Peter Gulia

Paul I, thank you for your further thinking with smart logic. In this situation, the reasons the plan’s fiduciary might consider moving funds from the main menu to the brokerage window don’t relate to either of those you describe. I’m deliberately not describing the reasons because doing so could reveal my client’s identity and confidential communications. Again, thank you both for helping me.

The rule Belgarath points you to is for counting employees and fractions of employees, and their work periods (counted in workweeks or workdays), to determine whether an employer’s health plan must or not need not offer Federal COBRA continuation coverage. Consider that the referred-to rule does not count nonemployee contractors and does not self-employed individuals. For example, if a limited-liability company (that elects Federal income tax treatment as a partnership) has, for all work periods in a measurement year, ten full-time workers but two of them are members (partners) of the LLC, the company has eight employees. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4980B-2 In this note, I say nothing about whether anyone must, may, or must not rely on the Treasury’s proposed interpretation of Internal Revenue Code § 414A.

RatherBeGolfing, thank you for helping me with your further thinking. While recognizing complexities and risks about a brokerage window: This plan’s sponsor+administrator faces circumstances in which removing some funds from the plan’s designated investment alternatives and instead allowing participants who want those funds to get them under a brokerage window could lessen fiduciary tensions. Further, the plan’s administrator might welcome an opportunity to report investments made through the brokerage window as one asset on Schedule H’s line 1c(15) and line 2c, and so as one asset held for investment for that line 4i schedule. And participants who use the brokerage window might welcome that the schedules do not reveal any participant’s investment choices, or even an aggregate of participants’ investment choices, under the window. My scope is to provide the decision-makers a detached explanation of potential advantages and disadvantages. And you both have helped me.

Paul I, thank you for the further helpful information.

Consider also whether each partner did or didn't provide services to the company. For any of a capital interest, a profits interest, or a payments interest that does not vary with either capital or profit, it's possible for a partner to get a payment even if she provided no service during the year, or even never provided a service to the company.

If the plan’s small-balance (for example, <= $7,000) provision does not apply and the participant has not yet reached her normal retirement age, how would the plan provide an involuntary distribution?

RatherBeGolfing and Paul I, thank you for helping me. Schwab offers recordkeepers two formats for Personal Choice accounts; one of those is mutual-funds-only. In my experience with others, a recordkeeper calls a plan’s administrator to specify which version is selected. I’m guessing Ascensus lets its customer specify mutual-funds-only. RBG, thank you for your note about the plan’s administrator not seeing transactions within a brokerage account. Paul I, thank you for your suggestion that a plan or its administrator might forbid or limit an agent using a participant’s power to direct investment. The plan’s administrator uses an accounting firm to test coverage and nondiscrimination, and a different accounting firm to audit Form 5500 reports and financial statements. That auditor firm has a distinct work group who do only employee-benefit-plan audits and lots of them, including many that require information from Ascensus. Also, the employer uses, beyond its internal accountants, three accounting firms for the employer’s financial statements and allocations, and a separate accounting firm for tax accounting. Some of these services involve checking another’s work. For ERISA disclosures and related advice, the plan’s administrator uses Fiduciary Guidance Counsel. My information for the decision-makers to consider will include EBSA lawyers’ and officials’ distaste for brokerage windows. Do you think a plan’s fiduciary must monitor what happens inside participants’ brokerage accounts? And if so, why? (I ask because I respect your views.) Or is the plan fiduciary’s duty only to find that Schwab is a reputable broker-dealer, that Schwab and Ascensus deliver information needed for the plan’s auditing, and that participants can get information to direct one’s own investments? Am I right in guessing that a Form 5500 report shows the beginning-of-year and end-of-year balances held in the participant-directed brokerage accounts, but need not show details on which mutual funds the plan’s trust holds, except for those that are a 5% concentration (or involve a nonexempt prohibited transaction)?

For an individual-account retirement plan with participant-directed investment that gets Ascensus’ recordkeeping services, the plan’s sponsor (which also is the plan’s administrator and trustee) is considering adding a Schwab Personal Choice brokerage window, restricted to mutual-funds-only. Unlike other employee populations in which only a relatively few participants use a brokerage window, almost all participants would use the mutual-funds window. The employer pays Ascensus’ fees for all still-employed participants, and likewise would pay Ascensus’ incremental fees for pulling the brokerage accounts into the recordkeeping. The counts of participants, all of whom have a plan account balance, are such that the plan every year will require an independent qualified public accountant’s audit of the plan’s financial statements. An Ascensus-aligned trust company is the plan trustee’s custodian. The plan does not use Ascensus or a TPA to test coverage, nondiscrimination, or top-heavy measures. BenefitsLink neighbors, what difficulties should I advise this plan sponsor to consider in its decision-making about whether to add the brokerage window?

David Rigby, thank you for those fine examples of another profession's task that one can do more efficiently or effectively with an actuary's help.

Paul I, thank you. BenefitsLink neighbors, further thoughts on how to help an actuary?

Actuaries, for situations in which you must integrate or at least align your work with others’ work—or doing your work depends on information from another professional’s work—what can other professionals do to help, or at least not interfere with, your work? My law school courses for LLM and MST students include lessons on how professionals of all stripes should be respectful of another’s profession, and should do one’s own work in ways that support another professional’s work. I hope to fill out an explanation of how lawyers, accountants, and other professionals can work in ways that help an actuary do her work. This can be about an actuary’s work for health, disability, and other welfare benefit plans; pension and other retirement plans; or pricing any kind of insurance. What could someone else do to make your work as an actuary a little easier? And for a BenefitsLink neighbor who is not an actuary, what work steps improve your working relationship with an actuary?

Many charities and other tax-exempt organizations have an accounting year meant to measure a program year, and a year ended June 30 is a common choice. Some profit-seeking businesses have seasonal or business-cycle reasons to use an accounting year with an end other than December. In my experience, it’s often simpler to administer an individual-account (defined-contribution) retirement plan with a calendar plan year, rather than a plan sponsor’s or participating employer’s accounting year. But much depends on the plan’s provisions. And on how strong or weak is the employer’s need or interest in measuring an accrual for a nonelective or matching contribution on the employer’s accounting year. If there’s a reason to revisit a selection of either the employer’s accounting year or the plan’s accounting year or other plan year, consider involving both sets of decision-makers, including each’s lawyers and accountants.

The House bill you point to was introduced in the 118th (2023-2024) Congress, saw no action beyond the introduction, and died with the end of the 118th Congress. Even if similar legislation is introduced in the 119th Congress, enactment in 2025 or 2026 seems unlikely. Among other reasons, I doubt 50 Senators would vote to abolish or change the Senate’s unlimited-debate rule. Thus, unless support for the legislation is unanimous, proceeding to a Senate vote on a bill would require 60 Senators to vote for cloture. And because a bill might suffer multiple filibusters, even a bill supported by 60 or more Senators might be delayed. The States’ attorneys general February 6, 2025 letter: mentions that some officials of some States have suggested that a governmental plan divest from China; asserts that BlackRock and some other investment managers had not sufficiently disclosed information about some funds’ investments in China; asserts that some descriptions about a fund’s ESG, especially environmental, qualities are misleading; describes an ERISA-governed plan’s fiduciary’s responsibility to meet ERISA § 404(a)(1)(B)’s prudence in evaluating the fiduciary’s investment decision. Following this, the letter suggests that a fiduciary who too easily relies on a prospectus, offering statement, or other description with omitted or misleading information might not meet § 404(a)(1)(B)’s prudence. The letter does not state that any State’s constitution, statute, or other act that has the force of law precludes an investment in China or a foreign adversary. If there is such a State law, ERISA supersedes a State law that relates to an ERISA fiduciary’s responsibility. For a background on how courts have interpreted ERISA § 514, see “The Complex World of ERISA Preemption” [chapter 9] in ERISA: A Comprehensive Guide (Wolters Kluwer 10th ed. updated Dec. 18, 2024). If your firm isn’t a subscriber, see https://law-store.wolterskluwer.com/s/product/erisa-a-comprehensive-guide-10e-misb/01t4R00000PHIACQA5. (Although I’m a contributing author in that treatise, I get no $ for suggesting it and no royalty on sales.) ERISA might not preempt a State law that regulates banking, insurance, or securities. Yet, other Federal law often preempts a State law that would regulate banking or securities.

While Gadgetfreak is right to mention the 5%-owner variation, consider further that whether a participant is or was “a 5-percent owner (as defined in section 416)” for § 401(a)(9) is determined “with respect to the plan year ending in the calendar year in which the employee attains the applicable age[.]” Internal Revenue Code of 1986 (26 U.S.C.) § 401(a)(9)(C)(ii)(I). “For purposes of section 401(a)(9), a 5-percent owner is [a participant] who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the [participant] attains the applicable age.” 26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii). Nancy’s query supposes that the lawyer “changed status . . . in 2021 when he attained age 70.” Many law firms’ partnership agreements provide age 70 as a mandatory or presumptive retirement age. Often, a retired partner continues working, but on a less active schedule. A change in classification from an active partner to an inactive or retired partner often involves adjusting or redeeming a partner’s capital interests, profits interests, or both. By 2024 or the other relevant year in which the participant reached age 73, he might no longer have been a 5% owner. For a participant not constrained by the 5%-owner variation, one’s required beginning date might follow from the later of one’s applicable age and “[t]he calendar year in which the [participant] retires from employment with the employer maintaining the plan.” 26 C.F.R. § 1.401(a)(9)-2(b)(1)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(1)(ii). Again, a service provider might suggest that the plan’s administrator check carefully the facts and consider prudently how relevant law applies regarding the facts found.

In lawyers’ and law firms’ lingo, the label “of counsel” has no one settled meaning. It can relate to any of many kinds of relationships. It can, in context, refer to a current partner, a retired partner, an employee, or a nonemployee contractor. Does the of-counsel lawyer provide any service? Even having a lunch conversation with a client’s inside counsel or executive to help keep the client content with the relationship might be a valuable service. Don’t reflexively assume this person is retired. Suggest the plan’s administrator decide whether the participant is or isn’t retired (in the sense Internal Revenue Code § 401(a)(9) uses that word). If the law firm feels unready to interpret § 401(a)(9) and how it applies regarding the facts, you can suggest that the firm might get another lawyer’s advice.

That someone said “[I’m] about to get married” does not necessarily mean he did not already have a spouse. He might have colloquially said “get married” to refer to a ceremony, rather than making the legal status of spouses. An employee-benefit plan’s administrator might want its lawyers’ advice about whether it might be unwise to ask this individual for proof not asked of others. Consider that even a fleeting presence in a nation, state, or other jurisdiction that at the time recognized common-law marriage could have resulted in a couple’s marriage. What makes a common-law marriage is that each party must be legally capable of making a marriage contract and each must state one’s present agreement to assume the relationship of spouses. That statement need not be in writing, it can be oral. Every US State recognizes as a marriage a common-law marriage made in a jurisdiction where such a marriage is legally recognized. For example, California Family Code § 308 states: “A marriage contracted outside this state that would be valid by laws of the jurisdiction in which the marriage was contracted is valid in California.” Even a weekend or one-day trip can result in a marriage. For example, Tornese v. Tornese, 233 App. Div. 2d 316, 649 N.Y.S.2d 177, 1996 N.Y. App. Div. LEXIS 11623 (N.Y. App. Div. 1996) (“[O]n a weekend trip to Pennsylvania in 1976, [John] told [Helen], . . . , that their divorce about two months earlier had been a mistake, [Helen] agreed, and the parties decided that they were married.”). WalkingAssets, I don’t suggest that the couple you describe are spouses; rather, I suggest you might not know that they’re not. This is not advice to anyone.

I’m very glad you responded, and with the useful information you added. It’s information I otherwise would lack because the last time I had responsibility to get an IRS opinion or determination letter on the form of a plan’s documents was in the 1990s. And your story reinforces the point that there can be, and sometimes need to be, different defined terms for different provisions.

Before too hastily assuming that the plan was administered other than according to the written plan’s provisions, consider looking carefully to find all possibly relevant writings and evaluating whether some writings amended what otherwise would be “the” plan documents. Although ERISA calls for a plan to be written, it need not be one fully integrated exclusive writing. And nothing in ERISA commands that an amendment be made with the same formality as the writing the amendment would change. Several courts’ decisions observe that a written plan might comprise several formal and informal writings. Many plans do not restrict what kind of writing amends a plan. (One would read, carefully, the documents governing the plan to confirm the absence of a restriction that would make a less-formal writing insufficient to amend the plan.) For example, a written agreement with a default IRA provider might state that the plan provides an involuntary distribution of a balance that’s no more than $5,000 (or the applicable limit on an involuntary distribution before the participant’s normal retirement age). Such an agreement might have been signed, ratified, or otherwise adopted by a person who or that had authority to amend the plan. Likewise, communications to participants might have stated the cash-out provision, and might have been signed, ratified, or otherwise adopted by a person who or that had authority to amend the plan. A signature can be using on or in a writing a person’s name, including a corporation’s or other organization’s name, with an intent to adopt the writing. Under Federal law, an electronic signature can be as simple as sending an email with the sender’s intent to adopt the text the email delivers. A plan sponsor might want its lawyers’ reading and advice about whether the sponsor amended the plan to change the involuntary-distribution threshold, and (if the sponsor did) when the amendment took effect. This is not advice to anyone.

What CuseFan describes seems logically consistent with some possibilities and assumptions my posts in this thread mention.

The second page of a Form 5500 report shows the plan’s administrator’s name, address, and telephone number. The reports are readily available at https://www.efast.dol.gov/5500Search/. To avoid a list of 593 reports for which the “Plan Name” begins with FedEx, use the webpage’s search filters. Further, you might ask whether FedEx or Vanguard outsources reviews of domestic-relations orders.

R Griffith, thank you for the point about managed accounts.

If the plan sponsor is not in a chapter 7 liquidation bankruptcy, a termination administrator is a qualified termination administrator “only if: (1) It is eligible to serve as a trustee or issuer of an [IRA], and (2) It holds assets of the plan that is found abandoned [under the QTA rule].” 29 C.F.R. § 2578.1(g) https://www.ecfr.gov/current/title-29/part-2578#p-2578.1(g). Otherwise, a Federal court appoints an EBSA-selected cleanup fiduciary when no one applies to serve as a QTA (or none is eligible), no bankruptcy trustee or insolvency receiver serves, and the Secretary of Labor, acting by the Solicitor of Labor, brings a civil action. (The Labor department makes policy and strategic decisions about which situations to pursue, and which to ignore.) A District Judge typically follows Labor’s suggestion on who should serve as a cleanup fiduciary. Some trust or insurance companies volunteer to serve as a qualified termination administrator; some don’t. You might be in luck; Voya serves. https://www.askebsa.dol.gov/AbandonedPlanSearch/UI/QTASearchResults.aspx If you know the plan’s administrator’s contact at Voya, consider starting there.

Even if an adjunct teaches in every semester, an adjunct who teaches one course each semester, has no student-counseling obligation beyond her one course, has no administrative obligation beyond grading her course’s students, has no faculty-committees obligation, and has no scholarly-publishing obligation seems unlikely to be credited with 1,000 hours of service in a year. Universities have a range of conventions for estimating an adjunct’s hours of service. Just to show one: To discern for the excise tax on not providing health coverage whether an employee has 30 hours a week or 130 hours a month, some employers use this: “[O]ne (but not the only) method that is reasonable for this purpose would credit an adjunct faculty member of an institution of higher education with (a) 2¼ hours of service (representing a combination of teaching or classroom time and time performing related tasks such as class preparation and grading of examinations or papers) per week for each hour of teaching or classroom time (in other words, in addition to crediting an hour of service for each hour teaching in the classroom, this method would credit an additional 1¼ hours for activities such as class preparation and grading) and, separately, (b) an hour of service per week for each additional hour outside of the classroom the faculty member spends performing duties he or she is required to perform (such as required office hours or required attendance at faculty meetings).” Page 8552, left column https://www.govinfo.gov/content/pkg/FR-2014-02-12/pdf/2014-03082.pdf Assume a 15-week semester and that an adjunct teaches in both semesters of a two-semester academic year. Assume an adjunct is expected during a semester to be “reasonably available” to counsel her students. That’s 30 hours under the (b) element of the paragraph quoted above. To meet 970 hours for the (a) element, a teacher would need 431 hours of classroom time. Even an adjunct who has taught regularly for many years might never have had a 12-month period with 1,000 hours of service.

The employer might fear enforcement from workers and organized labor even more than enforcement by the US Labor department’s Employee Benefits Security Administration. The employer might want its bankruptcy lawyer’s advice about which debts are nondischargeable. Each of the employer’s owners and executives might want one’s lawyer’s advice about the extent to which the individual might be personally liable regarding the employer’s debts. This is not advice to anyone.

And when one reads all plan and trust documents, be on the lookout for provisions that might be invalid, or that might not have the effect a reader might discern from an isolated reading. “[A] provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part [ERISA §§ 401-414] shall be void as against public policy.” ERISA § 410(a), 29 U.S.C. § 1110(a). An ERISA-governed plan’s trustee cannot escape an ERISA-provided responsibility, including a § 405(a) responsibility regarding a cotrustee’s, administrator’s, or other fiduciary’s breach.