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Peter Gulia

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Everything posted by Peter Gulia

  1. If the plan provides participant-directed investment regarding that contribution: Might not following a participant’s investment direction be a breach of the fiduciary’s ERISA § 404(a)(1)(D) duty of obedience to the plan’s governing documents? Might not following a participant’s investment direction be a tax-qualification defect of not administering the plan according to the written plan? If the securities broker-dealer or a custodian associated with it had the money and the instructions and had an obligation to allocate the contribution among participants’ accounts, should it be the broker-dealer that ought to restore participants’ accounts at the broker-dealer’s expense?
  2. Let’s restate jsample’s query: Is anyone aware of a plan’s administrator that interprets a beneficiary designation by looking to its description of the named person’s relation to the participant as a condition of the designation? For example, might an administrator interpret that a named person the beneficiary-designation document describes as the participant’s spouse is not the participant’s beneficiary if the named person was not or is not at a relevant time the participant’s spouse?
  3. If a terminated plan's administrator can put this burden on the Pension Benefit Guaranty Corporation, is there a reason a plan's sponsor or administrator might prefer not to?
  4. If the plan’s administrator considers that any slayer-rule provision or law might apply or that a claimant might argue that a slayer-rule law applies, the administrator might consider also possible interpretations of the plan’s governing-law provision (if any), exclusive-forum provision (if any), and arbitration provision (if any). If the administrator denies any claim, the administrator should follow its claims procedure and ERISA § 503. Even if the administrator later might seek an interpleader, an administrator might first follow its claims procedure and decide a claim (at least for as much as the administrator can decide). An interpleader does not undo a court’s deference to a plan administrator’s discretionary decisions, at least for those decisions made before the interpleader. For example, Alliant Techsystems, Inc. v. Marks, 465 F.3d 864, 39 Empl. Benefits Cas. (BL) 1428 (8th Cir. 2006); see also Metro. Life Ins. Co. v. Waddell, 697 F. App’x 989 (11th Cir. 2017) (recognizing, even on interpleader, deference to a claims administrator’s discretionary authority); Liss v. Fid. Emp. Servs. Co., 516 F. App’x 468, 56 Empl. Benefits Cas. (BL) 3042 (6th Cir. 2013) (deferring to the administrator’s discretionary finding on whether a participant had made a beneficiary designation). If circumstances surrounding a participant’s death suggest some possibility of a slayer situation, an administrator might balance competing interests. A fiduciary should not deprive a rightful beneficiary of the beneficiary’s right to a distribution. But a fiduciary also must exercise the care, skill, caution, and diligence ERISA § 404(a)(1) requires to protect the plan against paying or delivering a distribution to someone other than the rightful beneficiary. Some courts’ opinions suggest a plan’s administrator might breach a fiduciary duty if it approves a claim without considering whether the claimant is a slayer if: (i) a plan’s provision or applicable law deprives a slayer of the benefit claimed; (ii) the administrator or other decision-making fiduciary knew (or, had it used the care, skill, caution, and diligence required of the fiduciary, ought to have known) that the claimant is suspected of killing the participant or another person regarding whom the claimant would take; and (iii) a prudent fiduciary acting with the required care would delay its evaluation of the claim until it could find whether the claimant is a slayer. See, for example, First Nat’l Bank & Tr. Co. v. Stonebridge Life Ins. Co., 502 F. Supp. 2d 811, 815 (E.D. Ark. 2007); Atwater v. Nortel Networks, Inc., 388 F. Supp. 2d 610, 616 (M.D.N.C. 2005); Estate of Curtis v. Prudential Ins. Co., 839 F. Supp. 491, 495 (E.D. Mich. 1993). None of this is advice to anyone.
  5. Your description suggests the plan might be intended as one Internal Revenue Code of 1986 § 457(b) describes as an eligible deferred compensation plan, and within those might be a plan established and maintained by a State or local government employer. If the plan is such a governmental plan, ERISA § 205 (29 U.S.C. § 1055) does not govern the plan. If the plan is such a governmental § 457(b) plan, a spouse’s-consent provision of the kind ERISA § 205 commands for a retirement plan governed by that section is not a condition for Federal income tax treatment as an eligible deferred compensation plan. Whether a particular governmental § 457(b) plan requires a spouse’s consent turns on State law and the particular plan’s provisions. That Empower’s form to claim a distribution includes an element for a spouse’s consent does not by itself mean that the particular plan requires a spouse’s consent. The circumstances you’ve described suggest the spouse needs his or her lawyer’s full advice and, likely, prompt action. This is not advice to anyone.
  6. How about the other direction: Does anyone know of a Federal court’s written opinion that faults a plan’s administrator for not protecting a prospective alternate payee from the participant’s act?
  7. The wife might want her lawyer’s advice about whether to pursue remedies more immediate than merely seeking an ordinary domestic-relations order. Consider also that, beyond delay in getting a DRO, such an order might have limited or no effect regarding an ERISA-governed retirement plan if the participant’s account was distributed before the plan’s administrator receives the order. This is not advice to anyone.
  8. Your observations are right. That Amoco ignored Schoonmaker’s direction to redeem his interest in employer securities might have resulted in his account’s loss. Also, ignoring a direction to redeem shares or units of a US large-cap stock fund might have resulted in a somewhat similar loss. Depending on which measures and days one looks to, US large-cap stocks had around a 30% drop in mid-October 1987, when Amoco had applied a hold. After reading Schoonmaker (if not earlier), many practitioners—whether working for plans’ sponsors and administrators, or for service providers—wrote or edited plan-administration procedures, including QDRO procedures, to make clear that, even if the plan puts a waiting-for-a-DRO hold on a participant’s right to a distribution, a participant continues to direct investment. To do otherwise would make the plan’s administrator the fiduciary responsible for investing the participant’s account. If a participant remains responsible to direct investment for her account, such a participant’s loss is not about her account’s investments. Rather, it’s a delay of one’s opportunity to take a distribution or loan the plan would provide absent the QDRO procedure’s (or some other) hold. For reasons you’ve mentioned and some more, few participants might pursue that claim. And for those who pursue it, the harm from the delay might be slight, or might be difficult to prove. All that observed, legal, practical, and economic restraints on a liability exposure to affected participants is only one of many factors an administrator might consider in designing its QDRO procedure.
  9. If the proposed alternate payee is homeless, here’s a detail one might tend to. An order is a QDRO only if the order, along with meeting other conditions, “clearly specifies . . . the name and mailing address of each alternate payee[.]” ERISA § 206(d)(3)(C)(i), 29 U.S.C. § 1056(d)(3)(C)(i). The address recited in an order need not be the address of a place where the alternate payee resides. It is enough that the address is a mailing address at which the alternate payee could receive mail. See Mattingly v. Hoge, 260 F. App’x 776 (6th Cir. Jan. 8, 2008). In my experience, such an address sometimes is an address of a lawyer, paralegal, certified public accountant, enrolled actuary, investment adviser, or other person who has the alternate payee’s authority to receive mail, at least regarding the domestic-relations-order matter. I’ve also seen such a method used when an alternate payee has a residence address but prefers that the information not become known to the participant.
  10. Let’s thank QDROphile. Some points we get from that decision include these: The plan’s written procedure called for a hold only “upon receipt of a domestic relations order [and] while the issue of whether the domestic relations order is qualified is being determined[.]” Under “an unwritten practice [the administrator] would place a hold on Plan participants’ accounts once [the administrator] received confirmation from both parties to a divorce proceeding that (1) the divorce was final or a DRO was being sought, (2) the Plan would receive a QDRO soon[,] and (3) Plan assets would be a source of the QDRO payment.” The court rejected the administrator’s argument that the written procedure governed only what to do after the administrator has received a domestic-relations order. The court rejected the administrator’s argument that the unwritten practice was an interpretation of the written procedure. “[T]he [unwritten] practice is inconsistent with the written QDRO procedures.” “[T]he Amoco Plan’s informal hold practice violated the requirements of section 206(d)(3)(G)(ii) of ERISA[.]” “[T]he plaintiff is entitled to recover from the Plan [the losses that resulted from failing to follow the participant’s investment directions delivered after the administrator applied its informal hold].” One sentence of dictum might be argued to suggest that ERISA does not preclude providing a hold before the administrator has received a domestic relations order if that hold is expressly provided by the written procedure. But whatever that ambiguous sentence might mean, it was unnecessary to the decision and so is no part of any precedent. Schoonmaker v. Employee Savings Plan of Amoco Corp., 987 F.2d 410, 16 Empl. Benefits Cas. (BL) 1646 (7th Cir. Mar. 1, 1993).
  11. Others with a different or differently nuanced view?
  12. About a paucity of courts’ decisions: Does anyone know of a Federal court’s written opinion that faults a plan’s administrator, when it had notice to expect a domestic-relations order but before the administrator received an order, —for not protecting a prospective alternate payee from the participant’s act? —for denying or delaying a participant’s claim because the administrator sought to protect a prospective alternate payee’s interest?
  13. Here’s my question: Imagine someone who advises the individual, and does not advise either of the employment-based retirement plans. If you think it matters, imagine this adviser is an attorney-at-law, a certified public accountant, an enrolled actuary, an IRS-enrolled agent, an IRS-enrolled retirement plan agent, or one who wears none of those stripes—your choice of illustration. In advising the individual, is it professionally and ethically permissible to provide advice that explains the tax law, including 26 C.F.R. § 1.402(g)-1(e)(8)(iv), AND explains that the IRS lacks resources to detect that a later distribution includes amounts the individual ought to treat as a return of excess deferrals? If you think the advice about nondetection is inappropriate, why? I’m developing a point in my summer-semester course, Professional Conduct in Tax Practice. I’ll keep these observations anonymous, unless you prefer attribution.
  14. In this morning’s psalms and canticles, I’ll include prayers for Mike Preston and his family.
  15. Without remarking on what a plan’s procedure should provide or omit: The statute’s regime does not require segregating any portion of a participant’s benefit until the plan has received a court’s order that is a domestic-relations order. From that receipt (if the plan absent a QDRO permits the participant to take a distribution), the segregation period is up to 18 months, but ends when the plan’s administrator decides that the order is not a qualified domestic-relations order. ERISA § 206(d)(3)(G)&(H) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true
  16. As the background for my query explained: “The plan sponsor’s general policy in setting plan provisions is to treat participants as adults who make one’s choices about what to do with one’s money.” And “the plan allows every kind of early-out distribution that can be allowed without tax-disqualifying the plan.”
  17. Fidelity suggests: “You may be able to request a refund of federal income taxes that you originally paid on the amount of your birth or adoption distribution if you timely file an amended federal income tax return for the applicable year(s).” https://nb.fidelity.com/bin-public/600_WI_PreLogin_English/documents/976801.1.0_QBOAD_Recontribution.pdf (emphasis added). But I found no Treasury rule and no IRS nonrule guidance that directly supports that statement. Some practitioners might guess it’s not happenstance that the three-year repayment period (for a QBAD received after December 29, 2022) aligns, somewhat, with a usual time for filing an amended return.
  18. Paul I, thank you for your helpful thinking. (If it matters, this plan allows, beyond payroll deduction, other ways to make loan repayments, including one’s individual checks.) BenefitsLink neighbors, if the participant has fully repaid the defaulted loan, is there any tax-law reason not to allow to allow such a participant to take another loan?
  19. Should a plan allow a loan after the participant defaulted on an earlier loan but later fully repaid the loan? An individual-account (defined-contribution) retirement plan allows participant loans. These loans are meant to follow Internal Revenue Code § 72(p) so making a loan is not then treated as a distribution. The plan has no nonelective or matching contributions, only elective deferrals. The plan sponsor’s general policy in setting plan provisions is to treat participants as adults who make one’s choices about what to do with one’s money. For example, the plan allows every kind of early-out distribution that can be allowed without tax-disqualifying the plan. The plan’s current loan policy precludes another loan if the participant defaulted on an earlier loan. That restriction applies even if the participant fully repaid the loan after the default. The plan sponsor is considering revising the policy to allow a participant to take another loan if the participant has fully repaid the defaulted loan. Nothing in the plan’s procedure, whether current or proposed, for processing participant loans calls for the plan’s sponsor/administrator to do anything on a particular request. (A loan never requires a spouse’s consent.) Rather, the recordkeeper routinely processes approvals and denials of loans on nondiscretionary terms. BenefitsLink neighbors, what do you think? Is it a good idea to allow a participant to take another loan if the participant has fully repaid the defaulted loan? Or if it is a bad or troublesome idea, why?
  20. Some recordkeepers provide in-platform records of participant-directed broker-dealer accounts if the plan uses the broker-dealer the recordkeeper has an arrangement with. I express no view about whether to use these accounts, and observe only that it might be possible.
  21. Last Friday, the United States filed its notice of appeal. Texas v. Garland, No. 5:23-CV-034-H, 2024 WL 814498 (N.D. Tex. Feb. 27, 2024), notice of appeal [document 113] filed Apr. 26, 2024. I express no view about whether the appealed-from decision is a correct or incorrect interpretation of the Constitution of the United States. Texas v Garland notice of appeal 177116797415.pdf
  22. Or, if the limited-partnership interests are valued as at December 31, 2024, why not direct the plan’s trustee to deliver to the participant, on December 31, 2024 (or, if the participant prefers, in 2025Q1), a number of whole or fractional LP units that meets 2024’s minimum-distribution amount (or the greater portion the participant requests)?
  23. Rather than amending the plan to legitimate only the troublesome rollover contribution, might the plan sponsor consider widely allowing a rollover contribution even if the employee has not met the age, service, and other eligibility conditions for a nonelective contribution, matching contribution, or elective-deferral contribution? Among other factors to consider: An advantage would be removing a fact-checking or decision about which the plan’s administrator or its service provider sometimes might err. A disadvantage could be that a rollover contribution might increase a count of participants with an account balance, which might matter for whether the administrator must engage an independent qualified public accountant. Likewise, a count of participants with a nonzero balance might matter for one or more other purposes.
  24. If a plan’s administrator—following a reasonable record-retention (and destruction) plan—no longer has proof (beyond a presumption of regularity) that a distribution was paid, but the claimant lacks evidence that no distribution was paid, how do these situations resolve? If the Employee Benefits Security Administration opens an inquiry, what does EBSA ask for? And if the response is no records remain, do they close the file? Do any of these claimants bring a lawsuit? Something else?
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