Peter Gulia

QDROphile, I’m unaware of any Federal court decision that imposed a liability on an ERISA-governed plan’s administrator because—even assuming the administrator’s actual receipt of a notice that a could-be alternate payee intends to soon submit a domestic-relations order—the administrator did not impose a segregation or “hold” regarding the participant’s benefit. I have not researched States’ courts’ decisions because I presume an ERISA-governed plan’s administrator will have done everything it can to: maintain ERISA’s supersedure; specify in its engagement of every lawyer that the lawyer has no authority to accept service of process; specify in its engagement of any service provider that the service provider has no authority to accept service of process, even if the service provider is engaged to provide a QDRO-review service; limit carefully which persons are authorized to accept service of process on the administrator, and write the summary plan description, QDRO procedure, claims procedure, and anything else to explain in plain language who may and who cannot accept service of process; assert a State court’s lack of jurisdiction, including at least a lack of subject matter jurisdiction; remove claims against the plan or its administrator to the Federal court; and apply the plan’s exclusive-forum provision. Likewise, an ERISA-governed plan’s directed trustee would assert those procedural protections and that the trustee lacks authority to decide a distribution. But that a plan’s administrator might be ERISA-protected in doing nothing until a domestic-relations order is submitted is only one of many factors I consider if I advise an ERISA-governed plan’s administrator. Different interests might matter regarding a governmental plan, or regarding a church plan that has not elected to be ERISA-governed.

For more ways to protect yourself, read my 10 tips for rewriting your service agreements yourself in ASPPA’s Plan Consultant magazine (Fall 2020).

“Extending the time to file does not extend the time to pay tax.” The instruction for Form 8868 part III line 1b states: “Enter the amount of tax estimated to be due with Form 5330[.]” Form 5330’s Part II has lines for the tax due, the amount paid with an extension or otherwise before filing the return, and the remaining tax due or overpayment. This is not advice to anyone.

The pension plan’s administrator might re-read carefully and thoughtfully consider the administrator’s procedure about domestic-relations orders. Some administrators are “strict constructionists” and do little or nothing until the administrator has received a court’s order. Other administrators provide some help to a domestic-relations litigant’s lawyer before a court makes an order. (I would not suggest that help unless the plan’s risks of harm from inept domestic-relations practice outweigh the risks from helping, and the administrator gets a deeply knowledgeable lawyer to design the procedure.) A prudent administrator usually prefers to follow its domestic-relations-order procedure and its claims procedure. If a procedure needs a redesign, do it before handling a particular situation. This is not advice to anyone.

The Form 5500 Instructions include this: “An extension granted by using this automatic[-]extension procedure [related to “the employer’s” Federal income tax return] CANNOT be extended further by filing a Form 5558[.]” 2025 Instructions for Form 5500 Annual Return/Report of Employee Benefit Plan, “Using Extension of Time To File Federal Income Tax Return”, page 4 right column (emphasis in original), https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2025-instructions.pdf Not all extensions that result from an extension of an employer’s tax return get as long an extension as one can get by filing a Form 5558. For example, a calendar-year corporation’s tax-return due date might extend only to mid-September, rather than a calendar plan year’s extension to mid-October. Filing a Form 5558 sometimes gets a longer time, and even if the Form 5500 due-date extensions are identical often gets greater comfort or convenience about the Form 5500 extended due date. I’m not readily imagining a situation in which the incremental expense of filing Form 5558 outweighs that comfort. I suspect many practitioners do not deliberately omit a Form 5558 extension. Rather, one resorts to a tax-return extension if a Form 5558 was not filed. Paul I, do the computer systems allow checking both the “Form 5558” and “automatic extension” boxes for the opening page’s Part I item D? BenefitsLink mavens, is there more learning on TPApril’s query or this topic?

The Internal Revenue Service has published guidance on allocating plan-administration expenses with charges applied only against the accounts of severed-from-employment participants. Rev. Rul. 2004-10, 2004-7 I.R.B. 484-485 (Feb. 17, 2004). Among several conditions, the charge must be no more than the proportionate share, counted as if a charge applied to all individuals’ accounts, of the proper plan-administration expenses. Does the plan you describe have at least $22,500 a year in plan-administration expenses? If so, is the amount proper in the sense that the plan pays only for necessary services and pays no more than reasonable compensation for each service particularly and considering the combination of services? This is not advice to anyone.

Even if the retirement plan is not ERISA-governed and a relevant State’s law recognizes an oral trust, the IRS might assert that a written trust is a condition of I.R.C. § 401(a)-qualified tax treatment. Consider, for example, 26 C.F.R. § 1.401-2(a)(1) https://www.ecfr.gov/current/title-26/part-1/section-1.401-2#p-1.401-2(a)(1). That the Treasury’s interpretation speaks of what the trust instrument must provide suggests the Treasury’s interpretation that the trust must be written. While there might be other interpretations, few clients want unnecessarily to interpret tax law contrary to a long-established mainstream. This is not advice to anyone.

None of us knows what’s provided or allowed in an agreement we haven’t read. But I imagine a possibility that the situation shERPA describes could be not a breach of the huge TPA firm’s obligation. I have seen service agreements that: warn that the provider is obligated only by its service agreement, and is not bound by the plan or its trust; get the employer/administrator’s acceptance that the provider has no duty or obligation to read the plan or its trust; omit a service the plan’s administration needs, warning that the employer/administrator without the provider’s help must apply the plan’s provisions; describe a service that looks like one designed to meet a tax-qualification condition, but warn that the provider gives no assurance that using the service results in the plan meeting the condition; provide a service according to specified assumptions, even if an assumption is implausible or even contrary to a known fact; excuse the provider’s responsibility for an error that results from following the written plan, even when the provider knows the written plan states or omits a provision contrary to a tax-qualification condition; warn that the provider will follow the employer/administrator’s instruction, even if the provider knows the instruction is contrary to the plan, relevant tax law, ERISA’s title I, or other law; end the provider’s responsibility for an error or omission the employer/administrator does not remark on within 30 days from the report’s delivery; warn that the provider does not provide accounting, tax, or other legal advice; and obligate the employer/administrator’s failure to get a lawyer’s advice when an ERISA-prudent person would do so, and provide that the employer’s failure to do so is a breach for which the employer is obligated to defend and indemnify the provider. I’m mindful that many of us who devote our work to providing good service think some provisions of those kinds might, in at least some circumstances, be unfair or even oppressive. I’m aware many feel a TPA’s services and work standard ought to be guided by the plan, applicable law, and relevant tax law. Yet, I’m also aware that many service providers’ business executives feel it’s not unfair for a service recipient to be bound by the contract it assented to. Over 42 years, I’ve seen service agreements with many of the provisions described above. I’ve not yet seen a court’s decision that voids such a provision because it’s unconscionable in the meaning the common law of contracts puts on that word (as applied to business-to-business, rather than consumer, contracts). Whether some business practices might be unfair or indecent in other senses, I’ll leave to BenefitsLink neighbors’ views (and my undeclared personal thinking).

We don’t know what was agreed between the TPA and its service recipient.

Perhaps your former client might now discern some differences between your capabilities and the other firm’s weaknesses.

Some questions an independent qualified public accountant might consider and evaluate: If the pension plan’s administrator is unwilling to engage counsel when a prudent fiduciary would do so, should an independent qualified public accountant treat that as a weakness in management’s internal controls, and so intensify the audit’s procedures? If the accounting firm engaged as the pension plan administrator’s independent qualified public accountant also has an engagement regarding the employer’s financial statements (even if unaudited and unreviewed), the firm might consider whether there is another professional responsibility regarding the issues about PBGC coverage and premiums. Even if the employer’s financial statements are on the cash-receipts-and-disbursements method of accounting, should there be some narrative disclosure of a loss contingency that PBGC might assert a claim for PBGC premiums due? If the accounting firm engaged as the pension plan administrator’s independent qualified public accountant also has an engagement regarding one or more of the employer’s tax returns and there is doubt about whether the pension plan is tax-qualified, consider whether there is another professional responsibility about whether or how the employer may claim deductions for contributions to the pension plan. For example, if the pension plan and its trust are not tax-qualified under Internal Revenue Code § 401(a), that might affect deductions. Consider the AICPA’s Statement of Standards on Tax Services. Consider Internal Revenue Code § 6694. Consider that a pension plan administrator’s independent qualified public accountant who applies AICPA standards must satisfy herself that the plan administrator’s Form 5500 report is at least logically consistent with the plan’s financial statements that are the subject of the IQPA’s report. That is so regarding both the audited period’s statements and report and the preceding period’s statements and report. If there is doubt about whether a pension plan is terminated, might the plan’s financial statements need a receivable (or a narrative disclosure of a gain contingency) if a contribution ought to be made? Beyond PBGC coverage and premiums, what else might be wrong? This is not advice to anyone.

I suppose I shouldn’t have asked whether there are situations with a temptation, but rather whether the tempted see that the evidence electronic regimes leave behind makes it easy for an examiner to detect a falsity.

EBP, thank you for your helpful explanations about ways the consequences of an untimely adoption are lessened.

About half a generation ago, someone might face a pressure to help a plan’s sponsor date a document falsely. https://benefitslink.com/boards/topic/44420-ethical-dilemma/ Now, many service providers use software and internet delivery to present a ready-to-sign document, and expect a plan sponsor’s adoption or approval through DocuSign or another e-sign tool. Is an ink-on-paper signature such a disruption that it’s too hard to pretend a document was signed sooner than when the plan sponsor signed it? Are there still situations in which a temptation to date a document falsely persists?

Whether a plan’s administrator recognizes or refuses an agent, and for which kinds of acts, can be clear if the documents governing the plan and written procedures make it clear. Some plan sponsors prefer that a plan grant its administrator wide discretion. Some prefer that a plan grant its administrator only constrained discretion, or almost no discretion. Which of those ways a plan sponsor prefers might vary with a particular plan’s surrounding facts and circumstances. For the situation AlbanyConsultant describes, the plan’s administrator might be burdened by the documents the plan sponsor wrote.