Peter Gulia

Beyond the practical concerns AKowalski mentions for considering whether and what to communicate to a potential beneficiary, here’s another. If the plan provides participant-directed investment, a fiduciary might welcome a claim in which someone seeks recognition as a beneficiary. A plan might provide that a power (and obligation) to direct investment passes to a beneficiary, for his or her separate-share subaccount, when the administrator decides the claimant is a beneficiary, even if the beneficiary does not request a distribution. A plan’s fiduciary can get ERISA § 404(c) protection for a beneficiary’s actual or treated-as investment direction. Otherwise, a plan’s fiduciary (if it knows the participant died) might have responsibility to consider the prudent investment of the participant’s account.

Whether a disclaimer must be acknowledged before a notary or other officer, must be recorded in a county’s or parish’s recorder-of-deeds office, must be filed in a court, or must meet other notice, authenticity, or procedure requirements are among the points for which Luke Bailey suggests the disclaimant get the advice, and perhaps other services, of the disclaimant’s lawyer. Whether a plan’s administrator prefers to impose some authenticity protection beyond what is required under a relevant State’s law (and the plan’s governing document) is a fiduciary decision.

If the participant’s distribution had not commenced and the plan’s provisions do no more than is needed to follow Internal Revenue Code § 401(a)(9), consider whether the plan might not command an involuntary distribution until the end of the tenth calendar year that follows the year of the participant’s death.

While I lack knowledge about the top-heavy rules, I suspect questions about who is a participant or is “covered by the plan” might be resolved using concepts similar to those discussed last week https://benefitslink.com/boards/index.php?/topic/68399-spd-provided-to-employees-eligible-to-participate-in-plan/. If so, an individual might become a participant when the individual has met the plan’s age, service, and other eligibility conditions. Further, the rule (at M-10) states: “A non-key employee may not fail to receive a defined contribution minimum because . . . the employee is excluded from participation (or accrues no benefit) merely because of a failure to make . . . elective contributions.” https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.416-1

If no one has filed a claim and the plan doesn’t yet command an involuntary distribution, there might be little or nothing the plan’s administrator need decide now. If you’re satisfying your or your client’s curiosity, Read The Fabulous Document. Although a document might make the participant’s children a default beneficiary, a document might set different provisions. If a default-beneficiary provision refers to children without further specifying who is included in or excluded from that class, the plan’s administrator might interpret the plan.

If other conditions for an ERISA § 404(c) defense are met, the key question is: Does the brokerage account “[p]rovide[] a participant or beneficiary an opportunity to choose, from a broad range of investment alternatives [as 29 C.F.R. § 2550.404c-1(b)(3) provides], the manner in which some or all of the assets in his account are invested”? https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.404c-1 Whether a particular brokerage account meets that call might involve questions of law, questions of fact, and mixed questions of law and fact. Even if an ERISA § 404(c) defense applies, it does not relieve a fiduciary from liability to the extent that a loss results from a cause other than the directing person’s exercise of control. If a governing document grants a fiduciary a power to select investment alternatives, a fiduciary who selects only brokerage accounts might consider whether she could defend her reasoning for excluding other investment alternatives, and whether she could prove she acted “with the care, skill, prudence, and diligence” ERISA requires and for the exclusive purpose ERISA requires.

RatherBeGolfing, you’ve got the right idea. A plan’s administrator and payer want some comfort that a disclaimer not only changes the beneficial rights under the plan but also sufficiently changes rights (and does so in a way tax law recognizes) so the disclaimant no longer has anything that would be a subject of Form 1099-R tax-information reporting. That’s why many plans and administrators require a disclaimer that not only is valid under a relevant State’s law but also gets tax-law treatment as a qualified disclaimer. Internal Revenue Code § 2518 is about using a qualified disclaimer to get rid of property interests that otherwise might be counted regarding Federal estate and gift taxes. Yet, many practitioners assume that a property interest validly disclaimed to get § 2518(a) treatment also is no longer the disclaimant’s property in considering whether a property right results (or could result) in income for a Federal income tax purpose. The Treasury department might have impliedly assumed that concept in making the § 401(a)(9) rules. One determines designated beneficiaries “as of September 30 of the calendar year following the calendar year of the [participant’s] death”, and for that purpose may recognize a qualified disclaimer made within nine months after the date of the disclaimant became entitled to the property interest the disclaimer renounces. (The rule’s drafters, including Marjorie Hoffman, considered that some people die on December 31 of a year.) 26 C.F.R. § 1.401(a)(9)-4/Q&A-4 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-4 Many requirements for a valid disclaimer overlap, with similar requirements in a State’s law and in Internal Revenue Code § 2518(b). But it’s possible that a disclaimer valid under a State’s law is not a qualified disclaimer that gets a plan’s administrator or payer enough comfort for one or more Federal tax-law purposes. Conversely, it’s possible a disclaimer meets IRC § 2518 conditions, but is invalid under a relevant State’s law. An ERISA-governed plan’s fiduciary might interpret the plan to allow such a disclaimer if, despite not conforming to a particular State’s law, the disclaimer conforms to common concepts for a disclaimer. But many administrators, considering that ERISA’s title I lacks rules for a disclaimer (and a plan’s provisions might not specify enough), prefer a disclaimer that would be valid under a relevant State’s law. (Further, the limited facts of BG5150’s query leave open a possibility that the plan is not ERISA-governed.) Applying both property-law and tax-law sets of requirements for a disclaimer helps protect a retirement plan’s administration and tax-reporting.

If a plan’s governing document has no provision for recognizing a disclaimer but also none to preclude a disclaimer, a fiduciary might (if the plan grants discretion) interpret the plan as allowing a disclaimer. A fiduciary might restrict a disclaimer to one that not only is valid under a relevant State’s law but also meets the conditions of Internal Revenue Code of 1986 § 2518 for a qualified disclaimer. 26 C.F.R. § 25.2518-1 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-B/part-25/subject-group-ECFRac39af22636eabc/section-25.2518-1 26 C.F.R. § 25.2518-2 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-B/part-25/subject-group-ECFRac39af22636eabc/section-25.2518-2 If a plan’s administrator accepts a disclaimer, the plan’s benefit is distributable as if the disclaimant had died before the participant’s death or before the creation of the benefit disclaimed. If the participant’s beneficiary designation names no one beyond the disclaimant, that means looking to the plan’s default provision. As Bill Presson suggests, a plan might make the participant/decedent’s children or her estate (or its residue’s takers) the default beneficiary. Before making a disclaimer, a would-be disclaimant might prefer to know exactly what beneficial rights would result. As always, Read The Fabulous Document.

Questions about a personal representative’s, trustee’s, business officer’s, or other fiduciary’s personal liability for penalties and other consequences regarding an unfiled Form 5500 information return are fact-sensitive. Among other factors, a fiduciary’s responsibility might turn on facts about whether the particular fiduciary: had or lacked a responsibility to administer or wind up the decedent’s business; knew (or, had she exercised the required care, ought to have known) about the unfiled return; could have obtained records. So far, I’ve never done an analysis because in every situation that might involve such a question my client recognized that paying someone to prepare and file returns would be less expensive than paying for my analysis about whether one is exposed to personal responsibility and liability. And, as you say, this is for you only a curiosity.

Elective deferrals under a § 457(b) plan with a matching contribution under a § 401(a) plan is a common design (if the governmental employer has sufficient authority under State law). I have never seen it done as money-purchase plan. Governmental Plans Answer Book suggests (at Q 6:26) that stating a plan as a money-purchase plan might impose a tax-law funding requirement to the extent needed for the plan’s benefit to be sufficiently determinable under 26 C.F.R. § 1.401-1(b). But a governmental plan stated as a profit-sharing plan (with no § 401(k) arrangement) has no Internal Revenue Code funding requirement. I’m unaware of a good reason for a governmental employer to self-impose any more funding requirement than State law commands. Under Internal Revenue Code § 401(m)(4)(A)(ii), a matching contribution includes one made to any defined-contribution plan on account of an elective deferral, which under IRC § 401(m)(4)(B) “means any employer contribution described in section 402(g)(3).”

Consider these interpretive rules: “[T]he plan administrator of an employee benefit plan subject to the provisions of part 1 [of subtitle B] of title I shall furnish a copy of the summary plan description . . . to each participant covered under the plan (as defined in § 2510.3-3(d))[.]” 29 C.F.R. § 2520.104b-2(a) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.104b-2 “An individual becomes a participant covered under an employee pension plan” no later than “[t]he date designated by the plan as the date on which the individual has satisfied the plan’s age and service requirements for participation[.]” 29 C.F.R. § 2510.3-3(d)(1)(ii)(A)(2) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510/section-2510.3-3#p-2510.3-3(d) If a statute is ambiguous, a court defers to the agency’s notice-and-comment rule if the rule’s interpretation is permissible. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (June 25, 1984).

If your firm is owed an amount for work you completed, consider whether you want to submit your claim. Not submitting a claim promptly might time-bar it. If the employer/sponsor is or was a business organization, there might be persons beyond the decedent with some authority to act for the business organization. And the decedent’s executor, administrator, or other personal representative might have some authority to administer or wind up the business. Further, consider whether you do or don’t want to be available if a personal representative wants to engage you to prepare the outstanding information returns.

For everyone who graciously contributed to this discussion: After another conversation with me today, the JD student will refocus the paper’s topic to how a plaintiff’s attorney should recognize employee-benefits secondary effects of the lost employment or lower wages, and in settlement negotiations should seek more value to compensate the harmed worker for could-have-been retirement contributions and growth that an award of back pay alone might not completely restore. We thank you for your good help.

Even if ERISA and the plan’s governing documents do not otherwise preclude an adjustment of mistaken allocations, read (or suggest that your client’s lawyer read) the annuity contracts and custodial-account agreements. The employer/administrator might have no right and no power to unravel amounts credited under those contracts.

Consider (politely) reminding an independent qualified public account of the audit’s purpose. An audit might include some audit procedures designed to test whether the plan was administered according to the plan’s governing documents. An audit might include some audit procedures designed to evaluate whether the plan’s financial statements need a reserve for income taxes because the plan (i) did not meet the conditions for tax-qualified treatment, and (ii) had a net of taxable income after counting deductions, including those for distributions and for other proper expenses. Even if no reserve for income taxes is needed, an audit might include some audit procedures designed to evaluate whether the plan’s financial statements need a disclosure that the plan does not get tax-qualified treatment. But an ERISA § 103 audit is not a compliance-assurance engagement. The purpose is to report a finding about whether the plan’s financial statements are fairly stated. Even if a too-low interest rate might have made a participant loan a distribution, that might not always tax-disqualify the plan. Or if it does, the plan’s financial statements could disclose that the plan does not (or might not) get tax-qualified treatment. Doing so might help make the plan’s financial statements fairly stated. Even if a too-low interest rate might have made a participant loan a non-exempt prohibited transaction, a plan’s financial statements could report or note related-party and prohibited transactions. Doing so might help make the plan’s financial statements fairly stated. And considering that a too-low interest rate for some participant loans likely would not preclude a “clean” report that the plan’s financial statements are fairly stated, an auditor might consider some tolerance if the fiduciary furnishes a plausible explanation about how the fiduciary set the loan interest rate within the ERISA and Internal Revenue Code rules.

And at least some of the legal thinking seems to be from Jewell Lim Esposito, a respected employee-benefits lawyer.

Redcloud, just for background, the attachment is one page from my coursebook; it cites the leading cases for the settlor doctrine. Absent a court’s order, an employee-benefit plan’s administrator (or other fiduciary) administers the plan according to the plan’s governing documents. A written plan has primacy. Exceptions or variations are (i) ignoring a document’s provision to the extent that it is contrary to ERISA’s title I or title IV; (ii) ignoring or interpreting a provision to the extent that it is contrary to other Federal law; and (iii) interpreting a plan to include a provision ERISA’s title I or title IV commands. A written plan often states or suggests answers to questions such as: · whether back pay counts in compensation, as measured for one or more purposes; · whether the plan counts hours of service (or other measure of service) attributable to one or more periods for which back pay was awarded; and · how such a measure of service relates to measures for eligibility service, accrual service, and vesting service. A fiduciary’s duty to a retirement plan could include a duty to collect from an employer a contribution owing to the plan. A fiduciary’s duty to an uninsured (“self-funded”) health plan could include a duty to obtain an employer’s payment of a benefit the plan provides. ERISA Fiduciary Responsibility settlor doctrine.pdf

With no endorsement and no evaluation, here’s what that company says about its service. https://www.leadingretirement.com/solutions/cannabis-401k-plan

But the plan's administrator would keep in its records the employer's written announcements, right?

Redcloud (if you’re still reading this), Luke Bailey’s points are well taken. Our first conversation mentioned the legal distinction between an employer’s business decision-making and a plan administrator’s fiduciary responsibility, and a case that involved the distinction. (And we discussed another case that led to a big shift on how plans’ sponsor specify an essential provision of an employee-benefit plan.) I doubt your course on employment discrimination has even mentioned ERISA’s distinction between “settlor” and fiduciary decisions. We could cover it when we look at your draft of your outline. Thinking about how the terms of a negotiated settlement in an employment-discrimination case could affect obligations to or under not only retirement but also health and other employee-benefit plans might be an aspect of the employer’s and the plaintiffs’ negotiating positions. And once there is a judgment or settlement, some aspects of implementing it might come into a plan administrator’s fiduciary functions. Let’s check-in when you’re ready.

Luke Bailey, thank you for an intriguing idea. For a few service providers, I’ve designed non-discretionary claims-processing regimes—not only for hardship and unforeseeable-emergency claims, but also for other kinds. For some kinds, a sensitive issue is specifying which conditions result in a kick-out to a discretionary reader. In developing the method for deciding a hardship claim using what the IRS calls a “summary of information on source documents”, the IRS could have set an upper limit (for example, requiring a plan’s administrator to collect and consider source documents for a claim that would pay more than $nnn,nnn) but did not. See Internal Revenue Manual 4.72.2. Before presenting the memo at 2017’s TEGE conference, the IRS people had worked on this for at least 12 months. They knew recordkeepers would make system changes grounded on the memo. And they knew that for many plans tax law’s constraint is the only constraint. For a hardship claim (if it does not require a spouse’s consent) under a typical individual-account retirement plan, no person has a direct economic stake in denying a claim. The key restraint is a fear of losing the plan’s tax treatment. If a plan’s claims procedure is within what the IRS’s employees are instructed not to challenge, there might be little or no reason to seek discretionary decision-making. (I have seen administrators specify, or recordkeepers use, heightened identity controls for a claim that exceeds an amount threshold.) My first post in this discussion described a way an administrator might decide against an unusual claim. Some might want discretion to deny a claim. And some, lacking an automated regime of the kind I described in my second post, might be stuck with discretion. But an employer/administrator might consider whether it likes discretion (perhaps to help protect all or some participants from themselves), or whether it prefers not taking on any more discretion than is needed to obey public law and the plan’s governing documents.

Here’s a follow-up question to sate our curiosity: Imagine a plan’s employer/administrator instructed its service provider to decide hardship claims, without discretion, using a procedure designed to apply the regulation’s deemed needs and permitted assumptions. The procedure also uses the Internal Revenue Manual’s method for processing claims using only the claimant’s written representations (without collecting supporting documentation). All this is completely computerized. The service provider has done a perfect job of implementing everything the regulation and the IRS method call for. The claimant checks all the right boxes, and completes every “I certify” statement. (Nothing in the plan’s records has information that, even if fully used, could reveal any lack of truthfulness in the claimant’s claim.) Would the claim described above get routine processing through the system?

Bill Presson, thank you for the vote of confidence. CuseFan and ESOP Guy, thank you for contributing ideas I can use to help guide the student. Moments after Redcloud’s post, we had a productive conversation about a still-in-development research topic. Redcloud’s first imagination might include some mistaken assumptions, and the hypo or research question might change a few times before Redcloud’s professor approves an outline. Consider also that different pension professionals might work with quite different sizes. An employee-benefits lawyer’s work often focuses on situations that involve tens or hundreds of thousands of participants. Or, as in most of my experience, with systemic processes used for millions of participants.

An important part of the lobbying and legislative “deal” that moved the legislation that became ERISA was big businesses’ desire to get national preemption of State laws. See, for example, State v. Monsanto Co., 517 S.W.2d 129 (Mo. Sup. Ct. Dec. 16, 1974) (Before ERISA, Monsanto’s provision of health and welfare benefits was insurance subject to State regulation.) Also, a preceding Federal law, the Welfare and Pension Plans Disclosure Act of 1958, had already treated those different kinds of plans together. For more information, see James A. Wooten, The Employee Retirement Income Security Act of 1974: A Political History (2004).

For Temple University’s law school, I teach (now going on 11 years) a specialized course on ERISA Fiduciary Responsibility. I teach it, and my summer-semester course on Professional Conduct in Tax Practice, as writing courses. Beyond my courses, I’ve served as consulting or reviewing faculty on papers for others’ courses or for independent-writing projects. I have experience with help a student choose and refine a topic, and plan how to research it. If doing so doesn’t interfere with anyone in your school’s faculty, I’d be glad to converse with you to help you discern whether your idea would research and write effectively to fulfill your course’s or project’s purpose. Also, I can tell you about (at least) two big cases you likely would want to consider in your research.