Peter Gulia

WinW, as your question suggests, the key question is less about what a State’s court orders and more about whether an ERISA-governed plan’s administrator will treat the order as a domestic relations order and (if a DRO) as a qualified domestic relations order. (I assume the State court does not have personal jurisdiction of the plan, the plan’s administrator, or the plan’s trustee.) Which person is your client? The child? The child’s mother? The child’s father? Another parent? The guardian ad litem? The 401(k) plan’s administrator? The plan’s trustee? Also, is the guardian ad litem an attorney-at-law or not? And were the fees incurred to pursue the child’s right to get child support from a parent other than the child’s mother?

To answer David Rigby's question, assume for my hypo that there was no amendment of any plan document; rather, there was only the plan administrator's finding that the facts and circumstances, as the administrator understood them before directing the distributions, were a partial termination. And assume the administrator made that finding without waiting for calendar plan year 2020 to end. MoJo, thank you. Others' ideas?

Let’s ask ourselves a follow-up question: The Consolidated Appropriations Act, 2021, in its division EE, title II, § 209 provides: “A plan shall not be treated as having a partial termination (within the meaning of 411(d)(3) of the Internal Revenue Code of 1986) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80 percent of the number of active participants covered by the plan on March 13, 2020.” Imagine a situation in which a plan’s administrator in 2020 assumed a partial termination and paid distributions in amounts more than what otherwise would have been the distributees’ nonforfeitable accounts. Imagine that, unlike the situation austin3515 described, there are enough rehires before March 31, 2021 so there was no partial termination in 2020. May the plan’s administrator demand that a distributee return the overpayment? If it may, should the administrator ask? How much does it matter that a distributee might not have known she was overpaid? How much does it matter that the overpayment might have resulted from the administrator’s good-faith belief that there was (or would be) a partial termination? If both payer and payee are innocent, what outcome is fair or equitable?

An exclusion about collective bargaining might apply in fitting circumstances. I.R.C. § 408(k)(2) Participation Requirements — This paragraph is satisfied with respect to a simplified employee pension for a year only if for such year the employer contributes to the simplified employee pension of each employee who— I.R.C. § 408(k)(2)(A) — has attained age 21, I.R.C. § 408(k)(2)(B) — has performed service for the employer during at least 3 of the immediately preceding 5 years, and I.R.C. § 408(k)(2)(C) — received at least $450 in compensation (within the meaning of section 414(q)(4)) from the employer for the year. For purposes of this paragraph, there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3). For purposes of any arrangement described in subsection (k)(6), any employee who is eligible to have employer contributions made on the employee's behalf under such arrangement shall be treated as if such a contribution was made. I.R.C. § 410(b)(3) Exclusion Of Certain Employees — For purposes of this subsection, there shall be excluded from consideration— I.R.C. § 410(b)(3)(A) — employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers[.] To write a plan’s (or several plans’) provisions to sort employees by each collective-bargaining unit and those who are unrepresented, don’t use Form 5305-SEP; instead, use an employee-benefits lawyer coordinating with a labor-relations lawyer. But why use a SEP?

CuseFan, thank you for sharing your thoughts. RatherBeGolfing, fair question, I am asking about ERISA § 404(a)(1) responsibility. Would a prudent fiduciary know that some substantial number of participants do not recognize the security risks? If so, would a prudent fiduciary find that protecting those participants’ interests requires educating them about the risks?

Because someone who uses the care, skill, and caution that would be used by one who is experienced in managing an individual-account retirement plan would be mindful of privacy and security risks (including cybersecurity risks), there is a growing consensus that a plan’s administrator must oversee prudent procedures for managing those risks. For many plans, that means getting a recordkeeper’s contract promise that it uses commercially reasonable privacy and security procedures. But even good procedures might be ineffective if a participant, beneficiary, or alternate payee does not guard carefully her identifying information. If that’s right, does a plan’s fiduciary have a responsibility to educate participants (and other individuals) about those risks? If so, what do you think an employer/fiduciary should do?

Answering your query would require reading the complete set of the plan’s governing documents, might require considering a relevant State’s law, might require considering the church’s internal law, and might require considering other facts and circumstances. Here’s a partial selection of a few points one might consider: Is the plan an individual-account (defined-contribution) plan, or a defined-benefit plan? (Unlike most other § 403(b) plans, church plans have some variations and transition rules that might allow a defined-benefit plan.) If this is a multiple-employer plan, is the whole of the plan’s assets available to provide benefits to any employer’s participants and their beneficiaries? Or is there a separate subplan for each employer? What does the plan’s governing document say about whether a mistaken contribution remains in the plan’s assets, or is returned to the employer? If the document provides a return of a mistaken contribution, do your facts fit the plan’s definition of what is treated as a mistaken contribution? Are there other terms about an employer’s participation in the plan? Perhaps more practically, what does the church plan’s administrator say on whether the employer may get a return?

Thank you for the kind words. There is at least one point in common: None of these custodians requires, as a condition to allowing an IRA holder to name a beneficiary other than the holder’s spouse, delivery to the custodian of the spouse’s consent to the beneficiary designation.

Thanks. With a little (unscientific) web-surfing, I found these: BlackRock Disclaimer for Community and Marital Property States: The Participant’s spouse may have a property interest in the account and the right to dispose of the interest by will. Therefore, any sponsors, issuers, depositories and other persons or entities associated with the investments and the Custodian specifically disclaim any warranty as to the effectiveness of the Participant’s beneficiary designation or as to the ownership of the account after the death of the Participant’s spouse. For additional information, please consult your legal advisor. I consent to the Beneficiary Designation. {block on the form for a spouse’s consent} https://www.blackrock.com/us/individual/literature/forms/ira-application-fillable-version.pdf Capital Group (American Funds) We encourage you to consult an advisor regarding the tax-law and estate planning implications of your beneficiary designation. . . . . Your spouse may need to sign in Section 9. If you wish to customize your designation or need more space, attach a separate page. Spousal consent to beneficiary designation — if required If you are married to the IRA owner and he or she designated a Primary Beneficiary(ies) other than you, please consult your financial advisor about the state-law and tax-law implications of this beneficiary designation, including the need for your consent. I am the spouse of the IRA owner named in Section 2, and I expressly consent to the beneficiary(ies) designated in Section 6 or attached. {signature block} Fidelity Advisor If your IRA contains community property and you do not designate your spouse as primary beneficiary for at least 50% of your IRA, you may want to contact an attorney for further information on the designation. https://institutional.fidelity.com/app/literature/view?itemCode=B-IRAFORMS&renditionType=pdf&pos=contentItem&selectedActivities[0].selectedActivityCode=TBNM&selectedActivities[0].selectedActivityTx=formsandapplications&selectedActivities[1].selectedActivityCode=DEPT&selectedActivities[1].selectedActivityTx=FAPP Franklin Templeton If you are married and designate someone other than your spouse as your primary beneficiary, you may need to obtain your spouse’s consent. You should consult with a legal advisor regarding your beneficiary designation and whether your spouse’s consent is necessary. The Custodian is not responsible for determining whether your spouse’s consent is necessary. https://www.franklintempleton.com/forms-literature/download/RIRA-APP {No block on the form for a spouse’s signature} Invesco {warning, and block on the form for a spouse’s consent} https://www.invesco.com/us-rest/contentdetail?contentId=3868e01e98630410VgnVCM10000046f1bf0aRCRD Schwab If I live in a state with community property statutes and do not designate my spouse as the sole Primary Beneficiary, I represent and warrant that my spouse has consented to such designation. https://www.schwab.com/public/file/P-1770982 TD Ameritrade {IRA applicant “represents and warrants” to the custodian that the spouse consents.} https://www.tdameritrade.com/retail-en_us/resources/pdf/TDA586.pdf Wells Fargo warning, and permits opportunity for a spouse’s signature https://www.wellsfargofunds.com/assets/edocs/form/ira-application-ip.pdf Any BenefitsLink neighbors with a different experience or observation?

For an Individual Retirement Account not held under an ERISA-governed plan: Does any IRA custodian require a spouse’s consent as a condition to the custodian’s willingness to follow a designation that names a beneficiary other than the IRA holder’s spouse? Does any IRA custodian have in its form a spot for recording a spouse’s consent to a beneficiary other than the IRA holder’s spouse? (Even if no public law requires this.) For either question, if you know any, please name names. What I’m looking for is whether an IRA custodian does something, before there is a dispute or claim, to protect the community-property rights of an IRA holder’s spouse (or make it convenient for an IRA holder to show her spouse’s consent to a potential transfer).

Wouldn't you want to? If you don't, you risk that an IRS notice sent to the old address burdens you. Non-response to a notice might burden you with legal procedures and assumed facts that are disadvantageous.

And recognize that the plan, even if discontinued, is not yet terminated.

Thank you for the quick and good help. If a practitioner with your great knowledge and abilities can't think of it, it isn't to be found.

Before 2020, partnership A maintained a single-employer individual-account retirement plan for its employees (including those of its partners who are deemed employees). In 2020, partnership A amended its plan to allow participation by partnership B (for those of its partners who are deemed employees and for employees, if any). Partnership B is a new-formation startup. There is no transfer of assets or liabilities from a plan of B into A’s plan. The two partnerships—while separate artificial persons—are a § 414(m) affiliated service group. The plan’s governing documents specify partnership A as the plan’s sponsor, administrator, and trustee. The documents admit partnership B as a participating employer. Is there anything in Form 5500 that calls for reporting the Employer Identification Number of partnership B?

DMcGovern, no. A plan’s administrator must follow the plan’s governing documents (unless ERISA’s title I requires something else). But an obligation or responsibility of the plan’s administrator does not necessarily follow through to its recordkeeper. A non-fiduciary service provider might not be obligated to perform its service according to the plan’s governing document. Further, a recordkeeper’s contract might permit the recordkeeper not to process a transaction or instruction that does not fit the recordkeeper’s software. A plan’s administrator might consider these points in its selection, monitoring, other oversight, and removal of a recordkeeper.

Even if the plan’s administrator’s reading is a correct or permissible interpretation of the plan’s governing documents, consider that the recordkeeper’s contract might not obligate it to process a transaction or instruction that is outside the way the recordkeeper described the service.

May a plan charge only those participants who are no longer employed? For some plans, the plan’s participating employers pay some or all of the plan’s expenses. Sometimes, an employer prefers to pay expenses for its current employees, but not expenses attributable to beneficiaries, alternate payees, and participants who are no longer employees. Unless the plan’s documents expressly obligate the employer to pay the plan’s expenses, a plan may charge the plan’s reasonable expenses against the individual accounts of the plan’s participants and beneficiaries. “Nothing in Title I of ERISA limits the ability of a plan sponsor to pay only certain plan expenses or only expenses on behalf of certain plan participants. [S]uch payments by a plan sponsor on behalf of [some] plan participants are equivalent to the plan sponsor providing an increased benefit to those employees on whose behalf the expenses are paid. Therefore, [a] plan[] may charge vested separated participant accounts the account’s share ([for example], pro rata or per capita) of reasonable plan expenses, without regard to whether the accounts of active participants are [not] charged such expenses[.]” Field Assistance Bulletin 2003-3. However, a retirement plan must provide that a vested benefit that exceeds $5,000 may not be distributed without the participant’s consent. ERISA § 203(e)(1), 29 U.S.C. § 1053(e)(1); accord I.R.C. (26 U.S.C.) § 411(a)(11)(A). Interpreting both this ERISA provision and a related tax-qualified-plan condition, a Treasury department interpretation provides that a participant’s “consent” to a distribution isn’t valid if the plan imposed a “significant detriment” on a participant who doesn’t consent (and thus leaves his or her account invested under the plan.) 26 C.F.R. § 1.411(a)-11(c)(2)(i). To interpret this significant-detriment interpretation, the Treasury department stated its view that a plan may charge the accounts of former employees (even while not charging current employees) as long as the expense otherwise is proper and a severed participant’s account bears no more than its “fair share” of the plan’s expense. Rev. Rul. 2004-10, 2004-7 I.R.B. 484-485 (Feb. 17, 2004). (However, the ruling’s reasoning suggests some possibility that an expense allocation that’s more than the “analogous fee[] [that] would be imposed in the marketplace . . . for a comparable investment outside the plan” might be a precluded “significant detriment”.) To illustrate the “fair-share” idea, the Treasury department’s ruling expressly cautions that former employees’ accounts must not subsidize current employees’ accounts: “[A]llocating the expenses of active employees pro rata to all accounts, including the accounts of both active and former employees, while allocating the expenses of former employees only to their accounts” would be an improper allocation. Following this, the Treasury department said that a plan doesn’t impose a “significant detriment” because it charges beneficiaries’, alternate payees’, and severed participants’ accounts “on a pro rata basis”. The Treasury department ruling’s reference to “a pro rata basis” doesn’t mean that a plan can’t allocate expenses among accounts under what the Labor department calls a “per capita” method. The Labor department’s Bulletin uses “per capita” to express the idea of charging an account an amount that’s the same for each account in the class and that doesn’t vary based on the account balance, and uses “pro rata” to express the idea of charging an account a percentage of an account (or subaccount) balance. The Treasury department’s ruling doesn’t draw this distinction, and instead uses “pro rata” only to express the idea of allocating to accounts of former employees (or persons other than current employees) no more than those accounts’ proportionate share. Nothing in the Treasury department’s ruling says that these proportionate shares could not be computed regarding all accounts by dividing the expense by the number of accounts or allocating the expense as a percentage of plan account balances.

Consider also pointing out that not only Form 5500 but also a trustee's, recordkeeper's, and other investment and service providers' systems would treat whatever nine-digit number is furnished as an EIN, and so might expose it more widely than one wants to expose a Social Security Number or Individual Taxpayer Identification Number.

That’s an important part of why my rhetorical question italicizes the word why? The employer’s reasoning for what it does or seeks to do matters. If a (nongovernmental) employer discontinues salary-reduction contributions to a particular insurer or custodian because the employer considers that vendor’s contracts an unwise investment choice, that reason suggests an employer ought to bear fiduciary responsibility for its decision-making. But if an employer’s reason for discontinuing a vendor is about limiting the work burden of the employer’s payroll function, applying neutral limits unrelated to evaluating investment choices might be a “reasonable” constraint that neither establishes nor maintains a plan. (For example, a charitable-organization employer might limit vendors to a specified number, selecting the vendors with the most employee contributors.) The ERISA rule recognizes “[t]he administrative burdens and costs to the employer” as a factor that might be relevant in evaluating whether an employer’s non-plan payroll practice affords a “reasonable choice”. 29 C.F.R. § 2510.3-2(f)(3)(vii)(E). https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510 Issues about which decisions do or don’t “establish” or “maintain” a plan are highly fact-sensitive. Further, one can’t get an ERISA Advisory Opinion or other advance ruling. Even if one could, it wouldn’t constrain a court’s decision-making.

That’s an important caution. A plan’s administrator should not present a statement of the kind I describe unless the administrator’s uniform practice is not to look at beneficiary designations and the statement is factually true and not misleading.

Questions about why and how much an employer may limit § 403(b) investment choices while neither establishing nor maintaining a plan are fact-sensitive. The last time I researched this point was a long time ago. If you were to look now, I doubt you’d find a court’s decision that sets a “bright line” in either direction. The employer, with its lawyer’s help, might ask this rhetorical question: If we want no responsibility for maintaining a plan, why do we want to restrain our employee’s investment choice?

Everyone concurs that a plan’s administrator must carefully check everything when (after the participant’s death) there is a claim to decide. kmhaab’s originating post describes a threat that someone might assert it was a fiduciary-responsibility breach for the plan’s administrator to receive a beneficiary designation without warning its maker that the designation would be ineffective to the extent that it attempts to provide benefits to a beneficiary other than the participant’s surviving spouse without the consent of the person who is, on the participant’s death, his then surviving spouse. Such a failure-to-warn fiduciary-breach claim is not about how to decide to whom the plan provides a death benefit. Rather, it is about whether the administrator breached a fiduciary responsibility in its administration of the plan, and, if so, what equitable relief (if any) might remedy the breach. (The harm that might result from the administrator’s failure to warn is the participant’s loss of his opportunity to make a beneficiary designation his spouse consents to.) We can imagine, and Former Esq. describes, some ways a judge or arbitrator might find that a plan’s administrator ought to have protected a participant from an expectation that putting a designation in the plan’s records might have more effect than the plan provides. The first of my posts describes an attempt, perhaps void (if the plan or ERISA requires the administrator to check beneficiary designations) or otherwise ineffective, to warn a participant against such an expectation. About both those points, we don’t know what a particular Federal judge would decide on a particular case’s facts. My experiences (some with a retirement-services provider for tens of thousands of plans with about 12 million participants, and more recently with big employers’ plans) are that many plans’ administrators do not check a beneficiary designation until (after the participant’s death) a claim (rather than an imagined assumption of facts) requires the administrator to decide the correct beneficiaries. If that is a particular plan’s administrator’s practice, does it harm participants to tell them? Even if a warning is void or ineffective to excuse an administrator from a responsibility it had, would having an opportunity to read the warning harm a participant? I don’t suggest a warning is required or needed, only that it might help and should not hurt.

That an activity or power is custody under a Federal or State statute or rule that regulates an investment adviser does not by itself mean that the activity or power results in the person handling, in the meaning of ERISA § 412 [29 U.S.C. § 1112], an employee-benefit plan’s money or other property. Rather, you’d consider all the facts and circumstances about what the investment adviser does, or has authority to do, and evaluate whether it results in “handling” for ERISA § 412. Leaving aside questions about what legal effect the temporary bonding rules might have, at least one of them treats actual or apparent authority to transfer money, rights, or other property to “a third party” as handling that property. 29 C.F.R. § 2580.412-6(b)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=9ccdd2f6ed4def0e3fed2ceed96cb727&mc=true&node=se29.9.2580_1412_66&rgn=div8 If a person does not handle a plan’s assets but is the plan’s fiduciary (for example, because the investment adviser renders investment advice), ask for your lawyer’s advice about whether such a person might need fidelity-bond coverage no less than $1,000, even if the amount the fiduciary handles is zero. ERISA § 412(a) provides: “The amount of such bond shall be fixed at the beginning of each fiscal year of the plan. Such amount shall be not less than 10 per centum of the amount of funds handled. In no case shall such bond be less than $1,000[.]”). See also DoL-EBSA, Guidance Regarding ERISA Fidelity Bonding Requirements, Field Assistance Bulletin No. 2008-04 (Nov. 25, 2008), at Q 35 (“Generally, each plan official must be bonded in an amount equal to at least 10% of the amount of funds he or she handled in the preceding year. The bond amount cannot, however, be less than $1,000[.]”). https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2008-04.pdf

David Rigby, thank you for your further thinking and smart observations. A plan’s administrator (or whichever fiduciary has authority to decide a claim for a benefit after the participant’s death) must consider whatever is relevant in deciding the claims, including consider what effect an attempted beneficiary designation has under the plan’s provisions. Based on my experiences, there might be tens, and perhaps hundreds, of thousands of plans for which no plan fiduciary checks a beneficiary designation until after the participant’s death. And unless a plan’s governing document imposes an obligation or responsibility beyond those ERISA’s title I would require if the documents provide no more than ERISA § 205 requires, it’s not obvious that a plan’s administrator must evaluate the effect of what a participant wrote or omitted until doing so is necessary to decide a claim. Were a plan’s administrator defending an actual or threatened ERISA fiduciary-breach action of the kind kmhaab describes, the administrator might like having in the evidence or complaint a warning of the kind I suggest. That way, even if the litigant has standing to pursue the participant’s rights, one could show a Federal judge (or, even better, persuade a would-be plaintiff’s attorney about what the judge would find) that the participant could not have reasonably believed that the plan’s administrator had approved the attempted beneficiary designation as proper. I recognize, however, that some, perhaps many, might perceive the warning as indecently hard.

What do BenefitsLink people think about using a warning something like this: That this form was received and processed does not mean the plan’s administrator or anyone approved a beneficiary designation. These forms are recorded with no review. If you did not meet your plan’s requirements and conditions to make a valid beneficiary designation (or your designation, valid when made, becomes invalid), your plan’s administrator will follow the plan’s provisions ignoring your attempted designation.