Peter Gulia

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.

Consider also that expenses made necessary because of a fiduciary's breach are expenses that might be included in the breaching fiduciary's ERISA section 409 liability to make the plan whole.

Is your client the plan's sponsor? The plan's administrator? Or the participant? Or the spouse? Or some other person? For a governmental eligible deferred compensation plan, requiring a spouse's consent to a participant naming a death-benefit beneficiary is not a condition of 457(b)-eligible Federal income tax treatment. A State or local law could require a governmental plan to include a spouse's-consent provision. If you advise a participant, consider that--even if no State or local law requires anything of the plan--a State's law or court order might require the participant not to name a beneficiary other than the participant's spouse without a consent or approval.

If organization 1 runs payroll for both organizations, how does either plan's administrator know whether a worker is an employee of 1, 2, or both? If the worker is classified as an employee only of org 2, might she be a leased employee or borrowed servant for org 1? Is the retirement plan 401(a), 401(k), 403(b), 457(b), or something else? If the plan is of a kind that can allow a nonemployee, what does the plan's document say about who is eligible?

Along with considering other points of law and each person getting its lawyer's advice, one might revisit an assumption that the employer never receives protected health information. For the non-insured health-reimbursement arrangement, does the employer (perhaps in a role as the plan's administrator or other named fiduciary) have a legal right or power to overrule the third-party administrator's claims-processing decision? If so, how does such a decision-maker or reviewer evaluate a claim without at least receiving protected health information? And which person engaged the TPA service provider? Is that person a fiduciary? What information does the person consider to evaluate whether it remains prudent to continue the TPA's engagement?

The Labor department, in some nonrule guidance, has distinguished making a plan-administration decision and furnishing factual information so someone else can make the plan-administration decision. For example: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/1994-30a For a rule or regulation made in compliance with the Administrative Procedure Act and other law, a court interprets an ambiguous statute by Chevron-deferring to the agency’s interpretation (unless the interpretation is beyond a permissible interpretation). Except for 29 C.F.R. § 2510.3-2(f), none of the Labor department’s guidance is such a rule. A court’s reasoning about whether an employer established or maintained a plan might be quite different from the Labor department’s reasoning.

TaxLawyer1978, you'll want to advise your client first, about which expenses may be paid from any of the three retirement plans' assets, and which expenses must be borne by a person that is not an employee-benefit plan; next, about allocating the proper plan-administration expenses between or among plans so each plan pays no more than the "reasonable expenses of administering THE plan[.]" ERISA § 404(a)(1)(A)(ii). Although these allocations are decisions for which a plan's fiduciary is responsible, some employee-benefits lawyers are willing to classify a fee statement's time entries by which tasks may be charged to a plan (or must be borne by a sponsor or employer). If a lawyer's task was for more than one plan's administration, it is much less usual that a lawyer expresses even a preliminary allocation between or among the plans.

One also might look at insurance contract or policy identifying numbers and what benefit a contract insures. For example, one might not combine an amount regarding a life insurance contract with an amount regarding a disability insurance contract.

And whatever exemption one might rely on to exempt a prohibited transaction under the Employee Retirement Income Security Act of 1974 or the Internal Revenue Code of 1986 might not be enough to meet conditions for an exemption from registering an offer of securities.

The plan's assets is not perfectly zero because the plan owns a gain contingency for restoration of a prohibited transaction. Can the retirement plan's administrator now make a payment to the default-rollover custodian? Shouldn't the payment be for the amount mistakenly deposited plus interest? Should the Form 5500 reports show the prohibited transaction and a correction?

ERISA does not preempt any Federal law. And ERISA does not always displace Federal securities law. ERISA’s and a particular employee-benefit plan’s provisions might be relevant information in evaluating whether an interest is a security and, if it is, considering which exemptions from registration (or kinds of registrations) might be available. Although ERISA’s preemption of State law is broad, ERISA does not preempt “any law of any State which regulates insurance, banking, or securities.” That a security’s issuer is an employee-benefit plan’s sponsor might be relevant information, but might not always by itself be sufficient to meet the conditions for an exemption from registration under a Federal or State securities law. That a security’s offeree, purchaser, or holder is an employee-benefit plan’s trustee might be relevant information, but might not always by itself be sufficient to meet the conditions for an exemption from registration under a Federal or State securities law. Securities law sometimes looks through one or more holders to a beneficial owner, especially if in the circumstances the beneficial owner (rather than an intermediary) is the real decision-maker.

I have investment-adviser clients that do these arrangements. In my experience: Even when an RIA’s investment analysts have an accounting background, an RIA might want an accountant’s help to translate the cash bookkeeping into accrual accounting under GAAP. If the investor plans all are under-100 plans that don’t engage a CPA for the plan’s financial statements, the investment adviser might engage its accountant’s work without needing any kind of audit, review, or compilation report. An RIA that manages no SEC-registered fund likely is not familiar with the SEC Forms and Instructions that the Labor department set up as the norm for reporting a portfolio’s operating expenses and past performance. Some RIAs feel more comfortable with the 404a-5 communications about past performance and expense ratios if someone with an accounting background checked the work. Those doing these arrangements understand that the RIA is a fiduciary not only under investment-adviser law but also under ERISA. As an ERISA fiduciary, it is directly responsible for its own communications, and is responsible—at least as a co-fiduciary—for the plan administrator’s communications the RIA enabled or has knowledge of.

If what you’ve described is a plan-invented subtrust that invests in something beyond other designated investment alternatives, the 404a-5 rule tells a plan’s administrator to count such a subtrust’s expenses as if the subtrust were an SEC-registered fund. 29 C.F.R. § 2550.404a-5(h)(5)(ii): (5) Total annual operating expenses means: . . . . (ii) In the case of a designated investment alternative that is not registered under the Investment Company Act of 1940, the sum of the fees and expenses described in paragraphs (h)(5)(ii)(A) through (C) of this section before waivers and reimbursements, for the alternative’s most recently completed fiscal year, expressed as a percentage of the alternative’s average net asset value for that year— (A) Management fees as described in the Securities and Exchange Commission Form N-1A that reduce the alternative’s rate of return, (B) Distribution and/or servicing fees as described in the Securities and Exchange Commission Form N-1A that reduce the alternative’s rate of return, and (C) Any other fees or expenses not included in paragraphs (h)(5)(ii)(A) or (B) of this section that reduce the alternative’s rate of return ([for example], externally negotiated fees, custodial expenses, legal expenses, accounting expenses, transfer agent expenses, recordkeeping fees, administrative fees, separate account expenses, mortality and expense risk fees), excluding brokerage costs described in Item 21 of Securities and Exchange Commission Form N-1A. Likewise, to display past-performance average annual total returns, one computes these the way a similar SEC-registered investment fund would compute them. 29 C.F.R. § 2550.404a-5(h)(3): Average annual total return means the average annual compounded rate of return that would equate an initial investment in a designated investment alternative to the ending redeemable value of that investment calculated with the before[-]tax methods of computation prescribed in Securities and Exchange Commission Form N-1A, N-3, or N-4, as appropriate[.] Figuring out those methods, applying them in context, and doing the bookkeeping and accounting might be work. Perhaps the plan’s administrator wants to engage a smart guy like austin3515 to do the work.

PensionPro, RatherBeGolfing, and Larry Starr, thank you for helping me. That an applicant's false statement can void coverage typically applies when the applicant and the insured are the same person. But for ERISA fidelity-bond insurance, the plan is the insured. And a principal might not be imputed with knowledge of an agent who acts adversely to the interest of the principal. I don't know what the courts' answers are. But I can imagine how one might argue that an employee-benefit plan, a person separate from its fiduciary or asset-handler, should not be burdened by a false statement the plan did not make. I also can see how a fidelity-bond insurer might argue that the plan's remedy for a theft that resulted because a fiduciary allowed a disqualified person to serve is the plan's fiduciary-breach claim against that breaching fiduciary. Another good reason for a plan to buy fiduciary liability insurance.

But does an applicant's false statement void the plan's coverage?

ERISA § 411 makes it at least improper for someone convicted of any of a long list of crimes (if the conviction or the end of the imprisonment, whichever is later, is in the past 13 years) from serving in any almost any role regarding an employee-benefit plan. Does an insurance company, before issuing an ERISA § 412 fidelity-bond insurance contract, do anything to check whether a person whose dishonest act the contract would insure lacks a disqualifying conviction? My intuition tells me that the size and probability of an insurer’s potential liability on a typical fidelity bond is so small that an insurer doesn’t bother checking anything. But I’d like to be wrong about that. Can anyone tell us what an insurance company does?

And IF the plan's administrator treats a request as a claim, the administrator might include in its written denial: "(i) The specific reason or reasons for the adverse determination; [and] (ii) Reference to the specific plan provisions on which the determination is based[.]" 29 C.F.R. § 2560.503-1(g)(1) https://www.ecfr.gov/cgi-bin/text-idx?SID=cb3fe814948182fe084261c4fffd397d&mc=true&node=se29.9.2560_1503_61&rgn=div8

Beyond a buyer thinking about the prohibited transactions and the rights and remedies a nonexempt prohibited transaction affords the seller plan, the seller plan, its fiduciaries, and the directing participant might consider Federal and State securities law to consider what consequences could result from an offer or sale, if it is not registered and not exempt from registration.

During an examination, or by information-matching. Because examinations is insignificant coverage, I'm especially interested in learning about whether the IRS detects minimum-distribution failures using data reported to the IRS.