Peter Gulia

That a retirement plan required no spouse's consent for a distribution before the participant's death meant a surviving spouse gets no portion of a $2.7 million benefit. The participant's claim was processed on a Friday; he died on Sunday. Wengert Eighth Circuit.pdf

Apart from questions about whether a trust and trusteeship are created and valid under non-tax law, a plan’s sponsor might prefer that the trust be treated as a domestic trust for Federal tax law purposes. “In order for a trust forming part of a pension, profit-sharing, or stock bonus plan to constitute a qualified trust under section 401(a), the following tests must be met: (i) It must be created or organized in the United States, as defined in section 7701(a)(9), and it must be maintained at all times as a domestic trust in the United States[.]” 26 C.F.R. § 1.401-1(a)(3)(i). https://www.ecfr.gov/cgi-bin/text-idx?SID=11fcc33aff5d36a6e50159549926b1f4&mc=true&node=se26.6.1_1401_61&rgn=div8 Unless the retirement plan’s trust meets a transition rule regarding the Small Business Job Protection Act of 1996, the plan’s sponsor might consider sufficiently involving one or more U.S. persons. If the goal is establishing and maintaining the trust as a domestic trust, consider that merely adding a second trustee might not be enough if the first trustee is not a U.S. person and the second trustee lacks power to overrule the first trustee. Some details are in the Treasury department’s rule: https://www.ecfr.gov/cgi-bin/text-idx?SID=77049054e181a5d01c90facf3bef8340&mc=true&node=se26.20.301_17701_67&rgn=div8

RatherBeGolfing, thank you for the helpful information. As I suspected, it seems likely the practical enforcement depends mostly on happenstance. If someone barred from service as a fiduciary starts a new business, establishes a retirement plan, and serves as the plan's fiduciary (especially if the business has no other executive), a TPA behaving correctly might transmit a Form 5500 report and we doubt that EBSA's computers would detect that someone barred from service as a fiduciary is serving. I don't suggest that a TPA should have any responsibility; I'm only observing a weakness in the systems.

Many court decisions about a theft from an employee-benefit plan include an order that a wrongdoer is barred from serving as a fiduciary of an employee-benefit plan. But how (if at all) is such an order practically enforced? Am I right in guessing a TPA might not spot a problem? Leaving aside a 3(16) TPA, an ordinary service provider might not be a fiduciary, and might have no duty or obligation to guard against an ineligible person's service. And if a TPA runs a check on its new customer, would the TPA's check spot this problem? If a Form 5500 annual report includes an ineligible person's name as a signer or authorizer, does anything in EBSA's error-checking or post-filing review catch a problem?

Here's the Labor department's interpretive rule: https://www.ecfr.gov/cgi-bin/text-idx?SID=278017dd2eca615ddfbe139bbbfd3fe5&mc=true&node=se29.9.2510_13_63&rgn=div8

For another commentary about whether to treat plans as distinct when the circumstances show no business reason for more than one plan, see Q&A 14 in the attached American Bar Association session. The hypo invites a substance-over-form interpretation. And the ABA's format for these unofficial Q&A sessions requires the questioner to submit a proposed answer. The proposed answer set up some reasoning an EBSA speaker could use to support saying one must look through the multiple plans and treat them as one that needs an independent qualified public accountant's audit. Yet the EBSA people said it's okay to follow the contrived plans. dol_2009.authcheckdam.pdf

Yesterday evening, I heard that Fidelity, 92 days before the 2016 rule's delayed applicability date, sent many customers a service agreement amendment, which ostensibly was deemed assented to if not expressly rejected. The amendment offered services for which Fidelity expressly recognized its status as a fiduciary. Perhaps such a written undertaking might make Fidelity a fiduciary even if it otherwise might not be under the absence of the 2016 rule. Does anyone know whether Fidelity's amendment is conditioned on the application of the 2016 rule?

Kevin C and RatherBeGolfing, thank you for your helpful observations. Others' outlooks? And does anyone have a guess about how ADP, Paychex, Fidelity, John Hancock, and others that serve small plans will react to the erasure of the fiduciary rule?

Beyond other reasons, consider that not maintaining at least the fidelity-bond insurance required under ERISA section 412 might be a Federal crime. http://uscode.house.gov/view.xhtml?req=(title:29

AlbanyConsultant, some retirement plans allow a beneficiary to disclaim or renounce a benefit; some don't allow this; and some say nothing, which might leave a question about whether a disclaimer is recognized to the plan administrator's construction or interpretation. If a plan recognizes a disclaimer, typical conditions are that the disclaimer must be legally valid under the law of at least one relevant State, and further that the disclaimer must be one that meets Internal Revenue Code section 2518. If New York law is relevant, this link is to the NY Estates, Powers and Trust Law provision: http://public.leginfo.state.ny.us/lawssrch.cgi?NVLWO I would not accept any State statute's recitation that following it results in a disclaimer effective under Internal Revenue Code section 2518. http://uscode.house.gov/view.xhtml?req=(title:26

When Congress wrote this in 1984, the staffers assumed defined-benefit pension plans and money-purchase pension plans would have annuity payouts. And they were told that some individual-account plans that tax law called profit-sharing plans might not provide annuity payouts. I think that's why the statute speaks with a variation for an individual-account plan that is not a pension plan with funding standards. But it's easy to concur with your observation that a good writer with enough time (unlike the pace asked of Congress's staffers) could express the same resulting rules more clearly by stating them from concepts rather than consequences.

If the plan is ERISA-governed, here's the statute on what a plan must, may, and may not provide: ERISA section 205: http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title29-section1055&num=0&edition=prelim

I’m hoping BenefitsLink people will help me crowdsource some background for a research project. The research project assumes that, whether on May 7 or by some later date, a court issues a mandate to vacate the 2016 investment-advice fiduciary rule. The first of the questions is: which plan-sponsor fiduciaries are affected by that result? If one follows the rulemaking’s 2015-2016 reasoning, it is small plans that more need to be protected from communications by those who, but for applying the to-be-vacated 2016 rule, might not be held to fiduciary standards of loyalty and care. But how small is small? In recent years, I’ve seen plans smaller than the Labor department’s $50 million dividing line use registered investment advisers who sign contracts expressly accepting status and responsibility as an ERISA fiduciary. In your experience, what size sorts plans between those unlikely to use a fiduciary adviser and those likely to use a fiduciary adviser?

And in looking to a register of wills or whatever court or office handles administrations or successions of decedents' estates, a plan's administrator might consider also a county in which the administrator guesses the decedent was domiciled, resided, or owned real property.

Recognizing some burdens a plan's default-beneficiary provision might put on a plan's administration, some plan sponsors might want to change the provision that otherwise would result from adopting a preapproved document. (Assume a plan's sponsor would not change anything that puts a surviving spouse ahead of others.) May an adopting employer change a default-beneficiary provision without losing reliance on the IRS's opinion letter? Is this an "administrative provision" Revenue Procedure 2017-41 allows an adopter to change (without losing reliance, and without seeking a determination letter)?

While we’re discussing what Cynchbeast’s originating post describes as a potential situation (a possible need, before any claimant submits a claim, to pay something to meet a required beginning date): Although a plan’s administrator reading the plan’s governing document might discern the role or relationship a person must have to be a default beneficiary, that doesn’t always mean one readily can locate or even identify the should-be claimant. In many situations about a default beneficiary, an administrator might lack a record about a should-be claimant’s address, or even name. That’s especially so if a search already has run past the decedent’s spouse and children. For situations in which no one has submitted a claim for a retirement plan’s death benefit and the taker would be a default (rather than participant-designated) beneficiary, practitioners have a range of views about how much effort a plan’s administrator must, may, or should use to try to identify and communicate with such a would-be taker. Also, there’s a range of views about how a plan may or its fiduciary should allocate those expenses.

ERISA § 209 might, at least for some employee-benefit plans and in some factual circumstances, require an employer to keep work and wage records for several decades. For just one example, consider this case: The litigants and the trial and appeals courts had four different interpretations about when a worker’s service began. Resolving the case required a court in 2008 to consider records of a worker’s employment in 1971 and birth in 1942. Pell v. E.I. DuPont de Nemours & Co., 539 F.3d 292, 44 Empl. Benefits Cas. (BNA) 1944, 2008 U.S. App. LEXIS 16854 (3d Cir. Aug. 8, 2008) (precedential), reversing in part, Pell v. E.I. DuPont de Nemours & Co., No. 2002-00021, 39 Empl. Benefits Cas. (BNA) 1270, 2006 WL 2864604 (D. Del. Oct. 6, 2006). A claimant’s production of evidence that raises a genuine question about an employer’s failure to maintain sufficient records shifts to the employer the burdens of proof and persuasion. E.g. Mason Tenders District Council Welfare Fund v. M.A. Angeliades, Inc., 43 Empl. Benefits Cas. (BNA) 1193, 2007 WL 4208587 (S.D.N.Y. 2007). A duty to make and keep records includes a duty to use at least reasonable care to detect false, suspicious, or unreliable records. E.g. Trustees of Chicago Painters and Decorators Pension, Health and Welfare, and Deferred Savings Plan Trust Funds v. Royal International Drywall and Decorating, Inc., 493 F.3d 782, 41 Empl. Benefits Cas. (BNA) 1026 (7th Cir. 2007).

MoJo’s experience is correct. The idea that a registered investment company must not allow a redemption of a security (such as a fund share) at a price other than one based on the current net asset value next computed after the RIC or its agent received the order to buy or sell the security is in public law, including Investment Company Act Rule 22c-1 (17 C.F.R. § 270.22c-1). And a RIC’s service providers use agreements to conform a retirement-services provider’s agency to those rules (and other rules under the Securities Exchange Act of 1934). But the Investment Company Act rule to define “current net asset value” (17 C.F.R. § 270.2a-4) doesn’t directly specify the close-of-trading on the New York Stock Exchange as a fund’s valuation time. While NYSE-close is the mainstream convention, has anyone seen any fund allow a later cut-off time?

In my experience (with plans, recordkeepers, and SEC-registered investment companies), a participant's investment direction received by the plan's recordkeeper before 4:00 New York (Eastern) Time is treated as timely received to get the open-end mutual fund prices later determined for that day. Are there any circumstances in which a recordkeeper could allow a later cut-off time? If so, does anyone allow a later cut-off time? Or do all recordkeepers set 4:00 as the time for all funds?

In other contexts, the Internal Revenue Service and Treasury department have said that allowing a participant control over the participant's claim is inconsistent with treating a plan as providing a restriction, at least one needed to support a tax-qualified treatment. For example, an annuity contract that allows its annuitant, rather than the insurer, to decide that the annuitant is entitled to a hardship distribution, is not a 403(b)-qualified contract. For an IRS-preapproved document, would an indirect provision that allows a participant to decide whether she has a disability interfere with the IRS's preapproval?

Belgarath, there are situations in which a court has sufficient jurisdiction to order an insurer or custodian to pay a hardship or unforeseeable-emergency distribution.

Following QDROphile's observation: If one is working with an IRS-preapproved document, is it feasible to add text to support the idea that it is proper for the plan's administrator to not keep records of past periods' accounts? And what language in the Revenue Procedures does one rely on to support a tax position that such a change does not interfere with reliance on the IRS preapproval?

If a domestic-relations order is directed to a non-plan not governed by ERISA, ERISA doesn't preempt State law (including a State court's order). Whether a person must, may, or must not do (or refrain from doing) something might turn on the provisions of all relevant contracts and how much jurisdiction the court has to command the person's act.

Mojo, thank you for the kind words. Belgarath, I concur with your observation that there are many more ERISA-governed plans than some charitable-organization employers admit.

How an employer might react to this kind of stand-off might relate to several facts and circumstances, including: Does the employer’s name appear anywhere in the order? How confident is the employer that a court would decide that the 403(b) payroll practice is not a plan within the meaning of ERISA § 3? If the employer adopted a written plan (even if not under ERISA § 402 and only to tax-qualify under IRC § 403(b)), does that writing impose an obligation on the employer? Does the 403(b) contract incorporate by reference, or refer to, the written plan? If so, might one interpret the contract to impose an obligation on the insurer or custodian? Is the 403(b) contract (whether an annuity contract or a custodial account) a “group” or “individual” contract? How much obligation, if any, does the contract impose on the employer? Does the domestic-relations court have sufficient jurisdiction to command the employer to act? If the employer has the right to refuse to decide whether an order is a QDRO, will the employer have the fortitude to resist the divorcing people, the insurer or custodian, and attorneys? Will the employer face down a judge who threatens the employer? How do potential litigation expenses affect each player’s choices? I’ve advised both employers and insurance/investment providers about the stand-off on who responds to a domestic-relations order. Feel free to call me if you want more help.