Peter Gulia

The investment alternatives described above can work (or can do harm). It depends on the retirement plan’s circumstances; good fiduciaries, including plan administrator, plan trustee, plan investment adviser, investment trustee, and investment manager; good service providers, including (at least) recordkeeper and certified public accountants. Christopher Wilson, I might be in a position to give you useful information if we talk so I rule out client conflicts.

Larry Starr, thank you for your further observation. For some, it would not drain the client's bank account; some lawyers will do the research, interpretation, and written advice without fee.

Consider whether your client might use an anonymous submission to discern whether the IRS would accept the undisclosed applicant's proposal for resolving the defects.

If the records are incomplete, it takes some tolerance and patience to reconstruct a plan’s financial statements. I used the most recent information, which was fuller, and worked backwards—for some elements extrapolating an estimate based on the known amounts. For example, if your knowns are opening and closing balances, contributions, and an absence of distributions, one can interpolate an investment gain or loss. Or if an investment gain is known or sensibly estimated from mutual funds’ published information, one can extrapolate an opening or closing balance. My client had records on contributions. Whatever your client estimates is better than not reporting.

CuseFan, thank you. A showing of reasonable good faith is what the written advice is for. (It’s somewhat similar to how reliance on a tax lawyer’s opinion can excuse a taxpayer from an add-on penalty, but not the underlying tax.) Every written advice about law is limited to sources the advisor could have read before she finished her work. But would a writing need a caveat beyond that one?

I recognize the two “modifications” on page 75 as revisions my law department told Sungard to implement.

In recent weeks, we’ve seen many BenefitsLink discussions about ambiguities and uncertainties in what the Paycheck Protection Program pays for. In other contexts, a businessperson might get a written opinion to show that what one did, if later found to be incorrect, relied on a reasonable interpretation. Applied for this context, one might seek a law firm’s or accounting firm’s written opinion that a borrower’s use of PPP assistance is a reasonable interpretation of the borrower’s documents and the guidance the government had published. Is anyone doing this?

If the plan was ERISA-governed, it had a Form 5500 requirement, however limited, for all years. The delinquent-filer system will take any number of reports. A year ago, a client with my sitting-at-the-computer help filed a quarter-century of reports under one $750 DFVCP payment.

Did this plan ever have a nonelective, matching, or mandatory contribution? Or was it always voluntary salary-reduction-only?

Griswold, I regret I have none of those documents. Prototype documents were in the computer systems, not on paper. And I never had a copy of any of the prototypes. I worked on the formation of CitiStreet, and in 2005 sales that undid the venture. Except for the independent fiduciary business sold back to State Street, the sales were to Aetna/ING (now Voya) and MetLife. Each buyer took delivery of the records for the business line it bought. We were punctilious about delivering all the records, even the contents of my office. CitiStreet Associates LLC was a service provider of many lines of business in different markets and with different sales channels. Not knowing your client, I can’t guess which buyer your client should check with. Also, you might check whether a copyright notice on the piece you have gives you any clue about which document vendor is behind the prototype. I can’t guess it because Copeland/CitiStreet used three prototype licensors.

Beyond other reasons, some recordkeepers believe that even a simple receivables entry inherently involves some interpretation or discretion, which belongs to the plan’s administrator. Even if decision-making is with the plan’s administrator, some recordkeepers worry that presenting a draft might be perceived as advice, which might be the unlawful practice of law or might be an unlawful communication contrary to a CPA law. (I don’t say either fear is right, only that a business might have them.)

There are many possibilities. But the key point is for the TPA to let the pension plan’s administrator evaluate the participant’s claim for a non-annuity distribution and, if it denies the pending claim, further afford the claimant opportunities under the plan's claims procedure.

Pension Admin in Ohio, the plan’s administrator might want its lawyer’s advice about how much diligence the administrator ought to use in deciding whether to believe the participant’s statement. And the administrator might want its lawyer’s advice about how to clarify the record of its handling of the participant’s claim to follow ERISA § 503 [29 U.S.C. § 1133] and the plan’s claims procedures. The administrator also might evaluate the plan’s, its administrator’s, and the employer’s risks. Some of the potential claims against one or more of them might include the spouse’s claim for his or her survivor annuity, and the plan’s claim against its fiduciary for paying an amount the payee was not entitled to. Even if the participant is eager to get a distribution, his claim if the administrator denies the non-annuity distribution might be weak if the plan grants the administrator discretion in finding facts. And the participant might be reluctant to sue because it might expose him to counter-claims and cross-claims (if now he’s telling the truth about never having a spouse). Further, the employer that paid health benefits or a portion of health insurance premiums might want its lawyer’s advice to evaluate claims for what the worker and the not-spouse stole (if the other person was not the participant’s spouse). If a pension plan fiduciary’s reason for allowing a participant’s election without the spouse’s consent is that the consent “may not be obtained because there is no spouse”, that fact must be “established to the satisfaction of [the] plan representative[.]” ERISA § 205(c)(2)(B) [29 U.S.C. § 1055(c)(2)(B)]. The plan’s administrator, in deciding whether the fact is sufficiently “established” must act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent” person experienced in managing a similar defined-benefit pension plan would use. ERISA § 404(a)(1)(B) [29 U.S.C. § 1104(a)(1)(B)]. A cautious person might not take at his word a person who, if he’s telling the truth now, admits he was a fraudster and thief, and committed at least one Federal crime. 18 U.S.C. § 1027 (false statements). Likewise, the participant’s three inconsistent statements about his tax returns suggest a lack of honesty. But what steps to take turn on the particular facts and circumstances and the proper fiduciary’s decision-making. Unless the TPA is the plan’s administrator or claims administrator, the TPA might prefer to limit its involvement to furnishing to the administrator information the administrator does not yet know and otherwise steps not beyond the TPA’s contracted service.

If a participant's account is more than $5,000 and the participant has reached neither her required beginning date nor her normal retirement age, one doubts the plan provides an involuntary distribution.

Kevin C, thank you.

We’re all imagining possibilities for the situation mming described. Mike Preston mentions one I didn’t ask in my questions. I omitted the possibility that a plan might compel an involuntary distribution because a participant attained normal retirement age. In the profit-sharing plans I’ve seen, the only real effect of an ERISA § 3(24) normal retirement age is making an account non-forfeitable if it wasn’t already. Some plan documents recite an entitlement to a distribution at normal retirement age, but also provide that an absence of a claim is deemed an election to continue. BenefitsLink mavens, has anyone seen an IRS-preapproved document that allows a plan sponsor to provide an involuntary distribution on or after normal retirement age but before the IRC § 401(a)(9) required beginning date? This is more than an idle curiosity. I have a client that has participant-friendly reasons for getting participants rolled out of the 401(k) plan before any § 401(a)(9) provision could apply.

Luke, yes. For a distribution that would have been the year’s minimum distribution, the administrator need not: furnish a § 402(f) notice, provide a default direct rollover for a distributee who did not render her instruction, allow the distributee to instruct a direct rollover. The payer withholds for Federal income tax as if the distribution were not an eligible rollover distribution—usually, 10% or according to a proper withholding certificate. This kind of distribution can have different treatments for tax-withholding and for the distributee’s tax return.

Before worrying about what the plan's administration must or may do at a normal retirement age or a required beginning date, consider getting rid of all the plan's life insurance contracts. The plan would offer each insured a limited opportunity to buy the plan's contract at a fair-market-value price. For any contract not bought, the plan's trustee would surrender each contract, getting money for its surrender value.

If the plan is not discontinued, why should the administrator or trustee distribute the participant's account? Doesn't the participant have a right to continue until the participant's required beginning date?

Internal Revenue Code of 1986 (26 U.S.C.) § 402(c)(4) includes this: “If all or any portion of a distribution during 2020 is treated as an eligible rollover distribution but would not be so treated if the minimum distribution requirements under section 401(a)(9) had applied during 2020, such distribution shall not be treated as an eligible rollover distribution for purposes of section 401(a)(31) or [§] 3405(c) or subsection (f) of this section.” https://uscode.house.gov/view.xhtml?req=(title:26%20section:402%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section402)&f=treesort&edition=prelim&num=0&jumpTo=true Section 3405(c) calls for 20% withholding on an eligible rollover distribution. Section 402(c)(4) negates it for what would have been a minimum distribution. Also, such a would-have distribution—if it is not for a hardship, a period of ten years or more, or a life or life expectancy—is an eligible rollover distribution for purposes other than the three the quoted flush language of § 402(c)(4) lists.

I doubt the Labor department would outright suspend an investigation. You might persuade an investigator to allow more delay in producing records. If a requested record is one ERISA commands a plan’s administrator to keep, or that a prudent fiduciary acting with the care ERISA § 404 requires would keep, consider that revealing too much reliance on service providers might lead an investigator to think the administrator is weak. That could result in intensifying the investigation.

I’m not saying anything is right. Only that I’ve heard some CPAs argue that a non-attest TPA service was limited enough to not impair the firm’s independence for the attest service of an IQPA audit of the retirement plan’s financial statements. When I heard it, no one was asking for my advice. In my experience, the problem of the same firm seeking to serve as TPA and IQPA happens when the plan’s administrator is unadvised, and its decision-maker does not question the accounting firm’s independence. That problem isn’t helped by the fact that there is no “DOL Regulation”. The 1975 interpretive bulletin reprinted at 29 C.F.R. § 2509.75-9 is not a rule or regulation.

Ken, I meant only that § 410(b) coverage was met about which people are eligible for allocations of elective, nonelective, and matching contributions and what contributions are allocated. (And even that information suffers from telephone effect. The accounting firm that did the testing reported to the parent’s outside counsel, not me, who advised the parent’s inside counsel, who said something to the parent’s HR, who told a subsidiary’s HR, who told one of the subsidiary’s inside assistant counsels, who called me.) G8Rs, thank you for your thought about 26 C.F.R. § 1.401(a)(4)-11(g).

I’ve heard some argue the other service might not impair an auditor’s independence, at least for self-review threats, if the other service is non-discretionary. Here’s a quotation from an AICPA interpretation: 1.295.115 Benefit Plan Administration .01 When a member provides benefit plan administration services to an attest client, self-review and management participation threats to the member’s compliance with the “Independence Rule” [1.200.001] may exist. .02 Notwithstanding the conclusions reached in paragraph .03 of this interpretation, a member should comply with the more restrictive independence provisions of the Employee Retirement Income Security Act (ERISA) of 1974 and DOL regulations when performing audits of employee benefit plans subject to those regulations. .03 If the member applies the “General Requirements for Performing Nonattest Services” interpretation [1.295.040] of the “Independence Rule” [1.200.001], threats would be at an acceptable level and independence would not be impaired. For example, the member may a. communicate summary plan data to a plan trustee. b. advise management regarding the application and impact of provisions in a plan document. c. process certain transactions that have been initiated by plan participations [sic] or approved by the plan administrators using the member’s electronic media, such as an interactive voice response system or Internet connection or other media. Such transactions may include processing investment or benefit elections, changes in contributions to the plan, data entry, participant confirmations, and distributions and loans. d. prepare account valuations for plan participants using data collected through the member’s electronic or other media. e. prepare and transmit participant statements to plan participants based on data collected through the member’s electronic or other media. .04 However, threats to compliance with the “Independence Rule” [1.200.001] would not be at an acceptable level, and could not be reduced to an acceptable level by the application of safeguards, and independence would be impaired if, for example, a member a. makes policy decisions on behalf of management. b. interprets the provisions in a plan document for a plan participant on behalf of management without first obtaining management’s concurrence. c. makes disbursements on behalf of the plan. d. has custody of the plan’s assets. e. serves in a fiduciary capacity, as defined by ERISA. [Prior reference: paragraph .05 of ET section 101] Yet, a plan’s administrator must meet ERISA § 103’s command to engage an independent qualified public accountant, and must do so meeting fiduciary responsibilities under ERISA § 404 and other law. In meeting those responsibilities, it can’t be prudent to get legal advice from a nonlawyer.

Thank you for your excellent analysis and helping me think about this.