MoJo

If they *TELL* you to only self correct, I'd seek your own counsel to draft a really ironclad CYA, which would include the fact that you've advised them that the only true correction is a whole correction and that you've advised them to seek counsel. I would also let them know that you will not participate in any deception in the event of a regulatory audit, participant/former participant inquiry, or "other" scenario where it would be proper to disclose what has transpired. If they haven't fired you when you present them with the above, maybe you should consider firing them. I fully understand plan sponsors make mistakes, and further fully appreciate that the correction can be costly, if not fatal to the business - but I think what ever they do should be at least defensible with a straight face - and that requires at least an *effort* to totally correct (if for no other reason than to prove that a total correction would be infeasible). Document, document, document....

Fidelity, as a financial institution, is OBLIGATED under federal law/regulations to "know their clients" and to have in place anti-money laundering practices. Granted, the latter is pretty ridiculous in a 401(k) context, but as far as I know, there is no exemption. Besides, as "payor" of benefits subject to a reporting requirement, they do also have an obligation to ACCURATELY report the distributions. All in all, I don't see this as over-stepping their bounds in searching SSNs for duplicates. Placing restrictions on participant accounts *may* be a problem....

The way I would approach this is to simply inform the participant that the money is no longer in the plan (and therefore not invested), the distribution is taxable and has been reported to the IRS (so that if his tax return does not reflect it, he risks the IRS crawling up his ...), and if he doesn't cash the checks (which are no long plan assets), he risks them being escheated to the state - which causes him to risk losing the money (depending on the unclaimed funds statute in the state he resides in). Bottom line, it's not the plan or the employers problem once the check is properly issued and delivered. And by the way, if this were my employee (and an HCE to boot) I would question why I had someone making a boat load of money on my payroll who is so STUPID.

While I agree with you in theory, he went back to HR to tell them the loan was not used for a primary residence purchase. Does this change your reaction? I'm also looking at it from his perspective. Suppose the IRS found this during an audit. Couldn't they determine that it wasn't for a house and declare any principal paid after 5 years should be taxable? I don't think they would actually find it if the original paperwork were completed, but it's a possibility, correct? If the loan had already been finalized by the time he told them, then my reaction hasn't changed. I think the plan sponsor should do what they normally do with loans of this type - KEEP THE DOCUMENTATION on which they granted the loan.... If asked, they can, truthfully say, they followed procedure and protocol, and once the check was in the hands of the participant, it's not their problem. If the documentation doesn't exist that shows it was intended for the purchase of a principle residence, well, then that is a different story and the plan sponsor has bigger issues.....

Pardon my jumping in, but at the time he took the loan, it was for the purchase of a principle residence. Is not what he actually does with the money less relevant to the discussion? For many types of transaction, we typically look to the conditions that exist at the time of the transaction, not subsequent events. I suppose if a plan sponsor wanted to be exceedingly cautious, they could have insisted on having the plan loan held in escrow pending closing just like other financing for the purchase of real estate - but that would be an incredible pain in the you know what....

Virtually every QDRO I have seen has the same or similar language. Take the total amount of contributions made or accruals earned FROM the date of marriage UNTIL the date of divorce (or separation, or some specified date) and divide by two. Now, do recordkeepers balk at that? Some do, some don't. ERISA does require that records "required to calculate benefits due" be maintained forever, or until the benefits are determined and paid.... p.s. - mostly we're talking about Ohio QDRO's - but when I worked for Schwab, we got them from all over with similar wording.

How about "at the end of each calendar quarter in the year 2015"?

My dealings with the DOL have centered on the speed with which a corporation can make their federal withholding deposits (income tax withholding) with a depository bank. For large corporations, that essentially means 3 days MAX. If a company can make those "withholding deposits" within 3 days, the DOL seems to think the salary deferrals should be able to be made within the same time frame. I agree that if you ONCE do it faster, that sets the standard for how fast you CAN do it.

"Congress could have extended the non alienation provision to apply after benefits were distributed to the participant since both SS benefits and Veterans disability benefits cannot be seized by creditors after they have been distributed to recipients. But Congress chose not to do so. Since the benefits have no creditor protection after distribution there is no requirement than an annuity contract distributed to a participant must have such protection." And you, knowing all as you do, know the entire extent of the anti-alienation provision, with absolute certainty, without doubt or challenge by anyone. Gee. Let's just do away with courts. BTW, the argument is that it was a breach of fiduciary duties to unilaterally sacrifice the anti-alienation protections afforded by the Code. The JUDGE apparently agrees there may be some merit there. "As for fiduciary breaches I have addressed the issues by citing the DOL regs and PBGC regs that allow an employer to purchase annuities for participants in DB plans. Don't see how purchase of an annuity benefit for a DB participant that complies with the applicable regs can be held to be a breach of fiduciary duty because the annuity may be subject to claims of the employees creditor. Employee's rights to annuity can be protected under state law or by placing annuity in a trust." An so, because mbozek says so, just because the REGS allow for something, there can be no challenge of the PROCESS undertaken by the fiduciary to effectuate that? I'm reminded of something an attorney once told me - The Regs are but one interpretation of hte law..., and not necessarily the correct one." That was Dean Hopkins - of McDonald Hopkins in Cleveland, Ohio, and he said it to the US Supreme Court in a case involving Drs. Hill and Thomas (a Cleveland based multipractice physicians CORPORATION) = challenging the IRS' interpretation that professional corporation were to be treated as "partnerships" for benefit purposes (back in the day when partnership benefits were less than what a corporation could provide). He won - and henceforth professional corps were treated as corps for all benefit purposes - AND the IRS relented and changed the regs equalizing benefits between partnerships and corps. Just sayin.... But we have mbozek saying one thing, and a FEDERAL JUDGE saying another. I'll listen to the Judge - and read the opinion when it's issued. Then we'll know the facts, the law, and that judge's opinion of the application of the law to the facts. I would expect appeals. Then we may have even more analysis on the subject. But.... everyone could save a lot of time and money and just pay attention to mbozek. Sorry mbozek. I don't mean to be mean - but litigation is continuing for a reason. There *IS* a dispute. The judge - after having been briefed by the parties, believes there are things yet to be determined. For now, the answer is *NOT* as black and white as you portray it.

Perhaps, mbozek, since you have all the answers to questions you have not been fully apprised of, you should seek appointment as a judge to hear cases like this. Pretty much everything you argue is about what may, or may not happen, and what, in your opinion, is an approrpiate course of action. You fail, however to address the pertinent issues in the case - that of fiduciary obligations and the breaches that the plaintiffs' have alleged, and the application of various other provisions of the Code and the Act. I learned long ago to what may be reported in the "press" is usually not the whole story and I place faith in the system to actually work things out. In this case, as I understand it, the judge has allowed the case to proceed for now - meaning, he or she has found some possibility that the plaintiffs' claims have merit. I'll trust the judge more than you mbozek - and I do so with all due respect to you. You simply haven't got nearly as much information as the judge has. This discussion is about the theoretical positions and defenses - NOT who will prevail on the merits.

mbozek said: The law suit by VZ employees against de risking is the last gasp by Participants who are covered by DB retirement plans to preserve an obsolete, inefficient and costly retirement plan business model which modern corp can no longer afford. Their complaints lacks merit for the following reasons. You know, I would love to refute your points one by one, but 1) your premise is so inherently biased, it colors what follows ("obsolete, inefficient and costly" - is an assumption, not proven by any means by the data); and 2) you make certain assumptions about things like the solvency of Pru vs. the PBGC - which, in a legal sense is totally irrelevant to the proceedings. If and when the claims have to be paid is the only point in time that the solvency of the respective entities is relevant to the participants - but it still has no relevance to the legal issues involved; and 3) you ignore the fact that this is a proceeding on the basis of whether 1) the ERISA protections (which involve not only those afforded by the PBGC are worth anything and the protections of the anti-alienation provisions of IRC Section 401(a)(13), but also those provided by the employer and the various fiduciaries of the plan); and 2) whether those fiduciaries complied with their obligations in making the decisions they did (and indeed, if they even had an obligation with respect to these issues). I am in no way arguing that the plaintiffs in this case will prevail and certainly businesses have legitimate "business" reasons (which often conflict with "law") to de-risk (but they also have ERISA obligations to the extent that they have CHOSEN to sponsor a plan in the first place) - but I don't see it as a "last ditch effort" by them. The fact that de-risking has been going on for quite some time doesn't mean that the issues raised here are worthy of court review. Plaintiff's' will have to demonstrate that their case has merit (which thus far they seem to have made it past a hurdle or two in the preliminary stages of this litigation) and Verizon will have to defend it's actions. It's exactly this kind of matter that our Founders envisioned when they create a government with an independent judiciary....

With respect to the real estate fund - it was an "example" of a liquidity issue that can occur. By the way, the largest sector in many insurance company portfolios (the "general account" which provides the guarantee of an insured product - like an annuity) - is REAL ESTATE. Generally, it's hard to ascertain the value of the guarantee as the underlying portfolio is usually not disclosed publicly, and in reality, on a "fraction" of the insured exposure need be backed by the reserves. Bottom line, it's a "risk" that ERISA attempted to deal with by the fiduciary obligations that protect participants in a qualified plan. And by the way, the comparison to a "terminated" plan is inappropriate. When a plan TERMINATES, the fiduciary obligation vanish after the distribution of the assets. In a de-risking situation, the fiduciary obligations continue for those not kicked out of the plan via the de-risking transaction. Think of it this way - a participant who is in a plan (and can't be forced out because of the size of the benefit) can essentially stay in the plan forever (subject to RMD issues) and be protected. Here, that choice was removed from the participants - and that increases their risk. Measurable or actionable? That's up to the court. Mutual Benefit is ancient history? Prove to me the current rating metrics are any better. The problem is, we don't know if there is a problem until another Mutual Benefit occurs. Look at S&P and the other bond rating agencies. They blew up - and in S&P's case they are barred from certain rating activities for a year and have a fine to pay. Other will meet the same fate, I'm sure. You don't know the value of the rating until it fails - and with most ratings (bonds, insurance companies, etc., it's all "proprietary" and not readily testable until one company fails). With respect to garnishments of annuities post plan termination, the rules would be the same whether the plan continues or terminates and NO, the annuity purchased in settlement of an ERISA plan obligation is not afforded the same protections of the plan itself. ERISA does not apply to an asset "distributed" out of hte plan, regardless of whether it originated with ERISA funds or not - Keep in mind that a plan termination extinguishes the fiduciary obligations - under law - and that creates a different scenario from the one where a fiduciaries chooses to remove the obligation from the plan while the plan continues. Essentially, in a termination scenario, the fiduciary treats every plan participant essentially the same, until te fiduciary obligation ends (assets fully distirbuted). In de-risking, the fiduciary has cut loose a group of participants and made the payment of their benefit subject to the fortunes of the insurance company. You know, and I'm not sure this isn't what some companies do, and that is to secure the benefits by having the PLAN purchase the annuities and hold them as PLAN assets. In that case, the liability is secured to the same extent that the taking the liability off book would (same insurance company, etc.) but the plan remains the primary provider of the benefits. I understand that there may be some issues with funding the plan to the extent necessary to accomplish this, but that solves the issues raised by the participants in this case. Also, keep in mind, I have no idea whether the plaintiffs will be successful here. Actually, I doubt it - but the issues they raise are those that probably require a full adjudication to resolve. That is, what is the effect of the de-risking on the participants, and did Verizon do it's job correctly.

Just my two cents worth here.... 1) Yes, but to play devil's advocate here, Mutual Benefit (a life insurance company) was rated at the top of the heap in the "Best Ratings" the DAY BEFORE they went belly up. The case at hand involves Prudential, and in all honesty, I can't see a problem with their solvency - but one never knows what the future will bring (which actually bodes well fro the defendants in the suit - as the plaintiff's case is "speculative), but things do happen. Principal (another well capitalized insurer) not that many years ago suspended withdrawals from a real-estate investment fund (and I don't know if it was an NAV product or an insured product) - but they suffered a liquidity issue that caused pain and suffering to many participants (mostly, if not all, in DC plans). Just sayin..... Bottom line is, selection of Pru was a fiduciary decision. I assume Verizon exercised their obligations as a fiduciary with all due prudence. The case is making the argument that they didn't (arguably because they could never do so by removing the assets from a "qualified" plan and turning them over to a for-profit insurance company - OUTSIDE of the plan (which didn't terminate - an important distinction here). 2) The difference between ERISA's anti-alienation provisions and a contractual anti-alienation provision is an important distinction. ERISA will not allow ANYONE (with the exceptions of a spouse or ex-spouse and kids, and in some limited circumstances, the IRS) to cause the benefit to be assigned. In other words, no court (except in the case of a QDRO) can order a plan or it's fiduciaries to pay anyone other than the participant or beneficiary. Once the money is received by the participant or the beneficiary, someone can levy against the account it lands in, but until "the check is cashed" there is nothing a creditor can do to nab the cash - and debtor participants can be real tricky in finding new and unique places to literally "cash" a check without it ever hitting a bank account. With respect to an annuity, the provision is contractual, and is SUBJECT TO STATE LAW GARNISHMENT PROVISIONS. So while the contract may not allow the benefit to be "accelerated" to pay a creditor, and will not allow the participant to assign the benefit to another, because it is an "income stream" payable to a debtor (participant), state law may allow a garnishment to be taken from it BEFORE it lands in the participants account. I'm not well versed in every state's garnishment/attachment provisions, but it is indeed a risk to the participants that did not exist when the assets were still in plan.

"and the notice says "your fund has been mapped to a fund with similar objectives and characteristics" You know, I've read this entire thread, and I see NOWHERE where the contents of the notice are spelled out. The OP says the HR people said (which is already a two step leap in the "telephone game") that funds were mapped into like funds. Not what I would bank on in any way shape of form. Let me see the notice. Let me see emails - or other documentation of conversations. Far too often those answering the questions aren't the ones who are making the decisions or are the real fiduciaries of the plan. 1) ONLY through the actual content of the notice can any determinations be made as to what it contains, and whether or not it was appropriate. I've seen (and have written) such notices that spell out that an attempt was made to move funds into like-investments, but where there is no like investment offered, those funds will be mapped to the XYZ fund, or a balanced fund, or a default fund, or a conservative fund, or ... or ... or .... It really is IRRELEVANT. If the notice said this precious metal fund WAS GOING AWAY (a VERY prudent decision, in my humble opinion) and the money invested in it would be invested in the "XYZ" fund, then so be it. Notice given. Prudence is the standard. The burden falls on the plaintiff, and HE THREW THE NOTICE AWAY. 2) As has been pointed out - the relative performances of the two funds is also IRRELEVANT. The decision is a "fiduciary" one, and the standard is "prudence.' Precious metal funds are very volatile (both up, and back down). Timing here may have sucked - but that isn't a criteria of "prudence." The advisors I work with NEVER would recommend inclusion of a precious metal fund, and where one exists, the contracts CLEARLY lay out (I wrote the language) that the advisor assumes NO RESPONSIBILITY, fiduciary or otherwise) for that fund. Too much risk. No reward for the fiduciary. 3) It is also IRRELEVANT whether he would have acted differently had he read the notice. The notice just provides information. Had he read the notice and done NOTHING, he would have assumed the risk of what the new fund's performance was (assuming the notice was appropriate and complied with 404© standards - and if it didn't, that's a different story from the one we've gotten so far). It would be no different if he had gotten a notice that announce a totally new fund in the line up, but did nothing to invest in it. If it became the plan's best performing fund - could he then sue the fiduciaries because he didn't invest in it,and his investments didn't perform as well? NOT! The notice is there to make the decision the participant's. Read it. Don't read it. As long as you got it (and it was correct), the risk is the participant's - not the plan fiduciaries. 4) I agree with everything that's been said about how the courts would approach this matter. The amount of the loss is IRRELEVANT. The only questions are 1) was the decision "prudent" (considering there is NOTHING that requires the plan sponsor to continue to offer a participant's favorite fund - or any fund for that matter (I have clients that still totally direct ALL plan assets (and they are doing quite well, I might add)); and 2) did the participant receive sufficient notice (and he's admitted to receipt - the only question would be one of sufficiency) such that the burden shifts. To the OP: 1) READ what you get (and as other's have pointed out, don't assume the "unknown" is "junk"); and 2) get engaged in what's happening AT YOUR COMPANY (you said you were a "partner" - at least in the old company that sold/merged with the new company. As a partner - you may actually have some fiduciary liability yourself....

I had a situation similar to this - and the question that was central to the resolution was "was the plan truly abandoned." In my case, a company was sold and the executives of the sold company went to work for the acquirer. The continued to receive plan level information (trust reports), and even met with service provider representatives once or twice to discus how to wind down the plan - which never happened, for about 10 years. The plan was NOT abandoned. The execs were considered to have remained fiduciaries of the plan, albeit negligent in their duties. They claimed they didn't know what to do, didn't have the resources to do it (the plan sponsor was non-existent), and couldn't find the remaining participants (although they really didn't try). Truly, their "hearts" were in the right place - but they didn't have good advisors to help them and it just dragged on. The recordkeeper should have been more aggressive in getting the thing resolved and terminated. Because the plan was NOT abandoned in the eyes of the DOL (and no one really wanted to spend the time or money challenging that), it had to be "resurrected", made compliant, and terminated. The DOL was not really "antagonistic" in this matter (probably because there were no participant complaints and the plan had lost contact with the 9 remaining participants - with about $500,000 in assets!) but they insisted on a VCP filing to correct the out of date documents, and termination. Wasn't cheap..... But no other penalties.

As a matter of fact, YES. Indeed, I've NEVER had an IRS auditor NOT ask about all prior years. It's on their checklist to go back to the beginning of any problem they are reviewing. That said, sometimes you can "convince" them that it is impracticable to correct certain years. Sometimes you can't....

Well, simply put, by "self correcting back x years ONLY, you are simply playing the audit lottery game. My approach has been to correct as far back as "reasonably possible" and document why you didn't go back further. "Reasonable possible" is subjective, of course, but one must consider: 1) the likelihood of a disgruntled employee/former employee raising the red flag; 2) the likelihood of a regulatory audit (either DOL or IRS - they seem to be more willing to send noted problems to the other) - AND don't underestimate here - because there is NO EXCUSE for not correcting as far back as you can "reasonably" do; 3) Is the error really "insignificant IN THE EYES OF A REGULATORY AUDITOR (and my experience is that the benefit "per participant" is insignificant usually doesn't fly)? My experience with the IRS on these matters has been that if you can demonstrate the futility of going back beyond x years (lost participants, lost records, cost CONSIDERABLY higher than the benefits that might accrue to those from past years, etc.) you may get some "compromise." Balancing all of that, I tend to advise clients to err on the side of going back further - and certainly not to some "arbitrary" length of time - especially based on something not relevant, like "open years."

Really? The PBGC is funded with premium dollars - as a captive insurance company. Would you say the same about claims paid by Aetna? Humana? Nationwide? The process isn't broken - the premiums haven't kept up with the risks - and those who take greater risks are not penalized accordingly.

Pardon my jumping in, but the lawyer in me escapes and must comment occasionally.... It isn't "process" (automated or otherwise) undertaken that determines the fees charged - it's the liability for the actions taken. Management of that risk is a function of education, continuing education, experience, and competition. The services aren't a "commodity" but are professional in nature - and that means a premium for the service due to the expectations that services provided by a professional are backed by that education and experience. Now that said, when a lawyer tries to collect a fee, clients always seem to think that if they "lose," it was because the lawyers wasn't any good, and when they "win," of course they were right and the lawyer added no value....

Actually - first, I've seen plenty of plans with way, way too much in the forfeiture account (and it's a nightmare to correct). Second, most of my clients understand the rules - and want to stay on the straight and narrow. They prefer to use forfeitures to either pay expenses the participants would otherwise have to pay, or to increase benefits to those that make their business possible. Maybe I just have more altruistic clients than most, but that's the way my book of business runs. Even so, as I said before - want to debate the policy issue? I'm all ears. But I'll stand on my position that a benefit has to come with a cost - and unless you can show me the cost to the employer who uses forfeitures incurred under a non-safe harbor period of the plan to offset the costs of a safe harbor plan contribution - we'll have to simply disagree on the policy issues involved.

I don't necessarily see it as "silly." We can argue the value of the policy but as was mentioned above, the employer gets the benefit of the safe harbor - meaning happier HCEs and no testing complexity. If there isn't a "cost" to that, then it's a free ride - and I would suggest that is "silly." The forfeiture arose under a scheme that was not safe harbor - and should be used as the plan allows for such forfeitures. Under a safe harbor scheme, no forfeitures would arise from safe harbor contributions (always vested) and hence an added cost tot he employer to offset the benefit received. Want to discuss policy? Great. I could some "transitional" rule that allows forfeitures to be used to offset some of the contributions, or for them to be "banked" beyond the current year to offset plan expenses without penalty as an incentive to induce employers to adopt safe-harbor plan provisions - but to simply give them the benefit without any "cost" just doesn't fly in my book - especially since the employer could pretty much at will terminate the safe harbor provision as soon as the forfeitures were eaten up....

"The employee for starters. Economists for another." Sorry to play devil's advocate, Austin, but 1) if it's a safe harbor plan, the participants get the value of the safe harbor contribution regardless of the source (new employer money or use of forfeitures) - that's the nature of a SH plan; and 2) by NOT allowing the use of forfeitures to offset safe harbor contributions, the participants would get the benefit of the employer safe harbor contribution PLUS the value of the use of the forfeitures for some other purpose (offsetting expenses they wold otherwise have to absorb, funding or increasing other employer contributions - or simply reallocation to their accounts) and I assure you Economists would like that even more....

Rather interesting in today's Napa-net.org e-newsletter, there was an article about possible legislation to look for in 2015. One of the pieces of legislation discussed would specifically clarify and ALLOW forfeitures to fund safe-harbor contributions, leading credence to the IRS' interpretation that *currently* forfeitures may NOT be used for future safe-harbor contributions. The article is here: http://www.napa-net.org/News/Browse-Topics/Inside-NAPA/Article/ArticleID/3765/Will-Retirement-Legislation-Get-a-Restart-in-2015

Its a simple economics calculation - but one based on assumptions. What's the present value of the current principal projected out to a retirement date minus the present value of the future taxes to be paid give an assumed mode of withdrawal. If I represented the participant as plaintiff, my assumptions would start at 1) deferred withdrawals till RMDs; 2) only MINIMUM RMDs over the expected life expectancy of the participant; 3) today's current (low) tax rates (as anything else would be "speculative") and 4) an appropriate DB discount and investment return assumptions. And I doubt there is any authority on point - the people here are trying to provide you with an informed, theoretical approach to solving the problem ABSENT such authority.

I've seen them ask for it. I told them no - they don't need it - and if they persist, I tell the managing partner I no longer want to train their younguns - there are other auditing firms out there.....