Peter Gulia

Imagine an independent qualified public accountant in its audit of a retirement plan's financial statements discovers an operational error, one that if not corrected could result in the plan's tax disqualification. May the same accounting firm act as the plan sponsor's representative before the IRS for a correction procedure? (Assume the firm desires to continue as the IQPA auditor.) Is there an independence problem? Are there conditions under which there would not be an independence problem?

If ERISA's title I does not govern a plan, it also doesn't relieve a person from a liability or a responsibility. The person evaluating whether to instruct a default investment and how to communicate about the possibilities of a default investment might want its lawyer's advice about State law. Further, it might consider the plan's provisions and what effect they might have under State law.

Consider entering for the electronic schedule a general description and a cross-reference to the attached report.

Some employer/administrators consider it safer to provide that a participant's instruction to stop elective-deferral contributions does not include an implied or presumed resumption, and to warn the participant (in the summary plan description and in the hardship claim form) that the participant must make a new election for elective-deferral contributions. Else, the employer/administrator might be vulnerable to some assertions that it should bear some responsibility for forgetting or neglecting to restart participant contributions.

Carol is who you want on this.

In my experience, many users of preapproved documents fall into this trap for the unwary: The user assumes a document’s provisions (beyond choices deliberately selected in an “adoption agreement” form) impose exactly what’s necessary to get the § 401(a) or § 403(b) tax treatment. That a document can impose an obligation that isn’t necessary to get the tax treatment is beyond what a typical user imagines. For many users, the expenses and other costs of not using a preapproved document result in a decision to fall in with a preapproved document, even if the document states provisions the sponsor doesn’t want (and that otherwise might not be required under applicable law). But an employer won’t know it needs to administer a provision it didn’t ask for unless the employer reads the document to learn the unanticipated provisions. An employer that maintains a plan not governed by ERISA might not have imagined the “once in, always in” provision. And this is just one of many gaps that can result from using a preapproved text that might impose an obligation that isn’t necessary for every user plan.

AdKu, your description of how someone drafted a Schedule A suggests the drafter might believe there is an insurance contract. An insurance company's separate account relates to a specified set of insurance contracts with provisions that refer to the separate account. Most often, an insurance company's separate account relates to a life insurance contract or annuity contract. Many retirement plans hold some kinds of investments in the form of an annuity contract, even when the plan's fiduciary intends never to use the contract holder's right to get an annuity payout.

That a document has an IRS opinion letter doesn't relieve a plan's sponsor from a need to read and understand everything the documents say. Or if a plan's sponsor doesn't want to do the reading, to get someone knowledgeable to read and explain the documents.

The “once in, always in” provision Bob Toth describes is the IRS’s effort to get a provision that contravenes neither IRC § 403(b)(12)(A)(ii) nor 26 C.F.R. § 1.403(b)-5(b)(4)(iii)(B), and provides some employees more protection than the statute or its regulation requires as a condition to IRC § 403(b) tax treatment. Under IRC § 403(b)(12)(A), a plan may (without failing to meet a tax-Code nondiscrimination condition) exclude from a right to make salary-reduction contributions “employees who normally work less than 20 hours per week.” For a plan year that ends later than 12 months after the employee’s employment commenced, 26 C.F.R. § 1.403(b)-5(b)(4)(iii)(B)(2) treats an employee as one who normally works fewer than 20 hours per week “if and only if” she “worked fewer than 1,000 hours of service in the preceding 12-month period.” In the IRS’s “sample” provision for a § 403(b) pre-approved plan, most of its text is a paraphrase of 26 C.F.R. § 1.403(b)-5(b)(4)(iii)(B), but its last sentence is not. Also, 26 C.F.R. § 1.403(b)-5(b)(4)(iii)(B)(2) includes a parenthetical citation sentence that cautions a reader to consider ERISA § 202(a)(1) for a plan that ERISA’s title I might govern.

Also for what it's worth (which might be little) and without remarking on any EBSA investigator's proposed remedies (and what an administrator and its counsel might do to resist them), I think a plan's administrator must obey the plan's governing documents (unless a document's provision is contrary to ERISA). If a plan mandates involuntary distributions of a severed participant's small-balance account, the administrator must do what the plan provides. If a plan permits its administrator to decide involuntary distributions in the administrator's discretion, the administrator ought to design, following ERISA 404(a)(1) duties, an exclusive-purpose prudent procedure for deciding which conditions make it right to pay a distribution and which conditions make it right not to pay a distribution.

Is it permitted (and practical) to charge a participant's (or beneficiary's) account for the plan-administration expenses of delivering required notices and other prudent communications?

My 2 cents, thank you for thinking about this. My question is not about whether relevant law permits a plan to charge against the accounts of severed-from-employment participants a proper share of the plan's administration expenses. I assume the law permits this. Rather, my question is about whether there are practical constraints, perhaps following recordkeepers' business methods, on implementing those charges. BenefitsLink mavens, any thoughts about my (restated) question? And how about my implicit assumption that, if plan-administration expenses are fairly apportioned, a plan's sponsor might be relatively indifferent to whether a small-balance account is distributed or remains invested?

If you'd like to read the rule mdm09 refers to, here's a link: https://www.ecfr.gov/cgi-bin/text-idx?SID=2dd0cb953fab89b3f5b297cd598aa3f8&mc=true&node=se26.2.1_1125_64&rgn=div8

Is this an opportunity for another service provider to offer a useful service?

A question: If a plan's sponsor amended a plan so it does not provide an involuntary distribution (except as needed to meet IRC 401(a)(9)), whether mandated or at the administrator's discretion, would that change resolve many of the concerns MoJo describes? For a plan that does not "cash out" small-balance accounts, is it feasible to charge against the accounts of severed-from-employment participants a proper share of the plan's administration expenses?

Perhaps those who feel an administrator should do more to locate a participant (or to urge a participant to respond) might think twice if the administrator allocated the expense of each search or other effort as a charge on the account of the missing participant.

Those who have remarked on some investigators’ unsupported assertions about which methods and how much effort a plan’s administrator ought to use in searching for a missing or unresponsive participant might want to read this American Benefits Council letter. https://www.americanbenefitscouncil.org/pub/?id=d68a50ca-908c-9e37-d53d-3111689f91ff

So far, the contender (furnished separately from the bulletin board) for worst is a 111-page document with many references to other documents, which I estimate (based on relevant business experience) as at least hundreds, if not a couple thousand, pages more. The 408b-2 disclosure is pages 109-111. Those pages do not specify any element of compensation as a particular amount, or as a percentage of plan, trust, or fund assets managed or advised. Instead, each paragraph describes other documents in which a reader could find information. Likewise, the 408b-2 does not state whether any covered service provider is or isn't a fiduciary, but refers to other documents. So do BenefitsLink readers have other contenders for worst disclosure?

dmwe, thank you! Do you remember whether anything at the outset of the 70+ pages told a reader which source document one should look at to discern which service configuration applies?

Mike Preston, if there were no excise tax, is there any other reason a provision for paying the beneficiary might be unwise?

CuseFan and Mojo, can you help me with examples of hard-to-read disclosures?

Beyond jpod's originating question, what do BenefitsLink mavens think about adding to a plan document a provision to make clear that anything (except an alternate payee's rights) not paid before the participant's death, even if it was required to be paid, belongs to (or is distributable to) the beneficiary or beneficiaries? Should a plan's sponsor add a provision of this kind? Or is there some reason stating the provision would be unwise?

For my LL.M. students in my ERISA Fiduciary Responsibility course, next week’s lesson is about prohibited transactions and exemptions. As a part of that lesson, I explain that the ERISA § 408(b)(2) exemption is grounded on an assumption that an approving fiduciary gets enough information about a service provider’s services and compensation. With this, I explain that many disclosures that arguably meet what’s required under the 408b-2 rule don’t, practically, furnish information in a way that’s useful to the fiduciary’s decision-maker. I hope to show my students some real-world effects of the 408b-2 rule. To do so, I’d like to show them a contrast of disclosures: one that is short, clear, easy to read, and fulfills the purpose of furnishing useful information to an unknowledgeable fiduciary; and one that is too long, ambiguous, a pain-in-the-neck to read, and difficult to understand. So I hope BenefitsLink mavens will help me by attaching or linking here (or, to avoid putting something on the Internet, e-mailing me) some samples of “best” and “worst” disclosures. (I understand you might redact names and other identifying information to protect nonpublic information, or to avoid offending someone.) I’m looking for disclosures addressed to plans smaller than $50 million, and preferably including small and “micro” plans. Likewise, because the difficult issues often aren’t in a TPA’s disclosures, I’m looking for disclosures of investment brokers, insurance companies, or recordkeepers that get (and keep) “revenue-sharing” or indirect compensation. I don’t want to praise or embarrass anyone, so I’ll further redact and deidentify the illustrations before I show anything. Also, I’ll use the illustrations only for show-and-tell in the classroom, and won’t allow a student to keep anything.

My points were that the correct reading of the plan might not matter, and that the personal representative might not need to know which interpretation is correct to find a responsibility to pursue the estate's claim. But I didn't mean to impede anyone's curiosity about how to interpret the plan.

jpod, if your client is the personal representative of the participant/decedent's estate (and the plan or its administrator isn't), don't you: (1) submit your client's claim to the plan's administrator; (2) if it's denied, exhaust the plan's claims procedure; and (3) if it's still denied, provide to your client your candid advice to inform the personal representative's cost-benefit analysis about whether it makes sense (or doesn't) to pursue the claim in litigation? If the administrator followed the plan's claims procedure, is it likely a court would defer to the administrator's interpretation of the plan as long as the interpretation isn't implausible? Many courts' opinions have said an administrator's finding need not be the one the court would have made; rather, it need be only not so obviously wrong that it could not have been an exercise of the administrator's discretion to interpret the plan. But whatever might happen for step (3), wouldn't modest expense mean that a prudent personal representative should pursue the claim at least under the plan's claims procedure?