Peter Gulia

Belgarath, thank you for making clear that an employer/administrator's outlook on what amount to risk without further review doesn't necessarily relate to a State's limit on what can be claimed under a small-estate affidavit.

jpod, thank you for sharing your observations. BenefitsLink mavens, for a plan's administrator to treat relying on a small-estate-affidavit law as low-risk, does it matter what amount is claimed? For example, if a claim is for $100,000 and that amount is within the relevant State's law for a disposition following a small-estate affidavit, does a plan fiduciary treat such a claim as low risk?

Luke Bailey, thank you for your observations, especially about the interaction of Federal law and State law. BenefitsLink neighbors, my query is not about sorting out the law. Rather, my curiosity is about what plans actually do.

ESOP Guy, thank you for this very useful information. On those situations in which a lawyer was asked for advice, about how many ended with the plan acting on a small-estate affidavit? And about how often did a plan refuse to follow a small-estate affidavit?

Some 403(b) plans are governmental plans not governed by ERISA. Some 403(b) plans are church plans that have not elected to be governed by ERISA.

To allow a convenience in collecting the assets of a small estate, some States’ laws permit an affidavit in which one claims she is entitled to the decedent’s property. Under a typical law of this kind, one might collect up to $50,000 without any court-supervised proceeding. If a participant dies with no surviving spouse and no other designated beneficiary, some retirement plans provide that the participant’s estate is the “default” beneficiary. If a plan you administer or serve is in this situation, is the plan willing to pay a taker based on a small-estate affidavit? If a plan is willing, does the administrator use any extra steps to manage the risk that an affidavit is false (or even innocently incorrect), leaving the plan exposed to claims of the estate’s beneficiaries or heirs? Or does a plan refuse to pay on a small-estate affidavit? BenefitsLink people, what are your experiences?

XTitan, thank you for posting this pointer.

And while it is your client's decision, imagine the possibilities that an employer/administrator might prefer to file a report because it might help on one or more statute-of-limitations defenses under ERISA, the Internal Revenue Code, and other law.

RBG, thank you for your observation; it helps me.

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.