ON, and assuming you don't default on the loan, will NEVER EVER pay taxes on. The fact that you use "other dollars" also in your pocket (on which you may or may not have paid taxes on) is irrelevant. Money is "fungible. That "tax free" "distribution" (loan) from the plan offsets the "taxable" "contributions" (loan payments) to the plan, so the net CHANGE in your tax situation is ... wait for ... ZERO (apart from the interest payments - which then involves a "time value of money discussion" beyond this thread).

I would also let them know that the DOL accepts "anonymous" complaints via their website - and if any disgruntled employee or former employee raises the issue, not only would they be on the hook for the late deposit, but also for filing an inaccurate/incomplete Form 5500 (which is deemed "not timely filed") and the penalties for that. Upon examination, if the DOL determines that the plan sponsor knowingly filed the inaccurate Form 5500 (and you, as the TPA could be subpoenaed to be "interviewed" where you would have to disclose that you TOLD the plan sponsor about the discrepancy), there may be "fraud" penalties and consequences as well. I'm with PF - cheaper easier faster better to be truthful and fix it, than to get caught....

The Court also should have a copy of the order in it's files. You may have to appear in person at the clerk's office to get a copy (domestic relations matters are typically not publicly available).

Well, it truly is a sad state of affairs when a plan sponsor needs to hire another vendor to provide monitoring of the services another vendor is being paid to do, just to ensure they are doing it, or doing it correctly. Seems to me that if that is the case, then the "marketplace" has failed to punish those vendors that don't live up to their obligations.

Upon re-reading, I think I agree with that conclusion - which then in my mind would be clearly wrong. An entity cannot be a "trustee" of another's plan/assets unless it has "trust powers." The only exception I am aware of is that I describe above - in that the sponsoring entity may (dependent on state law) serve in that capacity for it's own plan/assets.

Interesting. What I would call this list is "HR outsourcing" and not "3(16) services." I don't see any of these as "fiduciary" functions - and the latter two are things we as a bundled service provider do as well - without additional charge - and mostly without plan sponsor involvement.

I agree completely - with one extension: SOME states allow SOME entities that are plan sponsors to be "trustee" of their own plan assets. IF you are in one of those states and the entity is of one of the types that can be a trustee of their own plan, the question remains as to whether or not it is a good idea for them to do so. As far as being trustee of an ESOP invested in the securities of the trustee as an entity, I would think long and hard about it, get a nose-plug to avoid the aroma, and CONSULT WITH COMPETENT ESOP/ERISA COUNSEL FIRST.

I don't know that it is animosity towards those who profess being "fiduciary" 3(16) service providers, but rather what is perceived as being "unclear" marketing - where some of those providers profess 1) to REDUCE the fiduciary liability of the plan sponsor (bullsh!t!); and 2) they profess to relieve HUGE burdens being placed on plan sponsors (when in reality, many bundled service provider do most of the things you list, and many TPAs can do so as well in a NON-fiduciary capacity). That which is "nefarious" is the promises of doing so much more for plan sponsors, when people like me sit back and scratch our heads and think - we've been doing most of that already for 20 years or so. The things we don't do - like "sign" a form 5500 are not exactly perceived of by the industry or it's clients as being burdensome. Hence, my initial request of: I would add - why are the services you list above something that can't be done by a non-fiduciary service provider?

You are preaching to the choir on that one. For most of my career (30+ years now) I've been fighting the "well, we'll be a fiduciary so your liability goes down" mantra of those who don't understand co-fiduciary liability (and the attendant monitoring of hired fiduciaries by the plan sponsors or other hiring fiduciary).

Perhaps you can define what you do as a 3(16) fiduciary. The reason I ask is many of those who claim to take work off the plates of the plan sponsor are simply doing that which many bundled service providers do - but do so in a non-fiduciary capacity (allegedly). For example, the service provider I work with processes loan, hardship, and distribution request without plan sponsor involvement - except to engaging our services to do so, and agreeing to our loan, hardship and distribution policies and processes. Similarly, we do full DRO outsourcing. We provide ministerial investment reporting, forms 5500 (but we don't sign them - but for plans that our audited and in an automated environment, "pushing the button" is not that difficult). All of that is, admittedly, the tip of the iceberg in terms of what could be done - but frankly, I've not seen (and I haven't been looking) many 3(16) providers who do much more - except they claim to do so as a fiduciary (the value of which is always a subject for robust debate!) Since it's been several years since I've reviewed 3(16) service providers, perhaps level setting what is meant by that service today would be the start of the discussion....

Somebody buy this site a drink! (and as Tom said: I ... [too] ... am very appreciative...)

A scanner and an intern can do wonders for paper reduction.

First, I would advise that you change your service agreement to provide that you WILL destroy records in your possession after X years, and if the client/ex-client wants anything, you will provide it to them prior to X years (for a fee). Second, for your own protection, I would recommend keeping everything forever. One never knows when a client or a participant or someone is going to file suit, and put you in the hot seat for something. Relying on a "statute of limitations" defense is a last resort. Relying on proof you did nothing wrong is much better. Finally, ERISA requires the PLAN to maintain records for so long as necessary to calculate the benefits due (regardless of how long that is). Fiduciaries should keep everything forever - but that doesn't help you.. Who owns the records? Is it "plan records" or your records or what? You need to answer that before you can make a decision about what and when to purge. After all of that, the best guess is that the stature of limitations runs out six years AFTER the termination of the relationship. I'd put a buffer in that of a few more years, at least (one never really knows when the relations completely ceases to exist - e.g. providing data to the new provider to do the next 5500 may be after the "normal" end of the relationship - but may still be considered part of the relationship)).

I think you are misreading my post. We agree - I just emphasize that step ONE is to determine the legitimacy of the sister's bene form (which is ALWAYS step one when a bene form is to be used). The number one source of questions to my team (a group of ERISA SME's) are death benefit questions - often concerning conflicting bene claims. The mere existence of a previously submitted bene form that absent the appearance by the sister of a different one would have been the "valid" one raises a question - not an insurmountable one - but one that the plan plan fiduciaries will have to decide. As I've said, absent evidence that the sister bene form is invalid for some reason (other than not having been "submitted" until after death - which I think is a non-issue) - the fiduciaries have to FIRST make a determination that it is, indeed, valid. Then approving the claim should be a non-issue. The fact that there may be a competing claim - and risk involved in litigation - is why I stress the need to carefully follow the steps and document the reasons why they think the sister form is valid. It would be invaluable if needed to defend their actions in court. Keep in mind, even thought the correct thing is done doesn't mean the fiduciaries won't be sued - it's all about making sure the defense against that suit is well prepared BEFORE it's needed.

I don't see the issue now as an "approve/deny" dichotomy. It's an "it depends" - depending on the validity of the beneficiary form designating the sister as the beneficiary. In other words, I don't think the PA can yet act on the claim, until the issue of the validity of the bene form is resolved. Carol's initial question still needs to be answered: Is a bene form that is signed (assuming not a forgery) and otherwise complies with the required formalities valid if not delivered to the PA before the participant dies? IMHO, I'm don'te of what relevance the death of the participant has on the question (UNLESS the plan requires "delivery" by the participant as part of the requirements for it to be valid). I've never seen that as a requirement, and absent that spelled out as a requirement, the PA should be able to judge the validity of the bene form from the document submitted, and any extraneous material needed to verify it's authenticity. Put another way, old a PA who receives a paper bene form in the mail be required to verify if the participant is alive at the time of receipt? I would suggest that if they were alive at the time of execution, absent coercion, etc., it's probably valid. Then - you get to the approve/deny question - which is then easy, and defensible despite a potential competing claim from the ex.

Are you saying their employment terminated at the close of business 12/30 and were NOT employed by the company on 12/31 (whether it was a scheduled work day or not)? If those assumption are correct, then they were not actively employed on the last day of the "plan year" (assuming it was 12/31).

I've heard that word before ("retired") but thought it only applied to OTHER people who most of us assembled here help to achieve, but I never thought it applied to "brethren." Congrats and enjoy! Of course retirement doesn't mean you can't continue to proffer opinions here - don't want the ol' noggin to atrophy....

You mean something actually can be deleted from the interweb - PERMANENTLY? Doesn't that go against a fundamental law of nature?

Apart from the issues 2 Cents raised - especially with respect to the legitimacy of the second beneficiary form (forgery, death bed coercion, etc. - which are WAY beyond scope here), our policy does not "require" receipt pre-death, assuming all the other formalities exist. In many ways, this issue has become rarer because of "on-line" beneficiary designations (which raise their own set of issues), and I can't say I've ever seen a pre-death submission of a bene form when an existing bene form is out there. I'd wait for competing claims and interplead. It's the only to avoid double payment of benefits.

In my mind, there is an issue of what would the participant had earned had the money remained in his or her possession OUTSIDE of the plan. The fact is, through the employer's error, the employee lost the "time value" of the money while it was in the plan. Now, why that is the IRS' concern surrounding the plan, I'm not sure.