MoJo

Not to be funny, but - who set the plan up? Is there a consultant/advisor/solicitor (attorney)/agent or other UK based entity that has been baby-sitting this plan? We occassionally see a client with a UK or other "foreign" plan - but they always have a foreign advisor they work with - or we put them in touch with an "international" firm to assist.

"Multiple "Likes" to this. This exact "mistake" cost Microsoft a ton of money.....

While I'm not a big fan of having "more" fiduciaries in the mix (see my other posts!), this is one case where I think having a trustee that is not the plan sponsor is a good idea. For starters, just the issue of timely segregation of slary deferals can get more complicated where the employer as plan fiduciary needs to remove the assets from "corporate coffers" as soon as practicable, and the easiest way to do that is to deposit them in the trust (with the trustee - which if it is the employer theoretically means they could "wave a magic wand" over the pool of assets and say "these are now in the control of "us" as trustee" (I am, being facitious, of course). But the issuesaginify as a result of potential conflicts. Custodians help, but they aren't "trustee" (at least in their mind). Insitutional trustees are cheap. Even individual trustees (which a lot of our plans use) "seem" to provide a "break" between employer and trust. While it all is an artifice to some extent (smoke and mirrors), the right kind of smole and mirrors (coupled with prudent fiduciary practice) makes sense to me. We actually looked into this for my employer (TPA, etc.) and decided against it for two reasons. One, there is liability; and two (more important) we want to be able to consult with our clients about "best proactices" and couldn't construct a case as to why self-trusteeing the plan was a "best practice."

There is a difference between not wanting to engage in a discussion where you might profer a differeing opinion, and telling people that my comments are inaccurate. I respect that there are other opinions on the matter - and even laid them out in my post (the part immediately proceeding the "hogwash" statement - without which my hogash statement would have had nothing to reference). I will stand by my opinion - that hiring additional fiduciaries rarely reduces the fiduciary liability of the one who does the hiring - and that few people pushing the "TPA as 3(16) Plan Administrator" have a clue as to the issues involved, actually "properly delegate" responsibility, successfully "don't interfere" (thereby becoming again a fiduciary in their own right), and actually have a reason to sleep better at night. Can it be done? Yes. Is it the norm in the industry to do it right? Absolutely not. Next time, if you want to disagree - say "in my opinion" MoJo is wrong, but to say I'm not accurate is itself a misrepresentation.

Thanks for the critique - care to elaborate? In a blog one cannot sufficiently encapsulate what I've been doing for a living for close to 30 years. My point was to raise the issue to a higher level of concern - so that those interested would pursue additional information, if not resources, to assist. I agree that the topic requires considerably more depth and detail, but am currious as to what you find lacking that renders my position not "accurate" - especially considering I stated it was my "opinion"?

I don't mean to oversimplify, but what you are asking is whether the TPA is a fiduciary. One can be a fiduciary by function or by designation. Perform a fiduciary function and you are a fiduciary (whether you want to be or not). In your example, the question would be, is there "discretion" in the management or adminsitration of the plan in performing the specific task that would render the TPA a fiduciary, or is it simply a "ministerial" function not giving rise to fiduciary status. I think it is ministerial - except where an issue arises that requires a "judgment call" giving rise to some level of discretion. We try not to exercise any discretion, preferring to lay the issue out for the plan sponsor (maybe with a recommendation as to what to do, but letting them make the call) The "named" fiduciary is what 3(16) essentially is about - in that the fiduciary under 3(16) is the "Plan Administrator" - and if named as such, is a fiduciary without regard to the exercise of discretion. There is a lot of chatter in the world about whether the TPA should be (or not be) the 3(16) fiduciary - under the theory that by having a TPA/fiduciary, somehow the plan sponsor has more protection from fiduciary liability. My opinion is that that is hogwash - in that by "selecting" and "retaining" another fiduciary, the plan sponso is exercising a fiduciary function - and has increased liability for having done so, and, since most plan sponsors work closely with the TPA (and the TPA is certainly dependent on the plan sponsor to provide detailed and accurate data for the TPA to function), there most certainly is overlap (or an incomplete "delegation" of responsibility) that would shield the plan sponsor from co-fiduciary liability. Not only are held to the standard of a fiduciary in selecting a service provider, you are now held to a higher standard for selecting another fiduciary AND have the potential for co-fiduciary liability when the TPA screws up (whereas, when a non-fiduciary TPA screws up, you need to fire them, but you aren't co-fiduciarially liable for the screw up). Just my 2 cents worth (and that said, we are looking at 3(16) services (as a TPA) basically for "marketing" purposes....

If the trust is named as the bene of the plan, the trust needs to receive the payments. It isn't your concern what the trust says or does with the money once it is paid to them. That said, I wouldn't want to make the decision myself as to who to pay if the trust ceases to exist - that is the responsibility of a judge, with jurisdiction over the plan. The way in which I've resolved similar issues (where it is unclear to whom the payment(s) should be made is to "interplead" the payment(s) to a court - which is essentially "throwing your hands in the air and saying I (we) don't know who should get the money, you judge, decide). That protects the plan. You may think it is clear that the trust has but two beneficiaries - but are their contingent beneficiaires, alternate beneficiaries, per stirpes or pro-rata distributions to the heirs of the original beneficiairies and the like? Not decisions the plan/fiduciaries should be making....

Yes, but no harm no foul doesn't mean it's "right" and doesn't inspire confidence in their ability to perhaps do other things that may appear "ministerial" but nonetheless *DO* have an impact. Sorry to be a stickler, but the PLAN is the CLIENT and the investment house isn't trating the client very well when they make stupid mistakes and then refuse to correct them. I dont know why you are getting excited over an admin glitch that has no adverse consequences to the plan. I have seen this error before and plans do not think anything of it. If you had read the OP you would have noticed that problem was caused by failure of the plan to check the right box on the w-9. It was not a mistake of the financial institution which must rely on the client to correctly code the forms they fle with IRS because financial institutions cannot provide tax advice. Client should have had tax advisor review w-9. Problem will go away in future years since w-9 has been revised. I get excited over it because there is NO excuse for sloppiness - and it is evidence of a culture of carelessness that might infiltrate an area that IS of concern to the plan. Businesses are competitive. I do business with those that pay attention to the details - and demonstrate a committment to being error free and responsive. Erros happen, but the way they resolve them is truly indicative of the kind of company they are. In addition, the plan is the CLIENT of the investment house - not the other way around. Those who don't serve CLIENTS well, don't deserve to be in business. Why are you so nonchalant about 1) an ERROR that was made; and 2) (and most importantly) their ARROGANT, DEFIANT, AND NON-CLIENT SERVING refusal to make a simple correction? Right is right. Good client service is it's own justification.

Thanks Austin. I'll be doing some research on the issue (I'm a "recovering" ERISA attorney myself, but don't like recreating the wheel, if I don't have to). Evenif it isn't a PT (and I won't be convinced that it isn't unless I see some authority to that effect), I have major problems with teh fee structure of the hedge fund (flat wrap percentage PLUS a share of the profits of the fund) which raises my sense of smell on several levels.

I've never had an investment house ask for SS numbers for an "institutional" account. Are they titling the account appropriately in the name of the trust?

Resurfacing this.... I have a money manager client wanting to include it's own hedge fund in the investment mix. My sense is that it is a PT, unless a PTE exists (for which I am aware of those for a bank's own investments (collective trusts) and mutual fund purveyors' own investments in their 401(k) plans - but not for hedge funds). Any insight?

Yes, but no harm no foul doesn't mean it's "right" and doesn't inspire confidence in their ability to perhaps do other things that may appear "ministerial" but nonetheless *DO* have an impact. Sorry to be a stickler, but the PLAN is the CLIENT and the investment house isn't trating the client very well when they make stupid mistakes and then refuse to correct them.

I would simply add that if the investment firm is so inept and recalcitrant, perhaps it is time to find another investment firm....

"Encourage"? Not really. I had a similar situation once - where the "defendant's" attorney convinced the guy that it would show the judge "remorse" which might bode well for him at his sentencing. I worked for the trustee at the time, showed up at the sentencing hearing with distribution paperwork and check in hand. Before the hearing, he signed the paperwork and I gave him the check. End of story for the trustee (but I stuck around to see what happened). He signed the back of the check over to the company as partial restitution. Didn't sway the judge (he got 15 years in Lucasville - Ohio's rather notorious Big House - and there was a decided odor in the room when he was sentenced). Part of the sentence was also to make restitution (of which his 401(k) distribution was about 8% of what he stole). Signing over his balance may not be bad in the eyes of a parole board (but also may subject his or her family to financial hardship). Good luck!

Resign.....

While I can't say that I've never seen this occur (and may, possibly, perhap assisted in that regards), I cannot emphasize enough the cautions FGC noted above. Add to that the possibility of a creditor of the estate coming forward demanding payment, and well, you have the proverbial "can of worms."

MBOZEK: I understand completely the functional test of ERISA for fiduciary status - and lecture on the issue nationally. However, the executor of an estate is an individual operating in the capacity of the Estate - not in an individual capacity. As such, under state laws, the function o the executor, to the extent it is consistent with the standards of the jurisdiction in whcih they are operating, is not "personally liable" for those activities that are truly the purview of the estate as successor to the decedant. There is a fiduciary obligation under state probate laws that make the administrator one with respect to the bene's of the estate, but undertaking ERISA fiduciary liability simply because the decedent was a fiduciary with respect to the plan would cause most of those who act as an administrator to refuse to do so. Is that at odds with the functional test of fiduciary responsibility/liability? I can make the argument either way (depending on who my client is) and would, if I represented the administrator of the estate, have them take the position that the estate is the fiduciary and that they are administering the estate which in turn is administering the plan. Is it a winner? I don't know, but I do know that simply admitting that they are a fiduciary by virtue of signing a distribution form is a losing proposition - from the start. As a practical matter, if the plan is to be terminated, and *if* I had no way to even argue that the adminsitrator fo the estate was acting in a ministerial capacity with respect to the plan, then I would ALWAYS tell the administrator to either resign as such, or notify the DOL that the business has abandoned the plan for want of a fiduciary. Neither option does anyone any good. In most cases, as well, it isn't feasible or cost effective to hire another to function as a fiduciary with respect to the plan. The cost would eat too many estate/plan assets. So, what's an administrator of an estate to do? My advice is to approach the tasks ministerially (if that is a word), document it as such, never admit that it may be a fiduciary function, but be prudent in the exercise of that function, and if caught, defend first and foremost that the function wasn't a fiduciary function, secondly, that the actions undertaken were ministerial on behalf of the real fiduciary (that being the estate), and thirdly, that it was done appropirately, nonetheless. Otherwise, we'd have a whole lot of abandoned plans out there.

No doubt. But an Administrator of an estate is functioning only as a respresentative of the estate, and not in their own capacity - hence, while the DOL may argue the point, I wold argue the estate is the fiduciary, operating through the signature of the Administrator. Would it work? Better than "admitting fiduciary responsibility" - at least it can be litigated, if need be.

Uh, Company A owns more than 80% of Company B. 'nuff said. It's a classic "Parent-Subsidiary" controlled group. Someone is trying to apply "Brother-Sister" controlled group logic - by looking at the owners of Company A. Don't need to.

Just finished up one of these. We took the position that the Adminsitrator (court appointed) of the estate had responsibilities to wind up the affairs of the decedent, INCLUDING the winding up of the business of the decedent INCLUDING termination of the plan (settlor functions) - but they accepted no "fiduciary" resonsibility (and whether that was effective or not at their not actually having any fiduciary responsibilities, who knows). Bottom line, a plan can't be without a fiduciary, and the estate as an entity was probably one - but the Administrator only operated in a ministerial capacity (with respect to the plan) bu nonetheless was a fiduciary with respect to the estate - so had to do that which would protect the estate (including winding up of the decedent's/estate's responsibilities to the plan and it's participants). Makes your head spin.... Plan was terminated, distributions occured, and the matter was put to rest.

I respectfully disagree with Belgarath - to an extent. Prior law allowed for in-plan Roth conversions for plan assets that "could" be withdrawable under law (over age 59-1/2 for deferrals, profit sharing/match under those rules, etc.) and the in-plan conversion provisions could be implemented EVEN IF the plan didn't actually allow those types of in-service distributions. The IRS would allow a plan to have the conversion option in place, and include an option to actually allow some of the otherwise legally distributable assets to be distributed to pay the taxes due, if the plan wanted it to, without having a full right to distribution from those sources (i.e. the distribution right per the plan would only apply to distributions to pay taxes due as a result of the conversion). The *new* law allows for conversions of balances for which no right of distribution exists under *law.* Different animal entirely. I think it would be a BIG stretch if the IRS "created" a distribution right (even for the payment of taxes) where one is specifically prohibited by law. Just my two cents worth.

I've seen nothing in the legislation that would create *any* right of distribution for the assets not currently "distributeable" but now available for Roth conversion. It appears to me that the answer to your question is "no" and that the participant would have to 1) have outside assets to pay the tax due; or 2) use assets that are subject to distribution to obtain the funds necessary for payment of the taxes due.

Can she? Sure. Should she? Well..... I've seen it done.

Except that ultimately you get the money you've paid against the loan as a distribution when you have a distributeable event - which is what cause many to think there is a tax issue. You are, of course, right - but that doesn't stop others from jumping on this particular "gerbil wheel."

I think you are over analyzing the double taxation issue. Money is fungible (one dollar is equivalent to another dollar). You are ascribing the tax status of the dollar you use to repay a plan loan - that it is an after tax dollar you had to earn and pay taxes on before applying it to the loan - to suggest that you are double taxed when that same dollar is distributed to you upon retirement. No. The dollar you took as a loan STILL EXISTS - in that you received something of value when you used that loan for what ever purpose you took the loan - whether it be buying a new TV, or paying other bills, or the entertainment value of a vacation, the value exists. When you repay the loan, the CHARACTER of the dollar you BORROWED is attached to dollar you are using to pay back the loan (which is a "pre-tax" character). You still have the TV or the lower balances on the bills you paid, or the value of the vacation or whatever you used the loan proceeds for. you've simply exchanged the dollar for someting (you perceive to be) of value. I would argue the same is true of the interest on the loan. It's a premium for obtaining what you've acquired sooner rather than waiting till you had enough "after tax" dollars to obtain it. Think of it all this way - as discussed above. Take a $100 loan. Put it under the mattress. Take your year end bonus (net) of $100. Pay back the loan with the bonus money. You aren't double taxed on anything as you are in exactly the same tax position you would have been in under any other scenario. Just because the "dollar" you "use" to pay back the loan was one you've paid tax on doesn't change the transaction. Consider another example. Take a $100 loan. Inherit from your old Great Aunt Hattie (great in many ways, not least of which she remembered you in her will). Your "inherited dollars are "tax free" - and if you use them to pay back your loan - nothing changes. You don't get a "deduction" because you are now paying back a loan with tax free dollars, just as you are not double taxed if paying back the loan with "after tax" dollars. Money is fungible. Sorry for the rant, but I'm tired of the "double taxation" discussion continuing in this day and age (and I even see some of the major service providers spouting this nonsense).