Peter Gulia

Without commenting on Paychex’s or any service provider’s particular fee: Many ERISA practitioners believe a reasonable exit-processing fee an independent fiduciary approved as a part of a reasonable service agreement with no more than reasonable compensation that meets all conditions of ERISA § 408(b)(2) is an exempt prohibited transaction. I have no more than a surface awareness of antitrust or competition law. Perhaps a lawyer in that field might see a bundling, tying, or price-discrimination arrangement, and (if there is) might consider whether Paychex has enough market power for the arrangement to be anti-competitive.

While I don’t conclude any particular answer, here’s a bit of framework for thinking about the questions. The point of a deemed need is that an administrator follows it without evaluating whether the claimant truly needs what the claim asks for, to the extent that it is within the deemed need. 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(2) ends with the phrase “(excluding mortgage payments)”. And a plan’s governing document might include some text meant to follow this. An administrator might interpret the plan’s provision to allow no more than the amount the claimant would pay to buy the residence had he financed with a mortgage the portion of the purchase price that typical principal-residence purchasers usually so finance. (This is only one of several possible interpretations.) A plan might allow a gross-up for “any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution”. An administrator must explain its denial (or partial denial) of a claim. Consider including a written explanation of the administrator’s interpretation. The textual analysis might include analyses of the whole texts—that is, of the whole rule, and of the whole statute the rule interprets and implements. The administrator might follow carefully its claims procedure. If the claimant complains, afford the claimant an opportunity to present any further facts that might support his claim. If a complaint is about the interpretation, invite the claimant to present his legal argument. If the plan grants discretionary authority, courts defer to a fiduciary’s interpretation unless it is so obviously wrong that the decision could not have resulted from any reasoning.

If the questioning physician wants advice, he might consult Asrar Ahmed, the author of ERISA and Sharia Law and Can Sharia and ERISA Coexist?. He is an EBSA Senior Investigator and presumably would not provide advice on a question of U.S. law that could come before the Labor department. But perhaps he might on his own time provide his advice on a question of religious law, which the Labor department would not consider. One can find him on LinkedIn.

Luke Bailey gives us good practical guidance. In my experience, too many employers and administrators unwisely reach out to decide or do something before there is a claim to respond to. (So far, Kansas401k avoided that trap.) And too many neglect opportunities to channel “concerns” into the plan’s claims procedure. Following a careful claims procedure gets predictably stronger results. Luke Bailey suggests one way an administrator might help protect the administrator’s decision-making. (Showing an estate-planning or family lawyer how to turn her client’s wish into something the plan can deal with often is effective.) Another way, perhaps depending on the ambiguous facts and circumstances, might be to inform the “concerned” telephoner that anyone can submit a written claim. (It even could be a claim that recognizes the surviving spouse is the beneficiary, but asserts that she ought not to be the payee and that the plan ought to delay payment for a reasonable time so a conservator can be appointed.) Following the administrator’s claims procedure, including forming written explanations for each denied claim, makes it much easier to defend the administrator’s decision. That’s so even for situations in which people are embarrassed, defensive, or hostile. And it can avoid unnecessary expenses. Why burden participants’ accounts with an expense for attorneys’ fees to show a court the plan’s primacy if that unpleasant exercise could have been avoided? My observation is more than anecdotal. It’s grounded on my experience as counsel to a big recordkeeper (with many thousands of plans and millions of participants), advising a work unit that handled big volumes of death claims. We used business-process measurements to discover ways to make claims-handling more effective, and to manage our and plans’ expenses. Sometimes, there is a healthy balance between asserting or defending a plan’s primacy and avoiding unnecessarily deciding a claim in ways that might offend others’ sensibilities. Also, giving interested persons a way to be heard strengthens the decision-making. Even unlearned judges can understand the idea of deference to a process. If the “concerned” telephoner was invited to, but didn’t, use a procedure to slow down payment to the potential conservatee, a judge looking into the situation might have more empathy for an administrator’s decision to pay the named beneficiary absent any reason not to.

C.B. Zeller, thank you for your help in the earlier conversation, and for reminding us about it. (BTG, my posts in the earlier conversation and above, taken together, explain how 408b-2 and 404a-5 disclosure rules need not be an impediment.) It seems many big recordkeepers lack a business interest in facilitating payments to unaffiliated investment advisers, until enough plan sponsors demand that service and have the bargaining power to motivate the recordkeeper to build it.

Even if a plan’s administrator in its discretion finds that a beneficiary is an incapacitated person, many plans’ governing documents grant the administrator permission to pay a conservator or other fiduciary for the incapacitated person, but do not command that means of payment. However, a careful administrator might prefer a means of payment likelier to show a satisfaction of the plan’s obligation to pay the benefit.

Here’s the ERISA rule that recognizes using a distinct summary plan description for each class of participants and beneficiaries. https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-B/section-2520.102-4

For an ERISA-governed individual-account retirement plan that provides participant-directed investment, such a plan’s fiduciary could allow directing participants to select, individually, one’s investment adviser, and to direct payment of a reasonable investment-advisory fee with a charge against the directing participant’s individual account. A fiduciary allowing such an arrangement might (i) restrict it to registered investment advisers; (ii) restrict it to advisers that commit to the allowing fiduciary’s terms, including assurances about delivering initial and updated ERISA § 408(b)(2) disclosures to the allowing fiduciary; (iii) require a directing participant to certify that she received all disclosures required under investment-adviser law and ERISA § 408(b)(2); (iv) set a maximum on the investment adviser’s fee a participant may direct, and (v) require that the fee be charged in a format and on an interval the fiduciary finds efficient for the plan’s administration with the recordkeeper’s services. I’m unaware of an ERISA Advisory Opinion that speaks to the question BTG asked. But there are tax-law rulings that support paying an investment adviser engaged by an individual, rather than by an employer plan’s fiduciary. In Letter Ruling 93-16-042 (January 27, 1993), the IRS assured a participant that quarter-yearly payments of her investment adviser’s fee would not tax-disqualify her § 403(b) contract, would not be distributions, and thus would have no tax consequences. The IRS treated the investment adviser’s fee as analogous to a trustee’s fee incurred by a § 401(a) plan. Under the investment-advisory agreement and § 403(b) contract presented in the ruling request, each individual participant would engage the investment adviser, and instruct her § 403(b) contract issuer to pay the investment adviser’s fee and count those payments as charges against the § 403(b) contract’s account balance. (For a § 403(b) arrangement, an annuity contract or custodial account fills the function of what otherwise would be a retirement plan’s trust.) The IRS’s analysis did not depend on any express or implied approval by a plan’s fiduciary. There could not have been such a condition because the ruling requestor’s § 403(b) contract was not (and never had been) held under any employer’s plan. Further, the ruling specifies the participant, the investment adviser, and the § 403(b) contract issuer as the parties to the arrangement. The ruling mentions no fiduciary other than the participant’s investment adviser. The IRS’s reasoning, which the ruling itself describes as a “well established” general principle, applies widely for all kinds of eligible retirement plans and without regard to the investments held under the plan.

Before a court appoints a fiduciary, a threat of Labor’s enforcement might persuade an employer to administer its plan. In those circumstances, an owner/employer/administrator might see sense in reasonable corrections. And those circumstances might give a third-party administrator some bargaining power to negotiate reasonable fees (including payment in advance) and protective terms before the TPA accepts an engagement. Before revealing information to a participant, one might consider whether the information was disclosed with an expectation or presumption of confidentiality or privacy and, if so, whether professional-conduct rules, a voluntary association’s rules, or one’s personal ethics preclude revealing the information. But those questions might not arise because a participant might already know enough information to support her complaint.

If no one claims the death benefit, there might be nothing the plan’s administrator need decide until the plan provides an involuntary distribution as a § 401(a)(9)-required minimum distribution. If a distribution is no more than the § 401(a)(9) minimum-distribution amount, it’s not an eligible rollover distribution. (If the plan mandates an involuntary distribution of the whole account paid as a single sum, a payer might divide the tax-reporting between minimum-distribution and rollover-eligible portions.) I’ve heard some default-rollover businesses also process non-IRA accounts.

Adi, thank you for your cogent explanation.

Thank you for pointing us to the other thread. It mentions a point of law I’ve published on since the early 1990s. Securities issuers and intermediaries face at least three constraints in explaining an investment using a language beyond English. 1. Federal securities law prohibits using foreign-language materials unless the issuer also furnishes the complete prospectus in the same foreign language. Investment Company Act Release No. 6082 (June 23, 1970); American Funds Distributors Inc., SEC Staff No-Action Letter (publicly available Oct. 16, 1989). 2. If a broker-dealer or its representative allows a presentation to be translated, the broker-dealer “must take steps necessary to ensure that the translation of its presentation is accurate, regardless of whether it or its client [including a plan fiduciary] provides the translator.” Nat’l Ass’n of Securities Dealers (now Financial Industry Regulatory Authority [FINRA]), Interpretive Letter Applicability of NASD rules to a member’s use of a translator for group retirement plan enrollment presentations (Nov. 26, 2001), available at https://www.finra.org/rules-guidance/guidance/interpretive-letters/name-not-public-70. 3. A securities broker-dealer must not allow its representatives to use a language beyond English unless the broker-dealer has supervisors fluent in that other language. See FINRA, Disciplinary and Other FINRA Actions (for Apr. 2013), available at https://www.finra.org/sites/default/files/DisciplinaryAction/p241449.pdf; see generally James A. Fanto, Jill I. Gross & Norman S. Poser, Broker-Dealer Law and Regulation, chapter 13 “The Broker-Dealer’s Duty to Supervise” (Wolters Kluwer 5th ed. & Feb. 11, 2020 update). Those constraints apply to securities issuers and intermediaries. They might not apply, at least not directly, to an employer/sponsor/administrator not in a securities business. But the securities-law constraints might practically constrain the services an employer/administrator can get from an investment adviser or securities broker-dealer. That’s an aspect for why I hope to crowd-source my question: which funds have a prospectus in Spanish?

Assuming a plan administrator has not escaped the problem by furnishing its preferred form of court order, what do BenefitsLink people think about which is the better or worse way to handle an account division’s allocation problem: Include in the plan administrator’s QDRO procedure defaults for how the alternate payee’s award is allocated between non-Roth and Roth subaccounts? This way risks that a participant or an alternate payee is unhappy with the default allocation, and claims the administrator somehow breached its responsibility. Even if such a claim is meritless, it’s an expense to respond to the claim. Insist that a court order specify all details for all allocations, including between non-Roth and Roth subaccounts? This way often incurs expenses to respond to inept domestic-relations lawyers. What do you think: which path is more painful, or more expensive?

Beyond checking that a domestic-relations order “clearly specifies” enough details that one can follow the order without discretion, a plan’s administrator also might check whether the order’s division is one the recordkeeper would implement within the recordkeeper’s obligation under its service agreement.

American Funds (managed by Capital Group) provides prospectuses in Spanish? Any others?

BG5150, I have not seen a court decision with reasoning on your question. Likewise, I have not seen a court decision finding, or even a complaint asserting, that a fiduciary breached by failing to consider the availability of a prospectus in Spanish as an element of the fiduciary’s evaluation of investment alternatives. Absent a specific command in a statute, rule, or governing document, whether a fiduciary breached turns on comparing the complained-of fiduciary’s conduct and decision-making to what would have been done using the care, skill, prudence, and diligence that would have been used by one experienced in managing a similar plan. For now, I’m just seeking to crowd-source a little factual information.

Of the popular mutual fund providers, which furnish prospectuses in Spanish, and which do not?

If JOH’s mention of non-ERISA does not refer to a governmental plan or a church plan: If the charitable organization neither “establishe[s]” nor “maintain[s]” an employee-benefit plan, there is nothing the employer must decide and, likely, nothing the employer may decide. Rather, the insurer or custodian decides whether it provides a loan, including deciding whether some set of preceding facts makes a participant not entitled to some right that otherwise might be provided under the annuity contract or custodial account.

Can the spouse get to the U.S. consulate? When a person is not present in the United States, her acknowledgment may be made before a United States ambassador, consul, consular officer, or consular agent. 22 U.S.C. §§ 4215, 4221. A consular officer must officiate and perform a notarial act an applicant properly requests. 22 U.S.C. § 4215. http://uscode.house.gov/view.xhtml?req=(title:22%20section:4215%20edition:prelim)%20OR%20(granuleid:USC-prelim-title22-section4215)&f=treesort&edition=prelim&num=0&jumpTo=true

If your plan’s governing documents allow it, a separation could excuse the spouse’s consent for a distribution or loan that otherwise requires that consent if the three conditions are met. (My explanation of the three conditions is grounded on 26 C.F.R. § 1.401(a)-20/Q&A-27. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)-20 Under the 1978 Reorganization Plan, that Treasury rule also is an authoritative interpretation for ERISA § 205.) Because a separation exception’s conditions include a court order, it’s wise for the participant to consider whether a court would grant the order he requests, and what legal provisions a judge would want in effect before granting the separation order. My last paragraph mentioned the domestic-relations point because a judge who understands that a separation order could deprive the spouse of her survivor annuity might want to first make some other provision to get the spouse her share of marital property. Remember, no court order means no exception to the spouse’s-consent provision.

About a separation, a plan’s governing documents may (but need not) provide that a spouse’s consent is excused if the plan’s administrator decides (1) the participant and the spouse are legally separated, (2) the participant has a court order to that effect, and (3) no QDRO requires the spouse’s consent. The combination of these three conditions is unlikely. About an abandonment, a plan’s governing documents may (but need not) provide that a spouse’s consent is excused if the plan’s administrator decides (1) the participant has been abandoned (within the meaning of local law), (2) the participant has a court order to that effect, and (3) no QDRO requires the spouse’s consent. A judge who understands the ERISA and retirement plan effect of either order might be reluctant to grant it without first dividing marital property, which might include making a qualified domestic relations order.

If the not-for-profit corporation owns all of the capital and profits interests in the limited-liability company, shouldn't you presume that the corporation controls the limited-liability company?

Yup. I’m aware of the view that an IRC § 125 cafeteria plan is a means for excluding something from a participant’s gross income for Federal income tax purposes, and (at least in that sense) is not itself a pension or welfare employee-benefit plan within the meaning of ERISA § 3(3). But IRC § 125(a) recognizes a cafeteria plan’s “participant may choose among the benefits of the plan.” And if a health flexible spending account is such a benefit, it seems that the benefit somehow involves an employee-benefit plan (whether separately stated or integrated with the writing that states the cafeteria plan). Else, what person provides the benefit, and by what means does some person provide it? Further, the Labor department’s Technical Release assumes that § 125 wage reductions exchanged for a welfare benefit are “participant contributions” and “plan assets”. While some might feel the Labor department ought to have published guidance, they didn’t. Sometimes, we get to be lawyers, and can form our own interpretations (unconstrained by an administrative-law document). That said, I don’t yet know how I would answer the questions.

Q-14: Must a payor or plan administrator withhold tax from an eligible rollover distribution for which a direct rollover election was not made if the amount of the distribution is less than $200? A-14: No. However, all eligible rollover distributions received within one taxable year of the distributee under the same plan must be aggregated for purposes of determining whether the $200 floor is reached. If the plan administrator or payor does not know at the time of the first distribution (that is less than $200) whether there will be additional eligible rollover distributions during the year for which aggregation is required, the plan administrator need not withhold from the first distribution. If distributions are made within one taxable year under more than one plan of an employer, the plan administrator or payor may, but need not, aggregate distributions for purposes of determining whether the $200 floor is reached. However, once the $200 threshold has been reached, the sum of all payments during the year must be used to determine the applicable amount to be withheld from subsequent payments during the year. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-31/subpart-E/section-31.3405(c)-1 BenefitsLink neighbors, in your experience, do some or many payers simplify operations by withholding normally even if a distribution is less than $200?

“[A] written determination may not be used or cited as precedent.” Internal Revenue Code of 1986 (26 U.S.C.) § 6110(k)(3). A letter ruling itself can be “substantial authority” for a tax treatment only if, with other conditions, the ruling is “issued to the taxpayer[.]” 26 C.F.R. § 1.6662-4 (d)(3)(iv)(A). But a taxpayer (or a lawyer, certified public accountant, or enrolled agent who advises a taxpayer) may consider “private letter rulings and technical advice memoranda issued after October 31, 1976” in interpreting other sources of authority. 26 C.F.R. § 1.6662-4 (d)(3)(iii). Consider also a practical point. The surviving spouse might not be an advisor’s only audience. An IRA custodian or insurer, if it sees the situation, might want some comfort or protection about the rightness of the surviving spouse’s tax position.