MoJo

"Does it seem strange to apply California law to resolve a question about the existence or non-existence of a marriage of two people who have always lived and worked in Pennsylvania?" No. California law would tell you to look to the law of the state where it was either solemnized or where the parties live. It isn't as simple as saying the ONE state specified is the LAW NATIONALLY. Every state has a "conflict of laws" law that governs how you do such things, and the U.S. Constitution also specifies that each state must respect the laws of other states (i.e., apart from the same sex marriage issue PRE-SCOTUS decision), a marriage recognized in one state had to be recognized in all other states. A drivers livense issued in one state is valid nationally. etc.... I hate to do this, but "don't oversimplify" conflicts of laws issues. The question fundamentally is, whose laws do you want to be held to? If you specify, it can be your "home" state. If you don't, it could be the laws of the state where your disgruntled salesperson resides in - and in which you have no other employees or contact, and that might have a legal requirement that governs covenants not to compete and you only find out that your "home state" law doesn't apply, but your disgruntled salespersons state law does apply - AFTER he's stolen your trade secrets.... Trust me. It happens.. As far as an ERISA definition being lost to a state law definition - it's as simple as putting a "any term defined in ERISA shall be given that definition for purposes of interpreting this Plan" language in the document...

The one thing I ALWAYS advise my clients to avoid is having a judge decide things that they could have decided themselves trough careful drafting of documents. Under our system of jurisprudence, some things are dealt with under federal law, some are dealt with under state law, and some are dealt with under "common law." ERISA and the tax code pre-empt, but they don't cover everything - so one looks to "state law." WHICH STATE LAW APPLIES is often very complicated and difficult to determine. State law may impact how trusts are governed. ERISA says a trust must be used, but doesn't specify how to establish one (and there is no "federal law of trusts"), and while it may indicate who can't be a trustee (trust me, ERISA has a few prohibitions), it doesn't say WHO can be the trustee. For example, in SOME states, a NON-trust company corporation CANNOT be trustee of it's own employee benefit plan. In others, a NON-trust company corporation CAN be trustee but ONLY of it's own employee benefit plan, but no other trusts. Its State law based (and in that case, there could be a CONFLICT between the state of incorporation (often Delaware) and the state of it's principal place of business (GM is a Delaware corp with it's main office in Michigan - which state governs?)). Those are the "simple" issues. IF YOU DO NOT SPECIFY WHICH STATE LAW GOVERNS IN NON-PRE-EMPTED AREAS, The judge gets to decide - and that's just plain stupid.... Why not put some predictability in the process and spell it out?

Been there, done that (sort-of). I used to work for a service provider/trustee that did work for a LARGE corporation that did a lot of acquisitions. They "typically" merged plans into their "main" plan when they did an acquisition - UNLESS there were "unresolved" or "unresolveable" issues - in which case they merged the "bad" plan into a "frozen" plan (we internally referred to this plan as the "dirty plan") and kept both their main plan and the dirty plan up to date. ALL employees (including acquired ones) only participated in the main plan, but may have also had balances in the "dirty" plan. As long as no plan termination or other distributeable event occurred unique to the dirty plan, operation of the main plan was unaffected by successor plan rules. While the DOL rep clearly was mistaken when they said "terminate" - if they had said "freeze" it would make some sense (albeit at the cost of maintaining two plans)

which is why per William Shakespeare... "First thing we do is kill all the lawyers" Shakespeare only said that because there weren't any Actuaries at the time....

I'm not sure I agree with GMK. I think it is perfectly legitimate (and in fact commonplace) to use "cash basis" accounting for determining which pay is deferral. If the "pay date" (the date on which the participant has an irrevocable right to cash) occurs after the entry date, but part of the pay is for work performed before the entry date, the entire amount of that pay is "deferrable." Sorry, but I have no authority (at my fingertips), but the "pay date" is the first day on which the participant has the right to the cash, and hence can defer it at that point if he or she is otherwise eligible for participation.

It's hard to say based on the language you cite. My "preference" is always to include a "as soon as administratively feasible after the eligibility requirements have been met" language, which then allows the plan sponsor to set in place a process uniformly applied that takes into consideration payroll cut offs and other "adminsitrative" concerns.

Pog: I'm not sure the submission to the employer of the deceased participant (even if not the current plan sponsor) is something to fear - as it was acting as an agent of the plan on behalf of one who accrued an interest in the plan while employed by that entity (if I understand the facts correctly). The "date" of receipt by the actual plan or plan sponsor is less relevant than the date the form was actually signed - which is the participant's act of designating the beneficiary. I agree it looks like there may have been some "sloppiness" in the process but that doesn't mean a breach occurred. Does the plan still have the money or was a distribution made? If the plan has the money, interplead it and wash your hands of the matter. Let the court decide who gets it. If the plan doesn't have the money,well - no matter what happens, there is probably litigation in the plans future.

OK. I think people are overthinking this. Either the "new" beneficiary form is valid, or it is not. Simply sending out a blank beneficiary form is not a breach of any ERISA fiduciary obligation that I am aware of. Determining whether the returned form is a valid beneficiary designation IS a fiduciary function. 1) Who are the fiduciaries of the plan? They are the ones to make the determination. 2) What is the process for determining the validity of a beneficiary designation? Was it followed? 3) Has the money been distributed? If not, consider an "interpleader" of the funds with a court. The problem here is that there are a LOT of allegations. I wouldn't advise any of my clients to accept as FACT any of the allegations of ANY of the parties. To do so invites litigation - and the truth is that ONLY litigation will determine with finality (from the plan's perspective) who is the legitimate beneficiary, and if the plan fiduciaries breached their duties (keeping in mind that the overriding "standard" to which they will be held is a "prudent expert" and even if the plan distributed benefits to a forger, that in and of itself does not mean that they breached their FIDUCIARY duties (although they may be liable to recover the funds from the fraudster). Typically, the plan and fiduciaries will become "passive" participants as the real dispute will be between the purported beneficiaries. I'd tell the lawyer to file a lawsuit - and then respond by counterclaiming and filing a third party complaint against the "new" beneficiary and let the court sort it out. Sorry - but any other solution will leave the plan and it's fiduciaries in limbo no matter what they do.

mbozek said: "If you think about it, allowing plans to deny benefits to employees whose benefits are documented in plan records but which are not confirmed by employment records..." (my emphasis) ZACTLY! - What mbozek says is TRUE - but only with respect to EMPLOYEES.... If there is a question as to whether an individual who has a plan documented benefit is NOT an employee - then the argument fails. The question is really, who gets to determine whether the individuals in question are employees? There is "information" that perhaps the company fraudulently called these people employees when in fact they may not have been. Ignoring that information is done so at the TPAs peril. Seek counsel....

Personally, I think if the TPA has "knowledge" that the plan sponsor has improperly included NON-employees in the plan, the TPA does, in fact have some responsibility.... We can argue what that responsibility might be - but burying their head in the sand nd blindly operating as if nothing is wrong, is wrong. At the very least, I would suggest the TPA immediately resign - lest hey actually exhibit the exercise of some discretion which may in fact compound the situation (and potentially give credence to an argument that they are "fiduciaries" with respect to the management of the plan). If someone comes claiming benefits in the interim, give them the DOL's number - and have them file a complaint. The explanation the TPA can give the DOL for not processing a distribution is questioning whether the plan remains "qualified," whether there is actually one who can give instructions to process distributions (since the big guy may be destined for the big house), and questions concerning the status of the claimant. At MOST, the TPA may be required to process the distribution, but I would guess the "phony employees" would not be too willing to pursue a regulatory solution. Best advice is still to seek the advice of counsel. If the TPA has none, get the company to provide a legal opinion from their counsel, or ask the DOL themselves to have the plan hire counsel using plan assets.

As a lawyer, I think it's a big deal. Is it "prudent" to "un-invest" a participant and essentially put them in limbo? I can't think of any justification for that - especially considering the law allows for forced cash-outs of balances less than $5k that removes them from the plan PERMANENTLY. I think the issue is that some think that "forfeiting" a missing participant "subject to restoration" is removing them from the plan. I don't see them as being removed from the plan. Removing a participant from the plan entails elimination of ALL rights they have under ERISA. The "subject to restoration" means that they really still have an interest in the plan, and therefore are still participants, who are due the protections of ERISA, including the duty of prudence by the plan fiduciaries. Let me repeat that: "The "subject to restoration" means that they really still have an interest in the plan, and therefore are still participants, who are due the protections of ERISA, including the duty of prudence by the plan fiduciaries." There is nothing I have ever seen that says you can "suspend" a participant's rights under ERISA simply because you can't find them and choose as an administrative matter to un-invest them and forfeit their balance (that is, using it for other plan purposes) subject to their reappearing and having a "springing" interest in being treated as a participant again. You are either a participant or you are not. If you are not a participant, you have NO RIGHTS whatsoever with respect to the plan (ever and forever - except for claims that may relate to a prior period when you were a participant). As far as the other issues (missed RMDs, etc.) there are mechanisms to deal with that as they arise that will preserve plan compliance with the Code.

Until someone returns and demands a restoration of their account balance. "Forfeiture" is a convenience to the plan and it's fiduciary, and in my mind does NOT remove the participant from the plan for purposes of removing the fiduciary obligations. A participants cannot be "removed" from the plan, but then be "restored" to the plan, without being a participant during the absence. It's a question of competing "prudence" requirements - which is worse - pulling them out of the plan and putting them into a "prudently" selected IRA custodian who then charges maintenance fees against the account, or "forfeiting" them and disallowing the productive investment of those assets over possibly an extended period of time. In either case, the "participant" loses. In my mind, removing them from the plan at least starts the statute of limitations running - which NEVER starts if the balance is forfeited subject to restoration. Fiduciaries have a duty to make the assets productive. Forfeiting the balance would not, IMHO, comply with that very basic obligation.

mbozek says: I don't agree that its more prudent to transfer a missing participants vested benefit to IRA because the custodial fees will eventually eat through the account balance since the assets will be invested in MM fund. The optimal course of action is to forfeit the funds under the plan subject to restoration if the participant returns at a later date which guarantees return of 100% of the account balance. The plan could credit the account with a rate of return equal to inflation in the unlikely event that the missing participant ever shows up. The problem, mbozek, is that it is ONLY the fiduciaries' responsibility to prudently select an IRA custodian, not to monitor what happens in the account AFTER the assets have moved out of the plan - and the law specifically allow cash-outs of small balance subject to the auto-rollover provisions. Getting small balances out of the plan is generally a good thing as it removes "expense" from the plan with little or no revenue impact and removes a potential plaintiff from the plan. If you keep the participant "in the plan" albeit forfeited, I think you run HUGE risks of lost earnings if you don't keep them invested (prudently) as is the obligation of the fiduciaries. Forfeiting the participant essentially means NO EARNING - and that mean as much of a loss as charging fees against an IRA balance. Indeed, the DOL has indicated years ago that it is perfectly permissible to charge terminated plan participants fees to offset the costs of their continued participation in the plan when actives aren't charged those fees. Same thing as an IRA custodian charging a fee for account maintenance after assets have left the plan....

QDRO: Quite simply, the IRA is NOT a plan asset, so transactions within the IRA are not part and parcel of the plan fiduciaries responsibility. The ONLY fiduciary impact of the IRA is the selection of the IRA custodian (which may entail looking at the fees charged AT THE TIME THE CUSTODIAN IS SELECTED AND/OR DISTRIBUTIONS TRANSFERRED TO THE IRA. What happens later is external to the plan, and therefore not a fiduciary concern. The obverse is actually the question to ask: Under what provision of ERISA does a fiduciary have responsibility for assets once they have left the plan and are beyond the control of the plan/fiduciaries? There is no such section of ERISA, and therefore no responsibility attaches to the plan fiduciaries after the prudent selection of the custodian. Check with "Inspira" - a Pittsburgh based IRA recordkeeping/technology company that is one of the few that will accept small balance cash-outs and charge $25 to $50 per year on small balance accounts. They've done extensive research on the issue, and probably would share it if you asked.

Simply put, because if you move them to an IRA - THEY ARE OUT OF THE PLAN AND NO LONGER A POTENTIAL PLAINTIFF against plan fiduciaries. One could argue that the only remaining liability for the plan fiduciaries is the decision to put the account with the selected IRA custodian - but the DOL provides guidance on how to do that - and once you've done that, the "statute of limitation" does begin to run. Fees taken by the IRA custodian are NOT the responsibility of the plan fiduciaries. It is a classic case of, as a participant, "you snooze, you lose" BUT that isn't the plan's concern. I have a problem with "forfeiting" subject to later restoration. Restore what? Only the principal forfeited? What about lost earnings? IF the missing participant is STILL a participant, does not the fiduciary have a continuing obligation to make the assets productive (trust law 101)? Can not the participant come back years later and demand that the account be restored with investment earnings? The interesting thing about "participant directed" 401(k) plans is that the trustee/fiduciaries are ONLY relieved of investment loss liability IF the participant ACTIVELY manages the account. If they don't, a solid argument can be made that the fiduciaries have an obligation under ERISA to manage the money prudently....

I agree with David - but I know that sme have taken the position that once a "distribution" has been processed and the "check" is un-cashed (but remains in the payor's checking account), that it can be escheated after the prescribed period of time. This of course would only apply to "cash out" distribution and not balances in excess of $5,000 which couldn't be distributed without consent (absent a plan termination). I happen to disagree that such funds can be escheated as simply moving the balance into a checking account is does not remove the assets from the "plan" (despite what some recordkeepers claim) and merely puts the plan assets in another vehicle for delivery to the participant. Failure to deliver (meaning actually transferring the assets TO THE PARTICIPANTS CONTROL (e.g. cashing the check) means the assets should be redeposited into the plans trust and dealt with per the terms of the plan. Forfeiture is an option, but as far as I know, one actually with "authority" but one the regulators seem to "tacitly" accept (at least, I've heard of no action against plan sponsors or others for doing so)....

I guess there can be differences of opinions as to what "administratively feasible" means. I think if the VCP filing could result in a DECREASE of the participant's account balance, there may an issue of "protecting plan assets" and the known difficulty of trying to get overpayments returned. But if the VCP filing could only INCREASE the participant's balance, then what is the impediment to a secondary distribution? An initial distribution of a known balance is easy. A secondary distribution of a corrective contributions is likewise "easy." Last I checked, the "cost" of doing a secondary distribution is irrelevant in the decision. If it was the plan sponsor's error, it is the plan sponsor's burden to make it right. The "best" approach (IMHO) is to follow normal plan procedures and precedence in processing the distribution, and if necessary, make a secondary distribution AFTER the VCP correction has been made - especially if that determination may be months, if not many months into the future.

The problem with this scenario is that there are ONLY two ways this can be accomplished: First, the bene can "disclaim" IF DONE PROPERLY, and IF THE NIECE IS NEXT IN LINE UNDER THE PLAN and IF STATE LAW ALLOWS A PARTIAL DISCLAIMER (not all states do so - requiring a COMPLETE disclaimer to be effective). Not always producing the result intended unless all of those ducks line up. Second, the bene can accept the benefits then GIFT them to the niece - and that has tax consequences..... BIG tax consequences. Bottom line, the distribution "scheme" is at the discretion of the participant (which is why it needs to be planned appropriately) and only limited options are available to the beneficiary.

In all liklihood, the order is valid - with just the judges signature on it. What TYPICALLY happens is that the court ASKS one of the parties (or both) to draft an order for signature by the judge. The placement of signature lines for the parties (or their attorneys) is there for one (or both) of two possible reasons. First, to indicate that the parties agree on the language of the order. This is NOT necessary for the order to be effective, but simply lets the judge know that the parties are in agreement with the terms of the order as written (without having to look at the record, or inquire as to why one party doesn't agree). Often, the drafting attorney forwards the draft order to the other attorney, and if the other attorney doesn't sign off on it within a certain period of time, the order is still submitted - often with a notation where the other party should have signed saying "seen but not approved xx/xx/2015" indicating that they saw it - but posited no FORMAL objection - so the judge will sign it. The second reason an order may be signed by the parties is simply to give notice to them that an order if the judge has been issued (to avoid the "I didn't know I was supposed to ...."). Again, this is NOT necessary as parties to litigation (including a divorce) are PRESUMED to know what is in the file/docket and if you don't, you do so at your peril. UNLESS the order CLEARLY says "not valid unless signed by hte parties" - the ORDER is valid with JUST the signature of the judge (assuming it otherwise is a valid DRO under state law) and the fact that ONE party signed it (but not the other) is superfluous.

"There are actually very quick page tabs and excellent search features in most pdf readers. I find it much faster to quick search Section 6.1 to get to that page then flipping through a paper document." Oh I have one of the most sophisticated pdf readers/processors on the market (Nuance Power PDF PROFESSIONAL version) and it has a lot of those features. I use them when I have no hard-copy (and am not going to print a 150 page document for a "quick read") - but still find the paper flipping back and forth to be far faster for looking up specific sections. Another reason I like paper is that I generally see more information on a page than fits on a screen (without rotating the screen to "portrait" - which my monitor will do, but it mean moving a ton and a half of stuff around the screen to do so). Add to that the "portability" of paper (I have been known to read plan documents sitting on a lawn chair at a the local swimming hole - where I wouldn't take a laptop, nor could I read it in the sun if I did).

jkharvey: The reason I prefer paper copies is that a plan document is extremely interconnected. You read section 4.1 and it refers to a definition is Article 2, and also has a reference to the limits contained in Article 6, which references different definitions in Article 2 and also deals with the various employee contribution sources defined in Article 3.... Until and unless someone creates a completely "hyperlinked" e-document (and it will never happen), I can get to the relevant sections a lot faster in a paper document than I can in an e-document - and even if I get to the appropriate cross-referenced section in an e-document, then I have to get BACK to the section I was at in the first place (which in a paper document, is where I put an extra finger at for quick "flip back") but requires a search of a lengthy scroll to get to in a pdf version of the same document. It's all about time and eficiency - and while there is a cost to having paper in the office, it's a heck of a lot less than my hourly rate.

I've always found this site to be best - most timely. LinkedIn sends me lots of "job opportunities" but they are only tangentially related to my field. Same with the Ladders.

First, Yes, they would be a fiduciary for making the change on re-enrollment - if targeting those specifically (and not doing so for the entire plan participant base). Second, there may be *reasons* to be in multiple TDFs (and yes, I'm giving the participants probably more credit than usual). Some may be balancing their in plan portfolio with outside assets. Some may be choosing to be more aggressive with a "portion" of their portfolio without having the burden of managing it through the other fund options. Some may have other reasons. I constantly use as an example of the "misuse" of TDFs by asking whether a client/prospect thinks two 45 year olds should be in the same TDF when one contributes 1% to the plan, and the other 15%? I learned long ago not to second guess participants (for a variety of reasons, including the fiduciary reason), and to resolve such matters with "education."

Is the owner the only Key Employee for top heavy purposes? If their are other Key Employees who defer - then a top heavy contribution would be required

I've never actually seen the IRS insist on a penalty that would bankrupt a plan sponsor, but if they are in that situation, they may either voluntarily file (to attempt a reorganization) or be in violation of various lending covenants that will push them (by the creditors) into bankruptcy. I would think/hope that the IRS wouldn't insist on a penalty that would cause a company to liquidate - unless the owners were responsible personally and had the cash to pay.