Peter Gulia

If a QDRO procedure calls for a “hold” sooner than ERISA § 206(d)(3)(H) otherwise would require it, does anything preclude amending the procedure so it calls for no more than ERISA § 206(d)(3)(G)-(H) requires?

The complaint describes the essential problem by eliding a description about the absence of a provision for participant-directed investment with the assertion that the investment fiduciaries did not consider how interests differ among the participants. (I suspect this might have been Nichols Kaster’s strategy choice.) Neither of the complaint’s counts asserts a claim asserting that an individual-account plan’s omission of a provision for participant-directed investment is, by itself, or even as applied under the alleged facts, contrary to ERISA’s title I. Likewise, the complaint’s prayer for relief does not seek reformation of the plan. Judge Sorokin’s order reacts to the complaint presented and how the litigants briefed the motion about whether the complaint states a claim on which the court could grant relief. That a plan’s governing document omits a provision for participant-directed investment is not itself a fiduciary’s breach because deciding the plan’s provisions is a creation or “settlor” decision, which a plan’s sponsor (rather than an administrator, trustee, or other fiduciary) may make without ERISA fiduciary responsibility. Rather, a plan’s governing document (ignoring any provision ERISA’s title I precludes, and supplying any unwritten provision ERISA’s title I requires) is a part of the starting point from which a fiduciary works. A fiduciary with investment responsibility must exercise its responsibility considering all relevant facts and circumstances. Those facts could include that the plan’s participants and their beneficiaries have a wide range of ages and economic interests. A fiduciary must prudently, and impartially, balance differing interests. I can imagine a case in which the difficulties of balancing differing interests might overwhelm an analysis of how to invest the plan’s assets. It might be so difficult that a fiduciary might consider whether it is impossible or impractical to obey both the governing document and ERISA § 404(a)(1)(B). But the court in DeMoulas Super Markets did not reach a question of that kind. One may read the order as logically consistent with an assumption that an absence of a provision for participant-directed investment was not invalid (or that a question had not been presented) and, following that assumption, a finding that the complaint alleged enough facts that a fact-finder could find a fiduciary breached a duty to invest prudently the plan’s one investment pool. We don’t know what Judge Sorokin (or another judge) would decide if the alleged facts were about a mainstream asset allocation and nothing suggesting the fiduciary failed to consider the differing interests of younger and older participants. Please don’t read the above explanations as expressing any view about whether an individual-account retirement plan should provide or omit participant-directed investment for any portion of such a plan’s assets.

DefComp, you are unlikely to find this with a public Internet search. Consider asking your lawyer who advises you about the non-qualified deferred compensation, your certified public accountant, and your registered investment adviser for an introduction to an insurance broker who knows how to place this insurance.

The court found: “Plaintiff is not alleging that Defendants breached their duty of prudence by failing to provide Plan participants with a menu of investment options[.]” Rather, the plaintiffs asserted that the plan’s fiduciaries imprudently invested the plan’s one portfolio. Toomey v. DeMoulas Super Markets, Inc., Civil No. 19-11633-LTS [document no. 32] (D. Mass. Apr. 16, 2020) (order on defendants’ motion to dismiss). The court found the facts alleged included these: “Between 2013 and 2017, the Plan had approximately 11,000 to 13,000 participants with a wide range of retirement needs and objectives. During that time, the Plan had between $580 million and $756 million in assets. . . . . The Plan’s Investment Policy Statement (IPS) called for 70% of the Plan’s assets to be allocated into domestic fixed income options, and 30% into equities.” “[E]ven taking the investment strategy chosen by the Plan as the benchmark, it was imprudently executed in several ways. For example, . . . Defendants often failed to meet their own equity allocation targets, in some years devoting as much as 86% to fixed income options, with the remainder (14%) to equities. [E]ven among fixed income investments, the defendants failed to undertake appropriate efforts to generate meaningful returns. In 2013, for example, Defendants invested 58% of the Plan’s total assets—$336 million—in cash and money market accounts earning .01% interest or less. In 2014, Defendants increased the Plan’s investment in cash (or cash equivalents) to over $400 million, or 66% of the Plan’s assets, in accounts earning .05% interest or less. Defendants also left millions of dollars—$27 million in 2016—in bank accounts that returned 0% interest. [T]o the extent Defendants invested in bond funds, they failed to procure the lowest-cost share class of those funds even though, as a large institutional investor, they had the leverage to do so.” Toomey v DeMoulas Super Markets Inc.pdf Toomey v DeMoulas Super Markets Inc complaint.pdf

For the issues one imagines are in play, engage Ilene Ferenczy to advise you. https://ferenczylaw.com/article-defined-benefit-plans-determining-professional-status-of-plan-sponsors-for-pbgc-coverage/

I worked, as counsel to another law firm, on a situation about H-2A employees. But I never saw any advice about employment law or immigration law. The other firm looked to me first, and the facts left no escape from Internal Revenue Code § 410(b). (Testing was a non-starter.)

If an employer has H-2A employees, the employer likely uses a law firm at least to help on getting approvals, and advise about conditions, for those guest workers. If whether it is feasible to exclude from a retirement plan the H-2A employees turns on law beyond ERISA and the Internal Revenue Code, it might make sense to put such an other-law question to the lawyers who handle the H-2A matters.

As I skim the rest of the QTA rule, it seems to preclude a wind-up administration if the QTA-eligible custodian knows it holds less than substantially all of the plan’s assets (other than contributions owed to the plan) and is unwilling to serve as QTA for the whole plan.

In the third paragraph, I did not write the underlining, did not fail to write the ellipsis at the beginning of the quotation, and did not italicize the quotation, or my observation about it.

We might never know whether a court would treat a loss of the kind this discussion describes as a loss that resulted from a participant’s exercise of control over her account. Among other reasons, it’s unclear whether the participant would even get her day in court. The U.S. Constitution might preclude a Federal court from considering a case if the plaintiff does not show: (1) that she suffered a concrete injury-in-fact, (2) that the defendant caused the injury, and (3) that her injury would likely be redressed by the requested judicial relief. See, for example, Lujan v. Defenders of Wildlife, 504 U. S. 555, 560–561 (1992); see also Thole v. U.S. Bank N.A., No. 17-1712, 590 U.S. ___, slip op. at 4 (June 1, 2020) (“n order to claim ‘the interests of others [such as the employee-benefit plan], the litigants themselves still must have suffered an injury in fact, thus giving’ them “a sufficiently concrete interest in the outcome of the issue in dispute.’”). https://www.supremecourt.gov/opinions/19pdf/17-1712_0971.pdf (Thole is wrongly decided. But it is precedent.)

About the fiduciary risk MoJo mentions, what if the plan’s governing documents provide, and all summaries and forms explain, that a decision about whether to take a participant loan (and how much), and a decision about whether to collect an amount due under a loan’s repayment provisions is a participant’s investment direction. Would that set up an ERISA § 404(c) defense that a loss results from the participant’s exercise of control?

Jeff Hartmann and G8Rs, thank you for your further observations. You’re right that the essential failure is about not communicating promptly after the provision was adopted. (I deliberately put that in the hypo.) A challenge many lawyers face is that a client acted, or failed to act, with no lawyer’s or other advisor’s advice, and one spots a problem only after the harm already is done.

Luke Bailey, thank you for sharing your good sense.

The Labor department’s rule about an abandoned individual-account retirement plan defines a qualified termination administrator as a bank, trust company, insurance company, or other person eligible to serve as an IRA’s custodian that “holds assets of the plan that is considered abandoned[.]” 29 C.F.R. § 2578.1(g)(2). The rule does not say that a QTA must hold all, or even substantially all, of the plan’s assets. Imagine an abandoned plan for which no QTA-eligible company serves as a trustee. There are multiple custodians. Imagine one would volunteer to serve as a QTA, but only for the assets held by that custodian. Has anyone seen a situation in which the Employee Benefits Security Administration approved, or did not object to, a submission in which a QTA proposed to wind up a portion of a plan to the extent of the assets held by the QTA?

Some rules contemplate some (but not all) situations of the kind you mention. 26 C.F.R. § 1.410(b)-6(g): (g) Employees of certain governmental or tax-exempt entities— (1) Plans covered. For purposes of testing either a section 401(k) plan, or a section 401(m) plan that is provided under the same general arrangement as a section 401(k) plan, an employer may treat as excludable those employees described in paragraphs (g)(2) and (3) of this section. (2) Employees of governmental entities. Employees of governmental entities who are precluded from being eligible employees under a section 401(k) plan by reason of section 401(k)(4)(B)(ii) may be treated as excludable employees if more than 95 percent of the employees of the employer who are not precluded from being eligible employees by reason of section 401(k)(4)(B)(ii) benefit under the plan for the year. (3) Employees of tax-exempt entities. Employees of an organization described in section 403(b)(1)(A)(i) who are eligible to make salary reduction contributions under section 403(b) may be treated as excludable with respect to a section 401(k) plan, or a section 401(m) plan that is provided under the same general arrangement as a section 401(k) plan, if— (i) No employee of an organization described in section 403(b)(1)(A)(i) is eligible to participate in such section 401(k) plan or section 401(m) plan; and (ii) At least 95 percent of the employees who are neither employees of an organization described in section 403(b)(1)(A)(i) nor employees of a governmental entity who are precluded from being eligible employees under a section 401(k) plan by reason of section 401(k)(4)(B)(ii) are eligible to participate in such section 401(k) plan or section 401(m) plan. 26 C.F.R. § 1.410(b)-7(f): (f) Section 403(b) plans. In determining whether a plan satisfies section 410(b), a plan subject to section 403(b)(12)(A)(i) is disregarded. However, in determining whether a plan subject to section 403(b)(12)(A)(i) satisfied section 410(b), plans that are not subject to section 403(b)(12)(A)(i) may be taken into account.

ERISA § 104(b)(1) calls for a summary of a new or changed plan provision “not later than 210 days after the end of the plan year in which the change is adopted[.]” (Quotations from the statute and rule are in a recent BenefitsLink discussion. https://benefitslink.com/boards/index.php?/topic/66810-rmd-2020-waiver-and-sample-amendment/&tab=comments#comment-308944) For some provisions, taking that long time (and not communicating sooner) could result in describing a provision after every participant no longer has any decision she could make. Just to pick one example, if in March 2020 a retirement plan’s sponsor adopted a provision for a coronavirus-related distribution, a summary of material modifications furnished in July 2021 might describe a provision that expired a half-year ago. BenefitsLink mavens, what do you think: Should an SPD or SMM describe a provision even if the description is no more than history? Or is it better to describe the changed (and expired) provision, even if including the description confuses or otherwise burdens a reader? For this question, assume the plan’s sponsor/administrator has yet done nothing to communicate the new or changed (and now expired) provision.

ERISA § 105(a)(2)(D)(v) states: The requirement . . . shall apply to pension benefit statements furnished more than 12 months after the latest of the issuance by the Secretary of— (I) interim final rules under clause (i); (II) the model disclosure under clause (ii); or (III) the assumptions under clause (iii). The interim final rule was published in the Federal Register on September 18, 2020. The publication covered all three elements. The rule’s last paragraph [(i)] states both an effective date and an applicability date. This section shall be effective on the date that is one year after the date of publication of the interim final rule, and shall be applicable to pension benefit statements furnished after such date. The rule applies to statements furnished after September 18, 2021. What is less obvious is how that “applicability date” relates to ERISA’s § 105(a)(2)(B), which permits the lifetime-income disclosure “to be included in only one pension benefit statement during any one 12-month period”, even if the administrator must furnish quarter-yearly statements.

We're not worthy! This is much better evidence than I had hoped for.

How often does it happen that a cash-balance pension terminates with the Pension Benefit Guaranty Corporation topping-up benefits?

If the plan is ERISA-governed, here’s the statute: . . . . If there is a modification or change . . ., a summary description of such modification or change shall be furnished not later than 210 days after the end of the plan year in which the change is adopted to each participant, and to each beneficiary who is receiving benefits under the plan. ERISA § 104(b)(1), 29 U.S.C. § 1024(b)(1) https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title29-section1024&num=0&edition=prelim And here’s the rule: The administrator of an employee benefit plan subject to the provisions of part 1 of title I of the Act shall, in accordance with § 2520.104b-1(b), furnish a summary description of any material modification to the plan and any change in the information required by section 102(b) of the Act and § 2520.102-3 of these regulations to be included in the summary plan description to each participant covered under the plan and each beneficiary receiving benefits under the plan. [T]he plan administrator shall furnish this summary, written in a manner calculated to be understood by the average plan participant, not later than 210 days after the close of the plan year in which the modification or change was adopted. 29 C.F.R. § 2520.104b-3(a) https://www.ecfr.gov/cgi-bin/text-idx?SID=96555d37ef6921ab11a7509085f13758&mc=true&node=se29.9.2520_1104b_63&rgn=div8 But a fiduciary’s responsibility under ERISA § 404(a) might require communication, at least to those who might have some choice under the changed provision, much sooner than the time otherwise allowed for a summary plan description or summary of material modifications.

With other sources, consider these: 26 C.F.R. § 31.3405(c)-1 Q-9: If property other than cash, employer securities, or plan loans is distributed, how is the 20-percent income tax withholding required under section 3405(c) accomplished? A-9: When all or a portion of an eligible rollover distribution subject to 20-percent income tax withholding under section 3405(c) consists of property other than cash, employer securities, or plan loan offset amounts, the plan administrator or payor must apply § 35.3405-1, Q&A F-2 of this chapter and may apply § 35.3405-1, Q&A F-3 of this chapter in determining how to satisfy the withholding requirements. https://www.ecfr.gov/cgi-bin/text-idx?SID=09d0f249e07e4922fa5624172ffa413f&mc=true&node=se26.17.31_13405_2c_3_61&rgn=div8 26 C.F.R. § 35.3405-1T f-2. Q. How is withholding accomplished if a payee receives only property other than employer securities? A. A payor or plan administrator must satisfy the obligation to withhold on distributions of property other than employer securities even if this requires selling all or part of the property and distributing the cash remaining after Federal income tax is withheld. However, the payor or plan administrator may instead permit the payee to remit to the payor or plan administrator sufficient cash to satisfy the withholding obligation. Additionally, if a distribution of property other than cash includes property that is not includible in a designated distribution, such as the distribution of U.S. Savings Bonds or an annuity contract, such property need not be sold or redeemed to meet any withholding obligation. f-3. Q. If a designated distribution includes cash and property other than employer securities, is it permissible to satisfy the withholding obligation with respect to the entire distribution by using the cash distributed, provided the cash distributed is sufficient to satisfy the withholding obligation? A. Yes, as long as there is sufficient cash to satisfy the withholding obligation for the entire distribution. There is no requirement that tax be withheld from each type of property in portion to its value. https://www.ecfr.gov/cgi-bin/text-idx?SID=09d0f249e07e4922fa5624172ffa413f&mc=true&node=se26.17.35_13405_61t&rgn=div8

My experience is with the trustee accepting obligations to pay (when instructed) to the participant or beneficiary, tax-report, and withhold at least Federal and State income taxes from the deferred compensation. This requires a service provider with systems to differentiate a plan that requires wage reporting and withholding from those with a pension regime. That deferred compensation is paid in a year in which the employer also paid the same employee/participant regular wages does not always make impractical a trustee’s payment. If paying deferred compensation is distinct from paying regular wages, a payor might apply optional flat-rate withholding to the deferred compensation payments. 26 C.F.R. § 31.3402(g)-1(a); Rev. Rul. 82-46, 1982-1 C.B. 158. If I advise a nongovernmental tax-exempt organization’s executive, I might suggest not allowing the rabbi trustee a power to pay the employer merely because the employer instructed that it had paid a deferred compensation obligation. Such a provision readily can be used to defeat whatever limited set-aside a rabbi trust can provide.

Is the executive someone who, without the § 457(b) plan’s termination distribution, would lack enough regular compensation for the § 401(k) elective deferral she desires?

To balance a buyer’s desire not to merge-in a seller’s plan with some practical points (including some Luke Bailey describes), I remember a method that went like this: The seller, if it expects it will have no employee after the transaction date, terminates its retirement plan. The plan provides that the final distribution is a single-sum distribution. For that final distribution, a distributee’s choices are: a direct rollover to the buyer’s plan (unless the distributee is not eligible for that rollover); a direct rollover to another eligible retirement plan the distributee specifies; a payment of money. The revised summary plan description, notice about the plan’s termination and final distribution, and distribution form explain that the default, if the distributee does not specify her choice, is a direct rollover to the buyer’s plan (or, if the distributee is not eligible with the buyer, to an IRA). This resulted in about 95% of the seller plan’s assets going into the buyer’s plan. But my experience with this is more than a few years ago. (Among my clients, deals are stock deals, for business reasons unrelated to ERISA or tax law for retirement plans.) When a buyer won’t accept the seller’s plan, are people still doing the default direct rollover I remember?

With thanks for everyone helping me, here’s the LRM. Defined Contribution Listing of Required Modifications and Information Package (Oct. 2017) https://www.irs.gov/pub/irs-tege/dclrm1017redlined.pdf From LRMs #94 [pages 127-130]: The employer will specify in written instructions to the plan administrator or trustee, by no later than the due date of the employer’s tax return for the year to which the employer’s contribution relates, the portion of such contribution to be allocated to each participant allocation group. The employer contributions allocated to each participant allocation group will be allocated among the employees in that group in the ratio that each employee’s compensation, as defined in section n.nn of the plan, bears to the total compensation of all employees in the group. In the event that an eligible employee is included in more than one participant allocation group, the participant’s share of the employer contribution allocated to each such group will be based on the participant’s compensation for the part of the year the participant was in the group.