MoJo

Are you suggesting that today there is a realistic means of complying? IF so, what is it, please tell me! Aside from a 404a5 blanket disclosure from the fund company, I just don't see how it is attainable. Has anyone seen anything?? Yes, sure. You can comply with the exclusive benefit rule and the prudent expert standard without disclosing anything to participants. Show me in ERISA where it makes a fiduciary disclose fees to be in compliance with those fiduciary responsibilities. ONLY in the regulations (which are but one interpretation of the law) is that action spelled out. Now, complying with 404© - that is a different matter - as the protection afforded by that section in ERISA itself, specifically is dependant upon compliance with "regulations issued by the Secretary." ERISA Section 404(a) contains no such reference to regs issued by the Secretary. Would I recommend ignoring the regs (provided you followed a prudent process and actually determined that all fees payed by the plan were reasonable)? Nah. I'm conservative and prefer to read about others who have tried it, and then advise my clients accordingly.

After pondering this question for some time, debating it with other professionals, and actually going back to reread the regs yet again, I think the "best" (for now) answer is "yes, according to the DOL" a failure is a breach of fiduciary duty (the remedy for which is yet to be determined, most likely through litigation a few years hence) *AND* you lose 404© protection (for whatever that may be worth), as the required disclosures have also been made an essential part of complying with the 404© regs. The reason I say "according to the DOL" is that while properly issued regulations are certainly a weighty and persuasive interpretation of what is required to comply with the statute (and remember, these regs are attached to the part of ERISA that defines the exclusive purpose rule and the prudent expert standard), they are not necessarily the only means of comlying with the the requirements of the statute, or even the correct way to comply. I used to work with an attorney - Dean Hopkins - who successfully won such an argument before the Supreme Court, challenging the IRS' regs that defined professional corporations as nothing but partnerships - and thus treated professional corporations (this case involved a medical practice) for benefit purposes as partnerships (which back then did not allow partners to be "employees" for purposes of receiving benefits). Beyond that, remedies for a breach of fiduciary duty involve, essentially, restitution to the trust for losses suffered as a result of the breach (an "equitable remedy, and not a "legal" (money damages remedy)). One has to question whether the lack of disclosure has anything to do with the actual reasonableness of the fees. That is, if the fiduciary is actually on top of the fee issues, and has done everything appropirately but disclose to participants under the 404(a)-5 regs, what actually is the damage to the trust? I can see the loss of 404© protection as giving rise to some liability (although it would be hard for a participant to argue that "but for" the disclosure, they would have made different investment decisions). Now, would I recommend someone challenge the regs as being the only way to comply? ABSOLUTELY - but I won't do so on behalf of any of my clients. I really would like to see someone else blaze that trail, and I'll sit back and watch.... Just my 2 cents worth....

I've been following this thread and keep scratching my head over one simple thing - no one has asked you what amount you need to cover what you intend to provide. Lots of people can throw numbers around, but it is no substitute for putting pencil to paper (or mouse to spreadsheet) and calculating what actually is needed. Some want to replace their income "forever" while others want to cover expenses for a period of time till the family can develop other sources of income. You said you want to cover the mortgage for a while, till the market improves. Five years? Ten? Other expense you want to cover (college educations for the kids, lifestyle sustainability, a few vacations for the family, etc.) Once you settle on that, then it's a simple present value calculation using expected rate of return, etc. Personally, I think insurance is a necessary evil, and only a temporary solution until you can essentially become "self insured" through wealth accumulation. Depending on the policy you buy, it can actually be a hinderance to that wealth accumulation. Figure out what really is needed, do the math (and admittedly you want to pad your assumption however you feel comfortable - better to error on the side of providing a bit too much than a lot less than needed) and then shop it around. Buy a good quality term policy that suits your needs, and skip the "rules of thumb" that insurance agents try to use to get you to buy more than is really needed.

The problem with ERISA making provisions for this kind of thing is that it can adversely impact an innocent spouse of the participant - protections for which REA was enacted back in '84. With respect to the murdering spouse situation you spell out, FWIW, many (if not most) states have provisions that specify that convicted murderers cannot benefit from their act - and are deemed as if they "predeseased" their victim for purpose of inheritance and life insurance proceeds. Not sure how that squares with ERISA's spousal protection provisions, but it is a "leg to stand on."

I believe the current law - at the federal level - is that same sex marriages are not recognized for purposes of applying federal statutes.

I think the answer is quite clearly "no." Internal Revenue Code Section 401(a)(13) makes a retirement plan assets not subject to "alienation" except as provided for in that code section (none of which apply to embezzeling from the plan sponsor). Such a Court's order is unenforceable against the plan. I have actually been involved in a situation where the participant/criminal "requests" a distribution and then signs the distribution check over to the company (in a pre-arranged deal where immediately before sentencing this occurred, to show the court an attempt to repay the employer for their losses - as a show of remorse to get a lighter sentence). Didn't work. He got the max. Pushing the "like" button. We should be aware of the "bad boy" rule exception. Even here, those provisions must be written into the plan's document and may not violate the maximum statutory vesting schedule (i.e. 6 year graded). The rule, itself, usually has minimal (if any) effect. Good Luck! Yea, the "bad boy" exception -"may be" useful in reducing an offender's vested percentage *IF* the plan had an accelerated vesting schedule and they didn't mind being the defendant in a lawsuit. The bad boy exception is a judicially created exception (i.e. has no basis in ERISA or any other statute that arguably could apply), must be included in the plan document (which most don't, anymore) and you'd have to hold your nose while you invoked it. Even so, the money would be forfeited, (and only the "excess vested amount") and would be applied via the terms of the plan dealing with forfeiture (which may, or may not, benefit the employer indirectly).

I think the answer is quite clearly "no." Internal Revenue Code Section 401(a)(13) makes a retirement plan assets not subject to "alienation" except as provided for in that code section (none of which apply to embezzeling from the plan sponsor). Such a Court's order is unenforceable against the plan. I have actually been involved in a situation where the participant/criminal "requests" a distribution and then signs the distribution check over to the company (in a pre-arranged deal where immediately before sentencing this occurred, to show the court an attempt to repay the employer for their losses - as a show of remorse to get a lighter sentence). Didn't work. He got the max.

The answer is really dependant on the corporation and it's normal mode of operation. In many cases, I have seen "gerneral" board resolutions that grant blanket authority to a corporate officer to execute such amendments as may be neccessary or conveninet. Other times, I've seen board resolutions that annually "ratify" actions taken by the officers (either generally, or specifically with respect to the plan). Even other times, I've seen no board resolutions, because the officer (somehow) actually does have the authority to perform such functions. One resolution per Amendment is neither a legal requirement, nor necessarily all that common (in any arena but plans - solely do to the fact that an outside service proviedr usually preps them (including a resolution) outside of the normal corporate board process). Ask: Was this amendment authorized, and if so, how?

Uh, one ought to look at the original marriage plan document to determine the definition of "harmony."

I think it is the perception of reducing liability - BUT, my experience is that most service provider trust companies have trust agreements and service agreements that so severely limit their liability that there may not be much, if any, "liability" benefit from using them (and when I worked for some of them, I wrote those agreements - and it is yet to be seen how enforceable some of those provision may be). That said, having another fiduciary (and YES, even a non-discretionary directed trustee is a "fiduciary" though many deny it - but that's another discussion) means the plan sponsor must be "prudent" in the selection, and "monitor" the other fiduciaries to the plan to ensure no breaches/no co-fiduciary liability. One other benefit I can think of is some "formality" placed around the processes that an insitutional trustee has, that may not be observed by an individual. That may be a benefit (as most individual trustees really have no idea what it means to be a trustee (and in some cases - more than I'd like to admit - the named individual trustee is either a former employer or even a deceased individual, leaving the plan essentially trustee-less).

Um, well, I think the answer is yes, but perhaps not right now (unless you are in a MM fund that actually has a negative return - and some of them do). But 30 years from now, when a participant doesn't have enough money to retire on because it was invested in a MM fund - you bet, some one will sue.

My opinion would be the opposite of yours (and it's just an opinion). My basis for thinking that is simply that by NOT providing the QDIA notice, at worst I think you'd lose 404© protection for that decision - which is EXACTLY the same result you get by not using a QDIA - i.e. a MM fund - as a default. The next question is, which is more "fiduciarily prudent" (since 404© doesn't apply) - a MM fund that is GUARANTEED to lose purchasing power over time, or an otherwise diversified fund that, if prudently selected in the first place, has the potential to grow? Me thinks the latter....

That's more of a tricky question than most would think. The answer is a "cautious" maybe. If the subpoena is validly issued, was properly served upon your organization (and that includes actually making your organization the reponsible party pursuant to the subpoena (I've seen the "plan" being the entity served with a subpoena, with the TPA expected to comply - which it isn't), and you actually, as a service provider have the data being requested (and not that you can go and get it), then yes, you must comply. BUT, the subpoena can't make you obtain data not within your area of responsibility. For example (and this just came up with a TPA that I work with), a subpoena that requests participant level information over a specified period of time, including transaction details, was not valid with respect to the TPA because they don't deal in participant level information (even though they could get that info from the recordkeeper). That subpoena should have been directed to the recordkeeper, and we (properly, and politely) refused to comply (letting them know where the info could be obtained). I certainly would suggest that it be run by counsel, and the plan sponsor/fiduciary for the plan involved.

I think you have a "tracing" problem. Paying off the old loan is independent of the purchase of a new home regardless of the issues surrounding financing of the new home. I think the money has to be clearly traceable to the purchase. If the guy never (can't) sell the old house, then the funds never get applied to the purchase of the new house. I wouldn't do it. As an alternative, use the hardship to put more money down on the new house and borrow less, then when the old house sells, either use the proceeds to pay of the debt, or go back to the bank and refinance.

While I can certainly see situations where the negligence of the participant contributed to a loss (and under equity, may have an impact on their ability to recover) I have never seen any statute or court case that absolves a plan fiduciary from responsibility because of the actions of another non-fiduciary - especially a participant, the "Primary" obligation of the fiduciaries being the protection of his or her interest in the plan. Participants don't select whether to have on-line access or not - that is a plan sponsor and fiduciary decision (including the selection of a service provider who may, or may not have alternatives to on-line access, and who's technology & security should be key drivers of that fiduciary decision). In my mind, the participant owes no duties to the plan, the plan fiduciaries owe essentially everything to the plan and its participants.

Certainly there are costs to comply - but (and that is a MAJOR "but") we've been talking about this for DECADES, and the industry has been building out infrastructure for DECADES without even considering attempting to include fee information in any meaningful way. In other words, to a great extent, the costs of complying are the fault of the resistence (and short sightedness) of the industry - and the regs became necessary because of the abuses of some that weren't rectified (and in some cases, actively hidden) by other players in the industry. Even now, in the face of imminent disclosure, I've seen a rather alarming amount of churn by those seeking to capture upfront fees before they have to disclose. I have no mercy for those, and for the rest of us, well, we've had years to figure it out, and haven't. I've been in this industry since 1983 (and know what DEFRA, TEFRA and REA stand for...) and haven't seen much transparency until very recently.

While I agree with you that many (most) won't read or understand the disclosures at the participant level, that doesn't justify not giving them the information - lest we "become the nanny" that many rally against (e.g., "don't worry your pretty little heads about fees - they don't impact you..."). Only through knowledge can competition function, and only through information can knowledge be obtained.

Regulations gone wild? Maybe. Maybe not. I'm always amazed at how much compensation "some" receive, and how little they do for it (anual meetings and a few one on ones with "some" (read, VIP) participants), for 50bps. Keep in mind, though, if your clients write you a check from corporate coffers, you have no obligation to disclose anything. These regs are ONLY about comp paid BY THE PLAN.

To phrase it another way, what is the value of his services to the trust?

Famous (last) words..... I know some people who would "love" to know who your clients are!

I disagree completely. The plan fiduciaries have an absolute obligation to protect plan assets (common law of trusts). the beneficiariy of the trust (here, a participant) has no such obligation to similarly protect plan assets from theft. Ignoring the change of bank notice, IMHO, does not impose upon this participant the obligation to do anything - that is exclusively the responsibility of the fiduciary - although one would hope that most participants would at least question the notice - although, not ervery participant is "financially literate" to understand the interplay between the various financial entities involved, and may have assumed this was "just another stupid plan notice that doesn't affect me" (and even though I'm in the business, I get lots of "stupid plan notices that don't affect me" and typically don't read them completely). I question why the first bank in line (the one into which the fraudulent loan proceeds were deposited) is not completely liable for a return of the assets. First, they opened an account in the name of someone who's identity they did not know (and for quite some time now, under anti-money laundering statutes that is a big "no no."). Second, they executed a transfer to an offshore bank without proper instructions from the "owner" on the account (nominally, the actual participant). It was incumbent on that bank to verify the identity of the person opening the account and also the person giving the instructions to move the money. That bank, then could attempt to recover the funds from any bank downstream.

Agreed. Plans stand on their own. One cannot "subsidize" the other - which would be the case if DB plan distributions were reduced to repay DC plan overpayments.

To answer your first question, yes, the person would be taxed on the $1000 "distribution" that was withheld and sent to the IRS as taxes on the $5000 initial distribution. The total amount distributed from the plan is what determines the amount that has to be rolled over in order to avoid the taxes. The $1000 withheld is still consider the persons money, as it is now a "credit" for their benefit against any tax liability they ultimately have, and it can be used for those taxes (based on other income earned) or refunded to them, if they've over-withheld for the year. If the person can come up with the extra $1000 to roll back into a apprpriate vehicle (so that the total roll-over back is $5000), then that person would "owe" no tax on the initial distribution, and receive (possibly - depending on their tax situation) a refund of the $1000 withheld when they file their tax return for the year. If they can't come up with the $1000, then the $1000 will be treated as a taxable distribution, and their income will increase by the $1000, but they also get credit for the $1000 already withheld, and may receive a refund of some (or all, depending on their tax situation) when they file their tax return.

"taxpayer expense" might be a debatable point, as is "should" Taxpayer expense in my mind isn't debatable - it refers tot he HUGE value of the tax deferral that qualified plans (and participants in them) enjoy. The "should" descriptor refers to the fact that if you want me, as a taxpayer, to subsidize your savings, then I insist that there be limits on the benefit you receive, and rules to prevent abuse (and I have seen plenty of that in my career). Don't want the limits? The solution is simple - don't use a TAX QUALIFIED vehicle for savings. There is no requirement that an employer offer one, or that participants participate in them.

...or, private sector actuaries and attorneys are always trying to game the system and provide greater levels of benefits (at taxpayer expense) than they should, and continue to abuse the system, requiring more and more restrictions. As a private sector attorney/consultant, I stand as guilty as my colleagues....