MoJo

Quinn: I think if you carefully review my posts, you'll see I make no value judgements about an employer's ability or right to reduce a benefit - just that I think employees may have the right as well to view such a reduction as being a unilateral (justified or not) reduction in total compensation. Yes, the market will dictate to an extent what employers can, or cannot do, in terms of such compensation adjustments, but my point is that it isn't necessarily a totally efficient employment marketplace where there is perfect elasticity between compensation and labor. Other factors do exist at a personal level that impact employees ability to make changes, and hence their reactions to compensation adjustments won't be linear - and the fact that they choose to remain employed with the reduction shouldn't be viewed as a realization that they were being paid "above market" prior to the reduction. It's a "grin and bear it" situation, and management should be cognizant of the hardship, even if people aren't leaving. There may be justification for the reduction (based on the competitive environment), but long term, management needs to be responsible for either inappropriately providing benefits in excess of market driven benefits in the first place, giving rise to the need for the cut, or otherwise mismanaging other aspects of the business, giving rise to the need for such cuts impacting employees. I don't believe that employers routinely pull the shenanigans that Banality proclaims - although I'm sure there is some of it going on. I do believe that employers try to find the best face to put on all adjustments to compensation - whether it be reductions in benefits, or the return of benefits (even in a more limited form). And I think most (but not all) are sincere in these endeavors. BUT, if we, as employees are to value the entire package provided to us by our employers, then employers must appreciate that changes in that package that reduce its total value will be, and should be, perceived by employees as a reduction in compensation. My experience has been that employers tend to do so without proper explanation. In my past, I've had employers, who have provided small cash pay and large benefit package pay, reduce the benefits to bring them more in line with "competition" without ever addressing the "small" cash pay part of it. I've also had employers who have periodically benchmarked total pay to competitors, and make upward adjustments appropriately. The key isn't in the action, its in the understanding, and treating employees like human beings, rather than like commodities. If there is justification for it, then so be it. However, if the justification is merely to meet some arbitrary earnings or expense projection issued by management that can't otherwise be met, then I think maybe the problem lies more with managements abilities, and I do have problems with that.

Quinn: We always have "free will" to seek employment elsewhere, but my point was that specific exigences reduce the choices available and in the greater scheme of things make alternatives unpalatable. For example, I could certainly change jobs (and get calls periodically to do so), but almost all would entail relocation, which 1) has a monetary expense, 2) has an emotional expense; and 3) may not be consistent with my significant other's objectives. So, "free will" is curtailed. Considering the vast majority of households these days include multiple wage earners, free will takes on a whole new dimension. Do employers know this? I think so. Do they take advantage of it? Some, maybe do, some don't. But the "reality" of the situation is that "one" benefit cut may not be enough to overcome the objections to job change, two maybe, maybe not. Three? Who knows. But "freedom" to do so, and "ability" to do so, are two very different things.

pax: "devalued" from the perspective of having their "total compensation" cut - not necessarily that they are "undervalued" - perhaps the cut actually brings compensation into line with actual worth (to the employer). pmacduff: I too am "cynical," but my cynicism extends to include the belief that we really do NOT have free will to seek employment elsewhere. The same economic realities that cause employers to cut benefits (many times as a trade off to save jobs) also works to limit the opportunities available to us as employees in the marketplace. It seems, in some sense, that the ability of an employer to unilaterally cut benefits is a demonstration of the unequal bargaining power that exists between management and labor (and yes, that is a vast oversimplification of labor relations). In many cases the cuts will preserve jobs. In many cases, the threat of loss of a job makes the cut palatable. Unfortunately, in my experience, the reverse is rarely true (that when times are good, comp increases and job security increases). In today's economic environment, even the most profitable enterprise seems more concerned with topping next quarter's expectations, and the pressure to do more with less increases. Like I said - I'm cynical too.... But then again, as a single person with no children, I am aghast that my married, breeding brethern receive a greater "total compensation" package (through a greater absolute dollar contribution towards health care/coverage) than I do.... But alas, that is a topic for another thread....

I really hate to jump in on this thread, considering the direction that last "Banality" thread took - but.... What seems to be the tenor of most of the comments is that the original level of benefits was a "gift" to the participants, and its elimination is purely at the discretion of the employer, and should be perceived as being neither good nor bad - but "just life.". Hence, its subsequent re-emergence, albeit in a different or lesser form is equally a "gift," for which the employer should be lauded.... Why is this not considered a unilateral reduction in total compensation to employees? I mean, for the last twenty or so years I've been conditioned to believe that my compensation was a "package," and that I, as an employee needed to consider the "value" of that package as being what I was truly being paid by my employer (with the "cash" portion being an important part of it, but by no means the totality of my worth, and expense, to my employer). Hence, when there is a reduction in the level of benefits (even one I may not take advantage of, but nonetheless had available), why isn't that considered a pay cut, for which employees should properly feel devalued? Conversely, when the benefit is restored (at least in part), why should the employee applaud? Certainly the restoration is a positive - compared to no restoration - but it still results (in the scenario posited with only partial restoration) as a net reduction in "Total Compensation." Just grist for the mill....

I think it depends on what the spouse is consenting to. If the spouse is consenting to the participants specific election (as opposed to a blanket consent to this and all future elections, then the spouse needs to sign after the election is made, so the consent is specifically given. In all cases, the notary needs to either witness the spouse sign, or have the spouse verify that the signature is theirs - hence, the notary's signature must come AFTER the spouses signature or verification....

I've been resisting saying this because of the obvious political overtones but I agree with you, Banality, and think the whole problem of this downward slope has been the fundamental tenant of supply siders and the failure of trickle down economics.... We all seem to be motivated to "get to the top" at all costs, while those at the top are motivated to keep us from getting there. Some people don't want to climb the same corporate ladder, and our current employment/HR philosophy is that if you don't want to climb my ladder, and grovel all the way up (whilst pushing me ahead) then you aren't the kind of material I want in the workforce....

GBurns says : The only the thing that the Benefits Manager can do, other than to follow orders, is to give guidance to the Boss. WDIK says: ...and document your position and actions for the possibility of a convenient case of temporary amnesia Or you can voice your opinion, use your skills, your passion for what is right, to convince others to be better.... And, if you can't, and if the situation is so repugnant, then it's time to find another situation....

Rather interesting, if one sided comment, banality.... I think most people (including those who post here) are more concerned with doing hteir jobs, and doing them well. Sometimes, that means reducing the costs of providing benefits, and sometimes the only way to do that is to reduce benefits. Keep in mind these are business people. Business have certain economic realities that will determine their continued existence. Benefits (and all labor costs, if fact) are one of those variables that a business may be able to (somewhat control). As far as "retain[ing] privileges for the bigwigs while shafting the rank-and-file," that isn't necessarily the case. In many cases, providing better "compensation" (which includes benefits) to those who's value to the company is greaterthan others is a legitimate business practice. I agree that at times it appears that the rank and file get the shaft, but look at the provisions of IRC Section 401(a)(1) et seq. Most of these provisions have the effect of causing companies to increase benefits to the rank and file. Arguably the complexity involved in complying with some of these provisions has increased administrative costs, and may have, as a result, had the effect of decreasing overall benefits - and further, have caused some to look for ways to maintain benefits for a select few. The code and regs actually allow this (look at the cross testing provisions of the 401(a)(4) regs, the ability to integrate employer non-elective contributions, the fact that we have a coverage and average benefit requirement for NHCEs of only 70% - i.e. some "discrimination is legally permitted). I see nothing wrong (philosophically or otherwise) with taking advantage of these provisions - where appropriate- to provide higher benefits to those who determine whether benefits will be offered at all...l

I'd check state law (assuming he is in state lock-up). Some states appoint the warden of the prison as limited guardian for certain purposes - and the receipt of funds may be one of those issues that causes headaches. While ERISA would preempt and mandate that the distribution go to the participant/convict, once his or her larcenous hands are on it, the warden may jump in to take it....

Pardon my jumping in here, but I've read through the posts and find it somewhat disenchanting to think that such atrosities can occur - if you consider that 1) the "owner" of the brokerage account HAD BETTER BE THE TRUST and not the participant, and 2) the broker HAD BETTER NOT do anything except take participant direction for INVESTMENTS (i.e. only the owner - the TRUST - can close the account and transfer assets), and if the broker does, the Trustee need only go to the brokerage house (or the NASD) and make them put the money back.... It'd be up to the broker to go after the participant to get their funds back Furthermore, I don't see how such an arrangement NECESSARILY complies with 404©.... While you certainly are giving a "broad array of investment choices," you may not be complying with the other informational requirements of that section. I believe the DOL has unofficially said that merely offering brokerage windows without an appropriate core line-up of funds would not be 404© compliant.

I dealt with one of those... I agree its an ERISA plan (scheme or program - or whatever the phrase is in ERISA). After haggling with the IRS, and filing 12 years worth of 5500's (there was a "savings account funding mechanism), they let us shut it down without further repurcussions....

I think the answer is "just enough times to keep me, and my fellow ERISA geeks employed full time..." Viva la Amendment!

Belgarath - either you are operating under the alternate theory of (being a) relative of Dorian Gray, or you are moving backwards. Most days I fall into the latter category.

I don't disagree that there should be uniformity in approach - just that making repayment of the note "dependent" of payroll deduction is probably legal malpractice on the part of the one who drafted the note. Make the repayment of the note unconditional on the repayment method - which makes it legally enforceable for Section 72 purposes (and solves the problems of hourly workers who have there hours cut below that which is needed for repayment) and then make the granting of the loan conditional on payroll deduction. Then, for ERISA purposes, it is irrelevant that participant later revokes the consent to the payroll deduction (we can argue whether that is even possible, but if it is, making the note repaybale in any event makes it legally enforceable, and removes the taint on the plan).

Belgarath: My experience has been that it is a mixed bag as to whether employers allow it or not. Typically, in the clients I work with, they don't allow a new hire to bring a loan with him/her (unless, of course, they just hired a new senior exec, in which case they quickly review their policy, and may change it...) but they do allow it in cases of M&A activity. Generally, however, my clients realize the value of preserving balances and negotiate for a plan merger to occur, rather than a termination/distribution & rollover to occur. In the case of hte merger, its pretty much the same as any conversion to a new recordkeeper, and invariably the loans require lots of cleanup work....

I disagree with your conclusion, mbozek. There still can be an enforceable obligation sufficient for the loan to pass 72(p) muster even though the ability to collect it through payroll deduction is uncertain. Generally, the terms of the note provide that the obligation continues despite the inability to collect through payroll (i.e. layoffs, termination, etc.) and it become the fiduciary's responsibility (often ignored) to attempt collection through reasonable means....

I believe the popular belief is that ERISA preempts state wage withholding laws to the extent that those laws relate to an employee benefit plan. There has been some discussion as to whether a prohibition against negative elections is contrary to ERISA, and if not, whether it is sufficiently related to the plan as to require preemption. That is, negative elections are not "necessary" to an ERISA plan (as it can operate just fine with affirmative consent), but I haven't heard of any cases where the matter has been decided. I had heard that there were cases pending in NY, CA and AZ on this point - but have lost track. Anyone have any update?

If another plan is established within a 24 month period beginning 12 months before the plan is terminated, and ending 12 months after the plan is terminated, it is a successor plan - and hence, no in-service distirbutions may be made from the terminating plan.

Under 401(k)(10)(a)(i), termination of a plan when a "successor plan" is established does not give rise to a distributable event (as referenced in 401(k)(2), as pointed out by Mr. Poje). In reality, you probably aren't even terminating the plan - you are simply changing service providers (i.e. the entity that provides recordkeeping and investment services is changing, the plan itself - as a separate legal entity - is not). Of course, as part of the conversion from one service provider to another, the plan may change - and even be restated using the new service provider's plan documents - but the plan itself isn't terminating. Even if it were, the establishment of the new plan would create a successor plan, and no distribution would be permitted by the old plan.

Benmark - you've asked the million dollar question - and one I've asked many times of participants in workshops I've conducted on fiduciary responsibility. The answer, IMHO, is "it depends." Selecting the members of a fiduciary committee (I'm assumming this committee will have fiduciary functions) is a fiduciary function itself. I always advise that you 1) examine what fiduciary functions need to be performed; 2) Identify who is will be performing them (i.e. is it the committee, the plan sponsor, the trustee, or someone else); 3) Identify the skills the members of the committee need to have in order to fulfill the fiduciary functions assigned to them; and 4) Find the people necessary to fulfill those functions. A fifth step would be to continually repeat these steps as situations change, and make sure all fiduciary functions are identified, and performed by those qualified to do so. In fact, in many cases, the committee itself is charged with monitoring all of this, and may have to reform itself in order to accomplish what needs to be done. I am not a big fan of putting people on the committee based on "title" or position (i.e. The president, CFO, GC, head of HR, etc.) because a) they actually may not have the requisite skills to perform the fiduciary functions (i.e. can they truly be objective in identifying and implementing the "best funds for the participants" (which may be different than just the "best funds" at the time - or the CFO's favorite fund)?); and b) there may be conflicts of interest that arise from time to time between functions as a Executive witht he plan sponsor and their fiduciary duties (ask Ken Lay of Enron about that one - he's may be going to trial in several civil suits over precisely that issue). I am also not a big fan of putting "rank and file" employees on the committee. Far too often that is perceived as being a way to get employee "buy-in" on committee decisions. Employee buy-in may be important from a participation perspective, and from an employee relations perspective, but it is wholly unimportant from a true "fiduciary decision making" perspective. If such an employee has the requisite skills, by all means, put them on the committee. If you are looking for buy-in only, form an Employee Ad-hoc Advisory Committee as an adjunct (non-fiduciary) body to bring employee concerns to the fiduciary committee, and "sell" the decisions back to employees, once made.

I like the idea of February 29th, but since it would be actuaries' day, I suggest we form a committee of say 12 actuaries, and then let them determine the exact time of celebration. Since they only deal in (educated) probabilities, they would never be able to make that decision - but it would be fun watching.... :-)

I disagree mbozek, that there is no liability for the actions of the mutual funds, while agreeing that the underlying assets are not assets of the plan. But, in the selection process, an inquiry should be made as to the "behavior" of the fund company, managers. distributors, and others connected with the fund(s). Maybe in the past it wasn't a breach of a fiduciary duty to not inquire as to such matters, but now that the news is widespread, I would suggest that the prudent thing to do is to make appropriate inquiry. and base the decision to include, or keep, the fund, based on what the fiduciaries believe the impact is, or would be, to the plan, of such (continued) behavior. Check out the State of Maryland's 15 questions fiduciaries should ask mutual fund providers....

Of course there is - but only for a breach of a duty that the fiduciary has. Fiduciaries do not have "strict liability" for their mutual fund choices - that is, they aren't responsible for what happens to the fund PROVIDED their selection and retention of the fund was done consistent with their fiduciary obligations. The key is the "prudent expert standard," as defined in ERISA. That standard provides that a fiduciary must conduct the plan's affairs consistent with what a prudent person, experienced in such matters (and "expert") would do, in similar cirsumstances. So, if the selection was made prudently, and the fiduciary monitors the fund as a prudent expert would, then there probably isn't any liability, IF a prudent expert would have done nothing different. Hindsight is always 20/20, but foresight is what counts for fiduciaries. In the current situation, it is interesting to note that well over 100 mutual fund families have been the subject of inquiry, and a handful have made settlements (but only one - Putnam, has admitted to any wrongdoing). The question a fiduciary has to answer is 1) whether the mere allegation of impropriety is a salient factor to consider in being a prudent expert; and 2) whether the process each fund company is or has implemented for dealing with the potential abuses is appropriate. Further, even in the case of those alleged (or admitted) to have allowed abuses, is that even salient to the plan or its participants?

I agree with Kirk - to a law firm, an ASPA designation is worth little or nothing. To most other organizations, it would be a complement (i.e. if you work internally with service provider, fund company, consulting organization, etc.). I think the L.L.M. and the QPA differ significantly on focus, as well. The L.L.M. would be much more concerned with the legal issues involved, and pay little or no attention to the practical aspects of plan operation/administration and employer goal attainment. Having both,in a consulting environment (whether for a consulting firm, or a vendor, etc.) wouldn't be a bad idea.

I charge by the word.... But this issue has been a pet peeve of mine for a while.... Let me throw a wrinkle into this, and see what happens.... Assume the same facts - a $50,000 balance, but assume half of this is attributable to a MPPP that has been merged into a 401(k) plan, with J&S rights preserved ONLY with respect to the MPPP balance. Participant wants a loan of $25,000, and the plan says the only "loanable" assets are the non-MPPP assets, but the MPPP assets are used in calculating the max loan available (i.e. in applying the 50% rule, all assets are included). Is spousal consent required? Arguably, yes, because you use those assets for purpose of calculating the max loan available. Arguably, no, because the MPPP assets are not used to fund the loan, and are NEVER impaired (per the analysis above, because the "other" half of the account really isn't "security" for the loan). Any thoughts?