Peter Gulia

Thank you for your kind words. The plan’s administrator might imagine it or he has reported as required, but that would not be so if one or more of the reported year-end values for the untraded shares is incorrect and not at least a good-faith estimate. As your discussion-opening post puts it: “There is no way to really know how much [an untraded share is] worth until it does actually sell.” If the plan’s administrator reported the untraded shares’ estimated value without support from an independent appraisal or other respectable valuation method, and one that measured the value as at each reporting date, the administrator might not have sufficiently reported. It might not be a prudent, or even good-faith, estimate to assume that an asset’s value is unchanged from a year’s end to the next year’s end. That might be especially so for an early-stage business. If a year-end value is off, assumptions about the proportions of different kinds of investments might be mistaken. And one or more disclosures about concentration risks might be incorrect. That the plan’s fiduciary does not expect an ERISA § 404(c) defense heightens the fiduciary’s responsibility regarding § 404(a)(1)(B) prudence and § 404(a)(1)(C) diversification.

Even if there might be no breach grounded on a prohibited transaction, the fiduciaries might want its and his lawyer’s advice about whether there might be a diversification or other prudence breach. ERISA § 404(a)(1)(C): “[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and— . . . by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so[.]” http://uscode.house.gov/view.xhtml?req=(title:29%20section:1104%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1104)&f=treesort&edition=prelim&num=0&jumpTo=true Also, a fiduciary or a participant might want one’s lawyer’s advice about ERISA’s statute-of-repose- and statute-of-limitations periods. ERISA § 413: “No action may be commenced under this title with respect to a fiduciary’s breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of— (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation; except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.” http://uscode.house.gov/view.xhtml?req=(title:29%20section:1113%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1113)&f=treesort&edition=prelim&num=0&jumpTo=true Did the 2019-2023 financial statements disclose the investment concentration? A service provider might want its lawyer’s advice about how to manage the service provider’s work (if any) so no one could plausibly assert that the service provider was involved in a fiduciary’s concealment (including by falsely reporting a value in a Form 5500 report) of a fiduciary’s breach. An independent qualified public accountant might want its lawyer’s advice about how best to protect the CPAs’ work on the 2019, 2020, 2021, 2022, and 2023 financial-statements reports, and about whether the firm must or should decline an engagement to audit the plan’s 2024 financial statements. Anyone might consider probabilities about whether a claim might be pursued. Even if the nine participants who are not the fiduciary, the fiduciary’s spouse, and the fiduciary’s child discern a breach and how it harmed them, their stakes might be too small to attract EBSA enforcement.

Some employers still have some employees hired long enough ago that United States public law generally did not require an employee to check a person’s eligibility to work in the U.S. And an organization might never have made an I-9 record if the worker never was hired as an employee (for example, because she was a partner or other self-employed individual). Consider too that if an I-9 record was made and had been kept, it might have been destroyed under a records-retention plan. See, for example, 8 C.F.R. § 274a.2 https://www.ecfr.gov/current/title-8/section-274a.2. This is not advice to anyone.

For questions about a transfer or rollover from an individual-account retirement plan to purchase service credit under a governmental defined-benefit pension plan, including how to tax-report such a transfer or rollover, the expert is Carol Calhoun. https://www.venable.com/professionals/c/carol-v-calhoun

What MoJo says: An examinee has no duty to furnish records the examinee does not have. And no inference should follow from an absence of a record the examinee was not required to keep. Likewise, no inference should follow from an absence of a record properly destroyed under a proper records-retention plan. Turning on the text of the information document request or the examiner’s less formal question, some incautious responses might be inapt if the employer/administrator has copies of workers’ identity documents. In those circumstances, the examinee might want its lawyer’s advice about how, exactly, to respond. This is not advice to anyone.

Empower’s offer aims at plan sponsors. A near-term aim is to get plan sponsors looking at Empower’s insurance company separate accounts. These enable retirement plans to get access to investment management one otherwise might have obtained through an SEC-registered mutual fund. A subaccount’s fee might be more than the fee Empower pays its subadviser, but less than a plan would pay for the least expensive shares of the same-strategy mutual fund. Another aim is setting up a sticking point for a plan not to change service providers. For example, if a request-for-proposals shows a competitor recordkeeper is a contender but not unquestionably better than the incumbent, a plan sponsor might think twice about moving if the competitor doesn’t offer a similar no-expense fund for an important US large-cap-blend slot. A mega plan has plenty of ways to get low-expense investment management. But for some other plans, even a one-basis-point difference might be meaningful. It also matters how closely a fund can follow its index.

Beyond Dougsbpc’s query about practical difficulties, what do BenefitsLink mavens think about a possibly related question: Even if not during 2023, was the third worker a partner when (in 2024 or 2025) the employer/administrator signed the Form 5500-EZ? Some might interpret the Form 5500-EZ Instructions to measure in the present tense the fact condition that a plan “covers” no employee. Others might interpret that the Instructions look for whether the plan covered no employee as at any time in the reported-on year. Or maybe as at the last day of the reported-on year. Many might find these Form 5500-EZ Instructions ambiguous.

With almost 100 views and yet no response, one suspects this is a weakness in the publisher’s software. Belgarath, does this weakness happen also with a provision’s effective date that’s earlier than the general restatement date? And is the weakness only in the software for § 403(b) documents, or also for § 401(a)-(k) documents?

A plan’s group annuity contract states, for each insurance company separate account, a “distribution threshold”. If the contractholder’s withdrawal is more than the specified percentage of the separate account’s assets, the insurer need not pay money and has a right to deliver portfolio securities. For many retirement plans, that provision likely is inconsequential, at least regarding a widely held separate account. For a mega plan, it can be a mild friction—but one such a plan’s fiduciary can manage by winding out of the investment over time, or by causing the next service provider to absorb the delivered portfolio securities.

Thanks. Yes, Empower’s zero expense offer would be a fit only for a retirement plan that, with other factors, already has Empower as its recordkeeper and prudently considers it likely that the plan will continue with Empower.

On April 30, Empower announced the Empower S&P 500 Index Separate Account, a zero-expense fund to track the S&P 500® index. It’s available to a retirement plan (but not a § 403(b) plan) that’s an Empower Workplace recordkeeping customer. If a plan is a target of this offer and has an S&P 500 index fund in the plan’s investment alternatives, is there any reason a plan would not want this zero-expense fund?

khn, about the plan you describe: In the past, did the plan’s administrator ever deny a rollover contribution because the worker had not yet met an eligibility condition? In the past, did the plan’s administrator ever allow a rollover contribution of a worker who had not yet met the eligibility condition? Do the administrator’s decisions in the past suggest anything about what provision the plan’s sponsor might have truly intended? Is there any evidence—beyond the plan document itself—that shows the plan sponsor intended the plan not to accept a new employee’s rollover, but to allow a rollover contribution for only those who had completed three months of service? Is there any evidence showing whether the people who acted for the plan’s sponsor read, or didn’t read, the document before the plan sponsor adopted it? Following what the evidence turns up, might the plan’s sponsor reform or amend the document? Would reforming or amending the document harm any participant?

My experiences are that a recordkeeper’s online regime to apply for a participant loan includes delivery of a document that’s labeled a loan agreement and promissory note. That document is delivered online, with a paper print available if the individual asks for it. That document gets an electronic signature in the recordkeeper’s system. Further, the document states that the payee’s deposit or negotiation of a check, or acceptance of an electronic funds transfer, is assent to the loan agreement and promissory note. I express no view about whether that might or might not be a promissory note that would make more efficient a civil action to collect on a loan.

Without agreeing or disagreeing with any views or suggestions expressed above: Assuming as hypothetical facts those described above: The plan’s administrator might consider, with its employee-benefits lawyer’s advice and employment lawyer’s advice: Consider whether what the individual describes as a participant loan might not be a participant loan. Consider whether one or more of the individual’s acts might be a Federal crime, such as 18 U.S.C. § 664 (theft from plan), § 1027 (false statement to an ERISA-governed plan), § 1621 (perjury). Consider that money the individual received might be proceeds from one or more Federal crimes. Consider what legal and equitable remedies might be available to the plan. Consider what remedies might be unavailable to the individual because he comes with unclean hands. Consider also the measured paths Paul I and QDROphile suggest. Those might be simpler or easier. This is not advice to anyone.

Let’s ask some related questions. Of individual-account retirement plans that provide participant-directed investment and provide participant loans, with a loan affecting only the plan account of the borrower, and considering whether there likely will be an effort, beyond wage deductions and adjustments in the individual’s account, to collect on a loan: When deciding whether and how to collect is in a plan fiduciary’s discretion, how many plans’ fiduciaries put in an extra effort to collect on a participant loan? When deciding whether and how to collect is a subject of a participant’s power and responsibility of investment direction, how many participants direct a plan’s trustee, administrator, or other fiduciary put in an extra effort to collect on a loan the participant doesn’t want to repay? How often does it happen that having, beyond a legally enforceable agreement to repay, a distinct document in the form and style of a promissory note gets an efficiency in collecting on a participant loan? Could a plan’s administrator loyally and prudently decide not to incur a plan-administration expense to make and keep promissory notes because the expense might be more than the incremental value the plan would obtain from having the notes?

Is the participant still employed by the employer that sponsors or participates in the retirement plan?

Apart from the Form 5500 question: If a plan’s governing documents grant the plan’s administrator discretion about whether to pay or omit an involuntary distribution, shouldn’t an administrator fear that discretion? If a fiduciary has that discretion, must the fiduciary decide loyally and prudently “for the exclusive purpose of [] providing benefits to participants . . . ”? Must a fiduciary decide whether paying or omitting the distribution is in the participant’s best interests? If so, must a fiduciary use ERISA § 404(a)(1)(B) “care, skill, prudence, and diligence” to form that discretionary decision-making? What facts must or should an administrator consider in deciding whether to pay or omit a discretionary involuntary distribution? (The underscore is not mine.)

The Treasury’s rule looks for “a legally enforceable agreement”, and says it may be “a document that is delivered through an electronic medium under an electronic system that satisfies the requirements of § 1.401(a)-21[.]” And: “The agreement does not have to be signed if the agreement is enforceable under applicable law without being signed.” 26 C.F.R. § 1.72(p)-1/Q&A-3(b) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR807fc2326e73cb3/section-1.72(p)-1 Consider that for many plans “applicable law” might be ERISA’s title I, which supersedes a State’s law. And under other Federal law, a signature, contract, or other record may not be denied legal effect, validity, or enforceability solely because it is in electronic form, or because it was formed using an electronic signature or electronic record. 15 U.S.C. § 7001(a). “The term ‘electronic signature’ means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” 15 U.S.C. § 7006(5). So, a mouse-click on an I-accept button might be an electronic signature that makes a legally enforceable agreement to repay the participant loan. Still, I’d like to read the answers to Santo Gold’s query.

If there is an ambiguity about what the plan provides, an administrator might prefer an interpretation that’s logically consistent with not only ERISA’s title I but also other Federal laws, including the Family and Medical Leave Act of 1993 if it applies. “With respect to pension and other retirement plans, any period of unpaid FMLA leave shall not be treated as or counted toward a break in service for purposes of vesting and eligibility to participate. Also, if the plan requires an employee to be employed on a specific date in order to be credited with a year of service for vesting, contributions or participation purposes, an employee on unpaid FMLA leave on that date shall be deemed to have been employed on that date. However, unpaid FMLA leave periods need not be treated as credited service for purposes of benefit accrual, vesting and eligibility to participate.” 29 C.F.R. § 825.215(d)(4) https://www.ecfr.gov/current/title-29/part-825/section-825.215#p-825.215(d)(4). This is not advice to anyone.

Paul I, thank you for the extra information. I’m thinking only of funds, whether mutual funds, collective investment trust funds, or insurance company separate-account funds. And only for situations in which all of the plan’s investment alternatives are funds, all with a daily share or unit price and daily liquidity. And I’m thinking of circumstances in which the limits must be applied with nothing beyond the recordkeeper’s computer systems. Does any recordkeeper offer this (assuming the customer plan has enough purchasing power)? Or is the professors’ idea a nonstarter?

Whether a plan’s sponsor or fiduciary should set a limit on a participant’s use of any designated investment alternative and, if one does, whether to set those limits uniformly for all or a subset of investment alternatives or with differing limits based on the sponsor’s or fiduciary’s views about possibilities for wise or unwise uses that might differ with each investment alternative are important questions. But a plan’s sponsor or fiduciary might neither need nor want to think about those questions if the plan’s recordkeeper can’t or won’t apply limits.

Some recordkeepers limit, according to the plan sponsor’s or a plan fiduciary’s instruction, the percentage of a participant’s or other directing individual’s account invested in employer securities. Fidelity’s offer of services about bitcoin calls for the plan’s fiduciary to specify a percentage limit on how much of an individual’s account may be in bitcoin. But are those capabilities particular to those investment alternatives? Or does a recordkeeper have capabilities to apply a percentage limit to any designated investment alternative?

A responsible plan fiduciary, before engaging an investment manager or investment adviser, might negotiate: whether the firm may or must not use information that is or was available to the firm because of its engagement with the plan; whether the firm may or must not solicit an individual who has or had some relation regarding the plan; how the firm must act when, unsolicited, a participant, beneficiary, alternate payee, or fiduciary approaches the firm; what warnings and disclosures the firm must give, in its service for the plan, and in communicating with an individual who might be a prospective client; restrictions against advice that could interfere with the plan’s purpose or interests; anything more the responsible plan fiduciary, with the plan’s lawyer’s advice, finds could help protect the plan; anything more the responsible plan fiduciary, with the fiduciary’s lawyer’s advice, finds could help protect the fiduciary personally (to the extent the fiduciary can do this without breaching its responsibility to the plan); and appropriate indemnities, backed by the firm’s strong financial position, to protect the plan. Whatever the engagement and its terms, a responsible plan fiduciary might use prudent oversight to see that the firm obeys the terms, including expressed or implied promises that the firm follows applicable law and relevant law. Also, a plan’s fiduciary might manage the plan’s communications and the firm’s communications to warn, conspicuously and clearly, a reader, viewer, or listener that no plan fiduciary and no employer evaluated the firm’s suitability for services beyond those the plan contracted, which do not include advising individuals (or don't include anything beyond information about how a participant exercises her rights and obligations under the plan). Both sets of communications might refer to disclosures public law requires, and admonish an individual to read the firm’s and other advisers’ disclosures carefully before the individual decides anything about any adviser. A plan’s sponsor might use time-bar, governing-law, exclusive-forum, and other dispute-resolution provisions. This is not advice to anyone.

Before imagining potential corrections, a service provider might first evaluate whether it wants as its client a person that acts without asking for advice.

Whether it’s good or bad for an individual to seek advice from a bank, trust company, insurance company, or registered investment adviser (let’s neutrally call any of these a “firm”) that has served as an investment manager or investment adviser regarding an employment-based retirement plan in which the individual is or was a participant turns on the facts. From an individual’s perspective, here’s only a few of many points that might matter: Is the employment-based plan a governmental plan, a church plan, a plan for which all participants are not an employee, or an ERISA-governed plan? (This might relate to how the plan selected the firm.) Whichever kind of plan, does the responsible plan fiduciary of the employment-based plan prudently or ineptly manage the plan’s relationship with the firm? Or does the individual not know? Were the firm’s communications to the individual within, or a breach of, the firm’s agreement with the employment-based plan? Might the individual perceive the firm having been engaged for the employment-based plan as some suggestion that the firm would be a capable provider of advice for an individual? If so, is the perception a sensible or unwise inference? Would the individual’s engagement of the firm breach the individual’s agreement with her employer or former employer? Would the firm’s acceptance of the individual as its client breach the firm’s agreement with the employment-based retirement plan? Are there circumstances in which giving candid advice to the individual could harm the employment-based plan? Are there circumstances in which giving candid advice to the employment-based plan could harm the individual? Does the firm have a compensation conflict about whether the individual should invest under the employment-based plan or an individual arrangement? Does the firm meet all conditions of the prohibited-transaction exemption? What evidence will the individual get? Beyond that conflict, has the firm delivered disclosures that enable the individual to evaluate all others of the firm’s conflicts? Does the individual need independent advice to understand potential consequences of the conflicts? Did the individual observe the firm’s work for the employment-based plan? Is or was the firm loyal or disloyal in its services for the employment-based plan? How does or would the individual know? Is or was the firm prudent or imprudent in its services? How else will the individual evaluate the firm’s capabilities and services? If the individual has a spouse, what are the spouse’s observations about the firm? This is not advice to anyone.