Peter Gulia

Imagine an individual-account (defined-contribution) retirement plan that does not provide participant-directed investment. Imagine the participants range from 18-year-olds to workers in their 90s. If you were the plan’s trustee or investment manager with complete authority and responsibility to decide the plan’s investment policy, what would you do? Would you decide an asset allocation grounded on some average of the participants’ ages? Is there another method you might use to balance the potentially differing interests of younger and older participants? Is there some other way—without changing the plan’s provisions—to manage this fiduciary challenge?

What RatherBeGolfing said. (RBG, thank you for explaining a point I didn’t describe.) Also, a judge’s finding that a complaint alleges enough facts to support a claim on which the court could grant relief does not tell a reader that every alleged fact is relevant; rather, it finds only that the complaint includes allegations needed to support the claim the judge finds is sufficiently asserted. The most Judge Sorokin observes about how the plan’s omission of participant-directed investment relates to the asserted fiduciary breach is that participants’ potentially differing interests might have been something the fiduciaries ought to have considered in deciding investments for the one portfolio that commonly affected all participants’ accounts. And that observation is not needed to support the finding that the complaint asserted a fiduciary breach.

QDROphile opens our eyes to some points this discussion had not considered. It’s better that an ERISA-governed plan’s QDRO procedure does not unnecessarily call for a “hold” ERISA doesn’t require. (I’ve held that view since 1984.) Changing a procedure a divorcing spouse expected or, worse, might have relied on is troublesome. Among other ways, it could result in lawyering or litigation expense. And it risks that a court might render an incorrect decision. (Some of the nonsense PWBA/EBSA published heightens those risks.) Even if I’m right about how a Federal court should apply the statute (and should ignore unpersuasive subregulatory interpretations and other courts’ incorrectly reasoned decisions), it’s smart to consider that judges don’t always get everything right. For the situation BG5150 describes, changing an unfortunate QDRO procedure, despite risks, would be about affording a terminated plan’s administrator a choice to act so a “hold” anticipating a domestic-relations order doesn’t delay a distribution that completes a plan’s termination. A risk that someone challenges a change in a QDRO procedure might be moderate because, as QDROphile describes, would-be plaintiffs make choices about whether to challenge a plan administrator’s act or decision. I don’t know the facts and circumstances of the plan BG5150 describes, and shouldn’t guess which is the worse set of expenses and risks.

I don't know why the software crosses out a normal text.

I look to ERISA § 402 because it presumes an employee-benefit plan was expressed in writing, and that a written plan “provide a procedure for amending [the] plan[.]” ERISA § 402(b)(3). If a QDRO procedure is stated in the plan’s governing document, one would follow whatever that document calls for to make a proper amendment. If a QDRO procedure is stated by a distinct document, one might see to it that an amendment of the QDRO-procedure document is made by the person that was, following ERISA § 402, properly granted authority to make or amend a document of that kind, and, if that person is an artificial person, by a human with authority to act for the artificial person. Except for a participant’s interest in something that ERISA or a plan’s governing document makes non-forfeitable or accrued and not to be cut back, I don’t see anything in ERISA that precludes a change because a non-participant has an expectation.

For a plan not ERISA-governed, I might consider a State’s statutory and common law of contracts. (For a governmental plan, I’d consider interpretations of the U.S. and State constitutions.) But with limited exceptions that don’t relate to a plan’s terms, ERISA preempts a State law that “relates to” an ERISA-governed employee-benefit plan. ERISA § 514. I look to ERISA § 402 because it presumes an employee-benefit plan was expressed in writing, and that a written plan “provide a procedure for amending [the] plan[.]” ERISA § 402(b)(3). If a QDRO procedure is stated in the plan’s governing document, one would follow whatever that document calls for to make a proper amendment. If a QDRO procedure is stated by a distinct document, one might see to it that an amendment of the QDRO-procedure document is made by the person that was, following ERISA § 402, properly granted authority to make or amend a document of that kind, and, if that person is an artificial person, by a human with authority to act for the artificial person. Except for a participant’s interest in something that ERISA or a plan’s governing document makes non-forfeitable or accrued and not to be cut back, I don’t see anything in ERISA that precludes a change because a non-participant has an expectation.

For a plan not ERISA-governed, I might consider a State’s statutory and common law of contracts. (For a governmental plan, I’d consider interpretations of the U.S. and State constitutions.) But with limited exceptions that don’t relate to a plan’s terms, ERISA preempts a State law that “relates to” an ERISA-governed employee-benefit plan. ERISA § 514. I look to ERISA § 402 because it presumes an employee-benefit plan was expressed in writing, and that a written plan “provide a procedure for amending [the] plan[.]” ERISA § 402(b)(3). If a QDRO procedure is stated in the plan’s governing document, one would follow whatever that document calls for to make a proper amendment. If a QDRO procedure is stated by a distinct document, one might see to it that an amendment of the QDRO-procedure document is made by the person that was, following ERISA § 402, properly granted authority to make or amend a document of that kind, and, if that person is an artificial person, by a human with authority to act for the artificial person. Except for a participant’s interest in something that ERISA or a plan’s governing document makes non-forfeitable or accrued and not to be cut back, I don’t see anything in ERISA that precludes a change because a non-participant has an expectation.

Assuming an otherwise valid amendment of the QDRO procedure, I doubt that ERISA § 402 provides a non-participant, even less one who is not yet a proposed alternate payee, a vested right in the administrator not changing its procedure.

No, I’m not holding back the information. I’ve never had a client who wanted to arrange the insurance. In the 1980s, I heard about a Bermuda insurer that offered this insurance. But I don’t remember the insurer’s name, if I ever knew it. Professional and business publications I’ve seen describe the idea, but don’t name insurers.

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.