Peter Gulia

Mike Preston, thank you. Many people imagine tomorrow's proposed rule as about communications that lack an individual's information (and even nonpublic information of other kinds); but a fiduciary would want to use prudent care with a communication that includes sensitive information.

Other ideas?

C. B. Zeller, thank you.

As BenefitsLink this morning reported, tomorrow’s Federal Register will publish notice of a proposed rulemaking under which fiduciaries of an ERISA-governed retirement plan could furnish some ERISA-required communications under a notice-and-access regime with a notice that the communication is available at a plan-maintained website. Relying on the new regime would require, among other conditions, having an electronic address for the person entitled to the communication to be furnished. If that electronic address is an e-mail address (rather than a smartphone number): Is there a reason why a plan’s fiduciary should not attach to the e-mail message a .pdf of the document to be furnished? (One could do this besides posting the document on a website.) Is there ever a situation in which attaching a .pdf could be harmful to the e-mail’s addressee?

Each beneficiary might want her lawyer's information and advice about whether a treaty might allow a desired tax treatment. https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z

Before too hastily assuming an examination might find a written-plan defect under IRC § 125(d)(1) or another section of the statute, the employer and lawyer you describe might evaluate whether more than one document or writing states the written plan. For example, if the election forms and claims forms were sometimes revised, could those revisions have restated the written plan?

In my experience, a fiduciary might balance a retirement plan’s needs and interests in not “wiping out” low-balance participants while also not burdening high-balance participants more than is prudent. One way to do so is to allocate a portion of an expense on a by-accounts method and another portion on a by-balances method. What’s “fair” and prudent turns on the particular facts and circumstances. And a fiduciary must evaluate her decision considering only the retirement plan’s exclusive purpose, not her self-interest.

Some recordkeepers design systems to turn out Schedule C information without filtering it for any cutoff amounts. Some plan administrators choose to report more information than Schedule C requires. Again, all of us are imagining what might be involved in what WCC describes.

While the obvious is to ask the plan's administrator and its recordkeeper, your query invites speculation about possible reasons direct compensation might be reported with a negative amount. Could the plan's administrator (perhaps with guidance from an accountant, a recordkeeper, or another service provider) have been reporting Schedule C on an accrual basis of accounting? If so, could an adjustment, perhaps because the service provider was paid in an earlier year more compensation than the service provider was entitled to, explain the 2017 negative amount? Also, crediting indirect compensation against the plan's obligation to pay direct compensation and year-by-year variations and timing differences might sometimes result in a negative amount for the direct portion of a service provider's compensation.

Effen’s post suggests an observation: In the Retirement Equity Act of 1984, Congress assumed there could be situations in which a person “cannot” be located. In the early 1980s, it might have been burdensome and expensive (at least in some circumstances) to search a person’s potential whereabouts. While the law remains the same, perhaps the facts surrounding how much care, skill, prudence, and diligence a prudent fiduciary would use (or ought to use) have changed.

A few points one might consider in preparing to get advice. Before considering what evidence would support a finding, check first whether the plan provides a cannot-be-located variation. According to the Treasury department’s interpretation of not only Internal Revenue Code §§ 401(a)(11) and 417 but also ERISA § 205, a plan’s terms may permit a participant’s qualified election without his or her spouse’s consent if the plan’s administrator finds “that the spouse cannot be located[.]” ERISA § 205(c)(2)(B); 26 C.F.R. § 1.401(a)-20, Q&A 27. But not every plan so provides. In deciding whether to accept a participant’s statement that his or her spouse cannot be located, a plan’s administrator must act according to its fiduciary duties. ERISA §§ 206(c)(6), 404(a)(1). That includes no less care, skill, prudence, and diligence than would be used a prudent person who is experienced in administering a similar retirement plan in similar circumstances. And a duty to get expert advice if a prudent person would seek advice. At a minimum, meeting those fiduciary duties might require not relying solely on a participant’s statement if the fiduciary has information that would lead a prudent retirement plan administrator to question the truth, accuracy, or completeness of the participant’s statement. See, for example, Lester v. Reagan Equip. Co. Profit Sharing Plan & Emp. Sav. Plan, 91 Civ. 2946, 1992 U.S. Dist. LEXIS 12872, 1992 WL 211611 (E.D. La. Aug. 19, 1992). And an employer/administrator might not accept the participant’s statement without first checking the records of a health plan under which the spouse might be covered.

I presume your query is about a registered investment adviser and its fee measured on assets under management or advice. Law regulating investment advisers generally requires a written agreement. Just as many BenefitsLink commenters might say about a retirement plan, Read The Fabulous Document, to discern an investment adviser’s fee one might say, Read The Investment-Advisory Agreement. An agreement that anticipated the client’s investment in bonds might specify counting accrued interest. Or an agreement might specify that assets to determine the fee is measured by a custodian’s reporting or accounting. If there is an ambiguity in the client’s agreement with the adviser, some might look to some interpretation aids: Some might prefer an interpretation that is consistent with the adviser’s brochure or other disclosure over an inconsistent interpretation. Some might prefer a measure that does not involve the adviser’s discretion (if the discretion could allow the adviser to affect its fee). After considering the investment-advisory agreement, relevant law, and other interpretation aids, some might prefer a measure that is consistent with generally accepted accounting principles over one that is not. This is just some abstract thinking, not advice to anyone.

Thanks again. Does anyone have a document that affirmatively allows a user to provide arbitration? Does anyone have a document that is silent about whether arbitration can be provided or must be precluded?

RatherBeGolfing, thank you (!) for that helpful information. Do we suspect the document states the prohibition because the IRS asked for it? If so, why would the IRS think precluding arbitration is needed to support tax qualification? (By the way, I'm not advocating for or against using an arbitration provision; I'm only seeking to learn what is or isn't feasible for a preapproved document's user.)

If a user of an IRS-preapproved document wants to add an arbitration provision, does any sponsor's document allow a user to specify an arbitration provision through an adoption-agreement choice or other norm of the preapproved document? If not, is an arbitration provision something a user can add without defeating reliance on the IRS's approval?

Does the plan's governing document mandate an interim valuation, or rather allow an interim valuation? What amount or portion of her account did the participant ask for? If 100% (and whether to use an interim valuation is discretionary), does the participant run a risk that the plan's fiduciaries approve her claim but use the December 31, 2018 valuation?

BenefitsLink furnishes the prepublication text of the Treasury’s final rule (scheduled to be published next Monday) about hardship distributions and related provisions. https://benefitslink.com/news/index.cgi In my quick glance, the Treasury’s explanation responds to the questions raised in the discussion above. It also answers a few other questions. Leaving aside thoughts about whether one likes or dislikes the rules, does the final rule sufficiently remove uncertainties?

Just curious (and without concurring with or dissenting from any view described above): How many plans have a procedure in which there is no restraint on a participant’s account until the plan’s administrator has received a domestic-relations court’s order? For those with such a procedure, how often does it happen that someone disappointed or frustrated by the lack of a restraint complains about it? Of those, how many become a court proceeding, however meritless, that a plan’s administrator must spend at least some effort to defend? Conversely: How often does a participant complain that the plan’s administrator used a power to restrain the participant’s account when the administrator had not received a domestic-relations court’s order? And how much grief or expense to explain or defend the plan’s administration?

And if the plan's administrator would use a temporary investment, the communications must explain that a participant lacks a power to direct investment until the later recordkeeping services begin. Not the happiest way to begin a plan.

Recordkeepers vary widely in how much or how little responsibility for identity frauds the service provider accepts or denies. Well-advised fiduciaries include this point in a request-for-proposals and in negotiations (even apart from an RFP). To help plans that lack purchasing power, some advisors consider cybersecurity protections and promises in evaluating which recordkeepers one would present to a client. And if not from the service provider, some consider insurance.

If the plan’s administrator provides no investment-direction power to the claimants who seek to be recognized as the participant’s beneficiary, the plan’s fiduciaries get no ERISA § 404(c) relief for the temporary investment because the plan does not “[p]rovide[] an opportunity for [the eventual rightful] beneficiary to exercise control over assets in his individual account[.]” 29 C.F.R. § 2550.404c-1(b)(1). Likewise, the plan’s fiduciaries get no QDIA relief. An investment fund—even if it meets all QDIA conditions regarding other participants and beneficiaries—cannot be a qualified default investment alternative regarding the not-yet-recognized beneficiary. Among the conditions for QDIA treatment are that the beneficiary must have: “the opportunity to direct the investment of the assets in his or her account . . .” “the ability . . . to transfer, in whole or in part, his or her investment from the qualified default investment alternative to any other investment alternative available under the plan[.]” 29 C.F.R. § 2550.404c-5 https://www.ecfr.gov/cgi-bin/text-idx?SID=3e49c7c6acbd50dad463b6cec21dee60&mc=true&node=se29.9.2550_1404c_65&rgn=div8 QDIA treatment depends on the individual’s power to reject or countermand the default investment. Instead, a fiduciary must invest the individual account (or segregated portion of an account) for which no beneficiary has an investment-direction power according to the fiduciary’s responsibility under ERISA § 404(a). The challenges of making investment decisions not knowing which claimant might establish a right include not only not knowing the rightful beneficiary’s age but also not knowing when that person might take a full distribution or partial distributions. That said, there might be circumstances in which using a target-year fund might be sufficiently prudent, or circumstances in which it might be imprudent.

In a typical governmental individual-account 457(b) eligible deferred compensation plan, the only effect of normal retirement age is to set which years a participant may use an extended (by section 457, rather than age 50) deferral limit. The better way to write such a plan's provision or definition is to allow a participant to elect her normal retirement age within the bounds set by the tax-law rule. https://www.ecfr.gov/cgi-bin/text-idx?SID=1278583cb06cb8fad0c0490238154ae1&mc=true&node=se26.8.1_1457_64&rgn=div8 Also, it's better to expressly provide that an election is not made until the participant's deferrals exceed what would have been proper without the "special section 457 catch-up".

Answering my own question: My quick look at the 2017 Required Amendments List https://www.irs.gov/irb/2017-52_IRB#NOT-2017-72 and the Operational Compliance List https://www.irs.gov/retirement-plans/operational-compliance-list suggest nothing is needed.

Leaving aside questions about whether either (or any) plan is not governed by ERISA, Your description doesn't say whether all, some, or none of the charter founders are highly-compensated employees. Remember, because a charity has no 5%-owner, there might be few highly-compensated employees, or even none. Counting the exact numbers of HCEs and NHCEs might affect some analysis on your questions.

An employee stock ownership plan was most recently amended in January 2017 (and then included everything through the “2016 Required Amendments List for Qualified Retirement Plans”) . The employer/sponsor/administrator anticipates ending the plan and paying its final distributions in 2019. Beyond stating the discontinuance and termination, is there any plan amendment needed to tax-qualify the plan for its end?