Peter Gulia

Was the spouse's consent limited to particular beneficiaries, whether described by name or by class; or was the consent general, allowing any beneficiary? Was the spouse's consent on the same page as the participant's qualified election and description of the non-spouse beneficiaries? The answers to those questions might help you and your lawyer sort out whether furnishing a copy of a document reveals the participant's confidential information, or does no more than remind the consenting spouse about information he already knew.

If it is about using a domestic-relations order to defeat a retirement plan’s distribution restriction, a fiduciary’s duties might be unclear. According to the Employee Benefits Security Administration, when faced with circumstances that strongly suggest what a plan’s administrator believes might be a “sham” to defeat the plan’s distribution restriction, an administrator may inquire about a court order to evaluate whether it is a domestic-relations order under State law; but it’s unclear whether a plan administrator must do so. ERISA Adv. Op. 99-13A (Sept. 29, 1999). And an administrator “may inquire” only if, in the circumstances, doing so is prudent and does not burden the plan with an expense beyond a reasonable expense of administering the plan. In a somewhat similar situation, trial and appeals courts held that, even assuming a 100% allocation to the nonparticipant, continued cohabitation of the former spouses, not informing family or friends about the divorce, other facts inconsistent with the “break-up” of a marriage, and remarriage promptly after the plan’s QDRO distribution, a plan’s administrator may not consider the participant’s and alternate payee’s motive for, or good faith in, obtaining a divorce. Brown v. Continental Airlines, Inc., 647 F.3d 221 (5th Cir. 2011). The 1999 Advisory Opinion is somewhat inconsistent with an earlier interpretation that an administrator need not (and, at least in some circumstances, should not) inquire into the correctness of an order under state law. ERISA Adv. Op. 92-17A (Aug. 21, 1992). Perhaps EBSA’s dividing line was that a fiduciary should not “sit idly by” in the face of what seems an obvious falsehood that does not require significant legal reasoning. But a fiduciary persuaded by the court’s reasoning in the Continental Airlines opinion might find that it need not, and perhaps should not, consider the participant’s and alternate payee’s motive for, or good faith in, obtaining a divorce. Further, because a court often may end a marriage with no showing of any grounds beyond either party’s assertion that the marriage is broken, a litigant might obtain a court’s order making no false statement of fact. If so, a plan’s administrator might not have “nformation indicating that an order was fraudulently obtained[.]” The information (not advice) above is about a plan administrator’s need to get its lawyer’s advice about circumstances of the kind described. I don’t condone using a divorce or separation to defeat a retirement plan’s distribution restriction if the litigants otherwise would not seek or assent to the divorce or separation. And I don’t condone sales practices built on such a method.

Today's BenefitsLink news hyperlinks to a prepublication text of a proposed rule (to be published in tomorrow's Federal Register), which would decodify many Treasury rules. https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-02918.pdf Among the rules that would be "removed", there are some keyed to Internal Revenue Code sections 401-412. These include 26 C.F.R. section 1.401-11 through -13; 1.401(e)-1 through -6; 1.404(a)-4 through -7 and -9; 410(b)-1; 1.412(I)(7)-1; 11.402(e)(4)(A)-1, 11.402(e)(4)(B)-1. Is the Treasury department correct in saying each of these rules no longer has any usefulness? Or is there a rule (among those proposed to be removed from the Code of Federal Regulations) that states still-useful guidance?

Could 26 C.F.R. § 1.401(a)(4)-11(g) support an amendment retroactive to January 1, 2017?

If there was doubt before, recent years’ court decisions recognize one document may state a plan’s provisions [ERISA § 402] and describe the plan to participants and beneficiaries [ERISA § 102]. (For many other kinds of contracts, many people would consider it strange to express a contract in two forms.) The challenge is to think and write carefully so the one document is “written in a manner calculated to be understood by the average plan participant, and [is] sufficiently accurate and comprehensive to reasonably apprise [the] participants and beneficiaries of their rights and obligations under the plan.” Some believe this approach reduces risks that a “plan document” fails to state the provisions the plan’s creator intends, and reduces risks that an “SPD” fails to describe a provision that ought to be communicated to participants (or beneficiaries). In my experience, this method gets improvements if the writer is skillful and the client will pay for the time it takes to do this right. And if either (or both) of those conditions is not met, writing a combined plan-and-SPD might get results no worse than what would have happened with two writings.

One wonders if those who rely on the Internal Revenue Service's write-up for a 402(f) notice might be waiting a while.

Do BenefitsLink mavens agree that one need not apply ERISA section 503 claims procedure if the ONLY decision is about which tax-information codes to report or omit in a Form 1099-R?

That is an important point. Among other conditions, the statute defines a “qualified plan loan offset amount” as “a plan loan offset amount [another specially defined term] which is treated as distributed from a qualified employer plan to a participant or beneficiary solely by reason of- (I) the termination of the qualified employer plan, or (II) the failure to meet the repayment terms of the loan from such plan because of the severance from employment of the participant.”

I remember that later Time Warner case had different results. But it didn't undo the legal point made in Judge Chin's opinion that the earlier complaint stated a claim on which the court could grant relief. And if there can be circumstances in which a plan's administrator should not unquestioningly rely on an employer's or service recipient's finding about whether a worker is or was an employee, perhaps there sometimes can be circumstances in which one might not rely entirely on an employer's description about exactly when an employment ended, especially if (as sometimes might happen) that description has no legal significance beyond the plan-administration point. Most often, a plan's administrator follows an employer's information about exactly when someone became no longer an employee. Among other reasons, a plan's administrator might lack information that would call into question the employer's information. Here's another thought: Imagine what the worker's supervisor would have presumed if she had no information beyond what the employer knew on December 31. If she expected the worker to be available to work on his next scheduled work day in early January, was the worker still an employee on December 31? One also might ask a converse question: Had the worker, before January 1, decided he would not return to work? (Or had the employer, before January 1, informed the worker that the employer no longer desired the worker's labor or service?) Further, some of the questions and ambiguities described in this thread's two webpages might turn on the exact text of the plan's governing document.

For a participant loan offset that otherwise would be taxed as a distribution, a participant whose employment ends (or plan terminates) with a loan outstanding will have until the due date, including extensions, for filing his or her tax return for the year to contribute the offset amount to an Individual Retirement Account or other eligible retirement plan to avoid the loan offset being taxed as a distribution. This opportunity is available for offsets after 2017. Read Internal Revenue Code § 402(c)(3)(C) http://uscode.house.gov/

Without disagreeing with Mojo or CuseFan, perhaps ERISAAPPLE suggests an employer might prefer to amend, if needed, the plan's document so both the employer meets its contract and labor-relations obligations and the plan's administrator can meet its responsibility to administer the plan according to the plan's governing document.

To return to the first of the five questions in prototypical's originating post, whether there is a need to amend the plan's governing document might turn on how much of the plan's claims procedure is embedded in, or separate from, the plan's governing document. Also, meeting some conditions the ERISA section 503 rule calls for might involve provisions beyond the employee-benefit plan's documents and procedures.

It's often so that a plan's administrator (and named fiduciary) is the same person as the plan's sponsor and the employer. But those facts don't excuse the person from fiduciary responsibility if an act or decision is taken in a fiduciary role. I suggest considering fiduciary responsibility IF there is a close question and a call for interpretation. And considering fiduciary responsibility does not necessarily lead to an interpretation or application that would favor the no-longer-employed participant. Sometimes, considering a fiduciary's several duties leads to other directions.

Luke Bailey introduces two questions some of us had not thought about. Is a disability exception from a last-day condition on sharing in an allocation of a contribution a benefit to be decided under the new claims-procedure rule?

Consider an example: In 1998, the Secretary of Labor sued Time Warner. The complaint asserted it was a breach of a fiduciary’s duties under ERISA § 404(a)(1) to rely, without the fiduciary’s independent evaluation, on the employer’s classifications of who is or was an employee (and which periods and hours of service an employee worked). Herman v. Time Warner Inc., No. 98-7589 (S.D.N.Y. complaint filed Oct. 26, 1998). In 1999, Judge Chin decided “the government has sufficiently alleged that the Administrative Committee and Time Warner breached their fiduciary duties under ERISA[.]” And the court expressly rejected the defendants’ argument that the fiduciary-breach claim was merely a subterfuge for a claim for benefits. Whatever one thinks about the facts alleged, the court could not have found that the complaint stated a claim without accepting the Labor department’s legal premise that a plan’s administrator is responsible to make its own findings and must not entirely rely on the employer’s findings, even on the question of whether a worker is or was an employee. Herman v. Time Warner Inc., 56 F. Supp.2d 411, 23 Empl. Benefits Cas. (BNA) 2646 (S.D.N.Y. Sept. 3, 1999). (We’ll never know what a court would have decided after considering evidence; in 2000, Time Warner settled this case for $5.5 million.)

An earlier BenefitsLink discussion included an observation that, for many 401(k) plans, a plan's administrator often need not consider whether the participant is disabled - a severance-from-employment alone usually is enough to provide grounds for the distribution.

jpod and RBG, thank you for the suggestions.

jpod, thank you for the answer I feared. For the situation described above, being harsh to the transferred employee means the employer pays nothing, not even the contribution the worker earned. But being decent would require the employer to pay an extra $3,500 to persuade the IRS that no harm is done by reforming a document to provide a contribution to a non-highly-compensated employee who continues to be loyal to the employer.

jpod, sorry if my query was confusing. The plan's document CURRENTLY refers to just one organization as the plan's sponsor and the only participating employer. But the adoption agreement would allow adding participating employers. Do you think it's reasonable to amend the plan retroactive to 2017?

Imagine a profit-sharing plan that allows § 401(k) elective deferrals, and allows a matching contribution. A participant shares in a year’s matching contribution only if the participant is the Company’s employee on the last day of the year. The plan narrowly defines the Company by naming only one organization, and ignoring its dozens of affiliates. (The volume-submitter document states a “member” of a “controlled group” or an “affiliated service group” does not participate unless it adopts the plan with the plan sponsor’s approval.) A worker who was the named Company’s employee for the first three quarter-years of 2017 became, on October 1, an employee of a non-U.S. organization that is the Company’s 100% wholly-owned subsidiary. This worker is a citizen only of the USA. Under a surface reading of the plan’s document, it seems this worker is not entitled to share in the matching contribution for the year ended December 31, 2017. But is there something I should look for in the 128 pages that might support treating an employee of the subsidiary as an employee of the Company? And if there isn’t, is it feasible now to amend the plan (without unraveling any tax-qualified treatment) to allow the transferred employee to share in 2017’s matching contribution?

I didn't write the strikeout, and that text is my query. Must one apply the rule's reference to the Internal Revenue Code as it now reads?

But UNTIL the Secretary of the Treasury makes a new rule or regulation and it becomes effective and applicable or the Commissioner of Internal Revenue "prescribe additional guidance of general applicability" (within 26 C.F.R. 1.401(k)-1(d)(3)(v)) and publishes it in the Internal Revenue Bulletin, do BenefitsLink mavens agree that one must administer a deemed-need provision by limiting a casualty hardship to "expenses ... that would qualify for the casualty deduction under [Internal Revenue Code] section 165" as Congress's Act changed it?

Here’s another way to think about these questions. When there’s a close question about choosing between permissible, and perhaps even plausible, interpretation of a plan’s provisions, the plan’s administrator might consider its fiduciary duty of loyalty. ERISA § 404(a)(1)(A)(i): “[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—for the exclusive purpose of: providing benefits to participants and their beneficiaries[.]” Also, a fiduciary might consider that its implied duty of impartiality favors interpretations that one can explain as logically consistent for different participants whose circumstances that are relevant under the plan are the same. A plan’s administrator might explain and illustrate its interpretations in the plan’s summary plan description. A duty to do so might be heightened if an interpretation is one that deprives a participant of a contribution, or incremental vesting, in circumstances an “average” participant might perceive as having worked or been employed a whole year.

That “NRW-0975CA.5” is in the form’s footer suggests that someone for Nationwide Retirement Solutions reviewed (perhaps in “11/2015”) the form. But we don’t know whether the review considered tax-law issues. And if it did, we don’t know whether the reviewer relied on Nationwide’s lawyers or the plan’s lawyers.

Consider the Revenue Procedure's conditions, which include making and keeping a "letter" to record the return signer's grant of authority and direction: "The person filing the form must retain a letter, signed by the officer or agent authorized to sign the return, declaring under penalties of perjury that the facsimile signature appearing on the form is the signature adopted by the officer or agent and that the facsimile signature was affixed to the form by the officer or agent or at his or her direction. The letter must list each return by name and identifying number." https://www.irs.gov/businesses/revenue-procedure-2005-39