Peter Gulia

If we recognize Tom Poje’s observation and others that assume the IRS won’t tax-disqualify a plan because its employer/administrator didn’t wait for a formal plan amendment and allowed something allowed under the proposed rule, why are some TPAs reluctant to meet some clients’ desire for the more lenient provisions? Is it that doing so would be a pain-in-the-assets?

If a participant submits a claim that meets the conditions for a casualty-loss hardship except that it is not attributable to a disaster declared by the United States, do your employer/administrators deny such a claim? And if they do deny it, does it bother them that one could, with a document, allow such a claim (even retroactively) with no meaningful risk that the IRS would treat this as an administration defect that tax-disqualifies a plan?

401 Chaos, thank you for sharing another perspective. Do you think the plan sponsor you describe might have felt differently if they could engage an independent trust company to make decisions about whether to continue (or remove) the non-fund security as an investment alternative?

If a plan’s sponsor delays plan amendments in response to these changes, how does a plan’s administrator—even if the employer, sponsor, and administrator all are one person—know which provisions to apply? And if an employer puts something in writing, what stops the writing from being a plan amendment?

To apply IRC § 401(a)(9) rules to § 403(b) contracts, minimum-distribution rules similar to those for IRAs (see 26 C.F.R. § 1.408-8) apply, with some exceptions. See 26 C.F.R. § 1.403(b)-6(e)(2) & -6(e)(7). Absent restrictive plan provisions, this permits a participant to meet her minimum distribution using a distribution from any of her 403(b) contracts (counting those she holds as a participant, not as a beneficiary). This information does not answer your questions. But it suggests some possible explanations about why a custodian or insurer might not treat a minimum-distribution provision as one that applies looking only to one plan.

Leaving aside questions about whether a fiduciary’s decision to allow an investment alternative meets its duties of loyalty, situations of the kind my hypo suggests happen, and often happen in the way CuseFan mentions—a spinoff turns something that was employer securities into no longer employer securities. Courts’ decisions following the Supremes’ Fifth Third pleading standard have shown that once a duty of diversification is excused, an investment in a publicly-traded security at an efficient-markets price is not inherently imprudent unless there is material information not disclosed to the investor. Once a menu of investment alternatives has a sufficiently broad range that a participant could meet diversification, ERISA § 404(c) puts the burden on the directing participant. If how much diversification an individual wants is the individual’s choice, might a fiduciary’s analysis about whether to allow or remove an investment alternative focus on whether a participant gets enough information to evaluate it for himself or herself?

J Simmons, than you for your observations. So let’s assume a fiduciary must prudently select and monitor any designated investment alternative. What facts would cause a fiduciary to find that a publicly-traded stock involves a risk a participant no longer can evaluate for himself or herself?

In February, the IRS released Rev. Proc. 2018-18 (published in Internal Revenue Bulletin 2018-10 on March 5), which applied the budget-reconciliation act's Chained Consumer Price Index and redid some inflation adjustments previously announced in Rev. Proc. 2017-37 and Rev. Proc. 2017-58. So the IRS has applied the new method at least once. It's unclear whether there is an ambiguity or difficulty about adjusting the flexible-spending-account limit. We now have a few weeks of participants getting communications that describe the limit as predicted but not established. How have participants reacted to those communications?

A § 401(k) retirement plan provides participant-directed investment (with daily instructions). The plan’s menu is filled with a broad range of diversified SEC-registered mutual funds. (Assume these are prudently selected, prudently disclosed, and meet all ERISA § 404(c) conditions.) Beyond those diversified investment alternatives, the menu for participant-directed investment includes an account that invests in the publicly-traded stock of an operating business. The account is 1% “cash” (to facilitate transactions) and 99% the stock. The stock is NOT employer securities. Assume the plan’s administrator furnishes to participants every securities-law report and other disclosure the stock’s issuer has filed. (The administrator sends these to participants’ work e-mail addresses and the plan’s website a few minutes after the document is filed with the SEC or the stock exchange.) Is it enough that a participant can decide for himself or herself to invest in (or avoid) this stock? Or must a fiduciary evaluate whether this stock account should remain an investment alternative? If there is such a duty, under what facts and circumstances would a fiduciary find that a participant no longer should have the choice?

Just as we were graced this morning with the Bakers' helpful posting about the retirement plans' limits, we'll look forward to BenefitsLink's news when the $2,700 for flexible spending accounts becomes official.

Beyond retirement plans, I advise registered investment advisers about their fiduciary duties and compliance procedures. This can include practical guidance on whether an adviser’s use of a client’s password for systems of a retirement-services provider results in custody or is a deceptive practice. (I informed my clients about Pennsylvania’s new interpretation the same day the Bureau of Securities Compliance and Examinations released it.) Also, I advise recordkeepers, third-party administrators, and other service providers about how to improve privacy, security, and other controls while allowing some access to a participant’s or beneficiary’s adviser (if that’s what my client wants).

If a service provider has responsibility for assembling a draft of the Form 5500 annual report, the provider might consider whether it has some obligation to inform the plan’s administrator about the administrator’s duty to consider whether the plan engaged in a nonexempt prohibited transaction (if the plan paid the distribution-services provider more than reasonable compensation for the services provided).

Has anyone had an EBSA or IRS examiner question a plan’s interest rate for a participant loan? (Despite 34 years’ experience working with retirement plans, I’ve never seen such a challenge.) If an examiner suggested an interest rate was too low (or too high), what reasoning did the examiner give?

You and your lawyer might find relevant law in Internal Revenue Code of 1986 (26 U.S.C.) §§ 1441-1143 and 3405(e)(13), and in regulations—26 C.F.R. §§ 1.1441-0 to -10. “A payment from a trust described in section 401(a), an annuity plan described in section 403(a), a payment with respect to any annuity, custodial account, or retirement income account described in section 403(b), or a payment from an individual retirement account or individual retirement annuity described in section 408 that a withholding agent cannot reliably associate with documentation is presumed to be made to a U.S. person only if the withholding agent has a record of a [U.S.] Social Security number for the payee and relies on a mailing address described in the following sentence. A mailing address is an address used for purposes of information reporting or otherwise communicating with the payee that is an address in the United States or in a foreign country with which the United States has an income tax treaty in effect and the treaty provides that the payee, if an individual resident in that country, would be entitled to an exemption from U.S. tax on amounts described in this paragraph (b)(3)(iii)(C). Any payment described in this paragraph (b)(3)(iii)(C) that is not presumed to be made to a U.S. person is presumed to be made to a foreign person. A withholding agent making a payment to a person presumed to be a foreign person may not reduce the 30-percent amount of withholding required on such payment unless it receives a withholding certificate described in paragraph (e)(2)(i) of this section furnished by the beneficial owner. For reduction in the 30-percent rate, see §§ 1.1441-4(e) or 1.1441-6(b).” 26 C.F.R. § 1.1441-1(b)(3)(iii)(C). A withholding agent must not treat a payee as a U.S. person if the withholding agent has actual knowledge or reason to know that the payee is not a U.S. person. That a payee’s Individual Taxpayer Identification Number is not a valid U.S. Social Security Number might be a reason to treat the payee as not a U.S. person (absent “documentation” that proves the person to be a U.S. person). Nothing in this post is tax or legal advice.

When you ask your lawyer for her advice, you’ll want to consider whether the court order delivered to the plan’s administrator “clearly specifies— (ii) the amount or percentage of the participant’s benefits to be paid by the plan to [the] alternate payee, or the manner in which such amount or percentage is to be determined [and] (iii) the number of payments or period to which such order applies[.]” ERISA § 206(d)(3)(C), 29 U.S.C. § 1056(d)(3)(C). If the order received meets those and other conditions and the plan’s administrator decided that the order is a QDRO, the plan pays according to the QDRO. How likely is it that a State’s domestic-relations court made an order that provides the plan’s administrator discretion (or a power to “negotiate”) the amount to be paid to the alternate payee? And if it did so, how likely is it that the order “clearly specifies” everything that must be so specified? Further, the plan’s administrator must consider a fiduciary’s duty to obey “the documents and instruments governing the plan” and duties of exclusive-purpose loyalty, prudence, impartiality, and communication. Nothing in this post is legal advice.

BG5150, thank you. I like calling it stable-value investment. But some on the committee dislike it; they believe participants would be upset because they don't perceive stable-value as an investment.

MoJo, thank you for the further observations. The originating post describes a separate-account contract. Although some insurance company separate accounts have more than one owner, this separate account has only one owner, the one retirement plan. Further, the separate account's governing document includes an investment policy statement specified by the retirement plan's fiduciary. (The insurer quotes its fee after considering the plan's investment policy.) But again, I'm suggesting it's okay for participant communications to call it a fund.

Despite some bar associations' efforts to promote consistency in usage, the label "of counsel" is widely used to refer to several different kinds of relationships. To get to your pension-law question, you and your client might want to read the individual's agreement and consider other information to help discern whether the individual is (regarding the firm he or she is described as of-counsel to) a retired capital-interests partner, a retired income-interests partner, an employee, or a nonemployee contractor.

MoJo and jpod, thank you for your help. A concern the committee member described is her view that “fund” suggests collective or common investment, and this separate account has only one owner. The word “account” too can be misleading because under the unallocated group annuity contract’s terms only the retirement plan, not any participant, has an account. Likewise, the insurer has no obligation to a participant, and a participant has no right regarding the insurer. And a participant’s investment result is related, but not tied, to the plan’s past results and anticipated values, which can include periods for which the participant had or will have no portion (or a different portion) of his or her plan account allocated to stable-value. Another voice on the committee suggested “stable-value contract”. But this seems inapt for participant communications because there is no contract with a participant, and a participant’s investment result is not tied to the plan’s results. I intend to suggest using “fund” until someone finds a word that, with clear reasoning or some persuasive evidence, can be shown as less misleading than “fund”.

Bill Presson, thank you for the help (and for giving me another way to think about the questions). The insurer doesn't have an advertising or "product" name for this contract. And the insurer allows each plan to name the thing. Others' thoughts about whether "fund" is misleading or helpful?

To provide a retirement plan’s participants an investment alternative they perceive as having no risk of investment loss, the plan uses an insurance company’s separate account and group annuity contract. The separate account has the one plan as the account’s only beneficial owner. The annuity contract provides each quarter-year a credited interest rate determined by amortizing investment gains, losses, and values over a duration that approximates an estimate of an average duration for the investments held for the separate account. The contract has delayed payments or a market-value adjustment if the plan leaves the insurer when the separate account’s market value is less than the book value credited to participants. The plan’s communications writer wants to label this participant investment alternative the stable-value fund. Everything else in the plan’s menu is a registered-investment-company fund or a bank’s collective trust fund. The writer thinks it’s less confusing if the communications use the word “fund” to refer to every investment alternative. But another person (not me) says it’s misleading to call an investment alternative a fund if it’s not legally a fund. She wants to use stable-value account. She says “account” uses language that insurance law uses. (She suggests also using “investment alternative”, which ERISA’s 404a-5 rule uses, as the general reference over the investment funds and the stable-value account.) What do you think? In considering whether to use or avoid the word “fund”, does it matter that amounts credited to a participant’s plan account can be more than or less than those that would result from the separate account’s recent investment results? Do you think “fund” is misleading?

The rule for a summary plan description’s one-sentence notice in a language beyond English is 29 C.F.R. § 2520.102-2(c). https://www.ecfr.gov/cgi-bin/text-idx?SID=566c9993e94aeb7c5b558d9665881abd&mc=true&node=se29.9.2520_1102_62&rgn=div8 A similar rule for a summary annual report is 29 C.F.R. § 2520.104b-10(e). https://www.ecfr.gov/cgi-bin/text-idx?SID=0174b0abbf2494451ed1060a968d2a34&mc=true&node=se29.9.2520_1104b_610&rgn=div8 The Labor department’s rules for some other kinds of disclosures lack such a provision. Some employee-benefits lawyers sometimes suggest an employer/administrator consider whether a duty under ERISA § 404(a)(1) might call for a communication beyond what those rules specify.

Internal Revenue Code § 105(b) provides an exclusion from gross income regarding medical care of the employee, the employee’s spouse, the employee’s dependent, or the employee’s child. If a health-reimbursement plan provides a benefit to someone who is no longer the employee’s spouse, the employer might want its lawyer’s advice about the extent to which the benefit is excluded from, or included in, gross income for Federal income tax and other purposes.

But for a group health plan, consider whether the plan recognizes a qualified medical child support order and, if so, what rights a QMCSO might provide.

In 2010, the DoL and the SEC each proposed a rule that would require concerning target-date funds extra disclosures not required regarding other investment funds. Dep’t of Labor, Target Date Disclosure [proposed regulation], 75 Fed. Reg. 73987–73995 (Nov. 30, 2010); Securities and Exchange Commission, Investment Company Advertising: Target Date Retirement Fund Names and Marketing [proposed rule], 75 Fed. Reg. 35920–35945 (June 23, 2010). Neither agency has advanced its proposed rule beyond considering comments. On March 30, 2017, the Labor department withdrew the rulemaking from the agenda. https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201704&RIN=1210-AB38 The SEC’s rulemaking is in the Spring 2018 (the most recent) agenda. https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201804&RIN=3235-AK50 To track a rulemaking’s progress, one might use the Regulation Identifier Number.