Peter Gulia

Absent employer securities, I often suggest an employer might prefer to get rid of obligations to alternate payees as quickly as allowed. Any different views?

If an IRS-preapproved document's "adoption agreement" allows a choice to preclude a QDRO distribution until the ERISA 206(d)(3) / IRC 414(p) earliest retirement age, how would you advise an employer about whether it should select that provision?

The Treasury department proposes to remove 26 C.F.R. 1.401-4, and does not propose to remove any of 26 C.F.R. 1.401(a)(4)-0 to -13.

The proposed removals are of regulations, not lower-ranking guidance documents. But if a guidance document interprets a regulation that is removed, a taxpayer, preparer, or practitioner might consider the removal in evaluating how much support the guidance document provides to support a tax position.

If we assume it’s impractical to deny QDRO treatment to a court’s order merely because circumstances suggest an intent to game a plan’s distribution restriction, let’s consider a related plan-design question. For the retirement plans involved in the request for the 1999 advisory opinion or the litigation described above, both employers had an economic stake in not too easily allowing an alternate payee to get something the participant could not get. With a defined-benefit pension plan’s sharing of risks, guarding against adverse selection might matter. And with an employee stock ownership plan, an employer/issuer’s interests in markets for its securities (or, if the securities are not publicly traded, a repurchase or redemption obligation) might lead an employer to care about when an employee or former employee (or his or her beneficiary or alternate payee) gets a right regarding the securities. Imagine an individual-account (defined-contribution) retirement plan that has no investment in employer securities. Can smart BenefitsLink people imagine a situation in which an employer has an economic stake in restraining an opportunity to use a QDRO to get a distribution the participant could not get?

https://www.ecfr.gov/cgi-bin/text-idx?SID=9d64ceb86f3c44b37349665080eb2b07&mc=true&node=se26.6.1_1401_2a_3_24_3_64&rgn=div8

Another question for BenefitsLink readers: What employee-benefits issue have you worked on in recent years that turned on applying law or a plan's provisions to some time before 1975 (or another decades-ago effective date or transition date)? For example, I recently advised on a claim that turns on counting the participant's pre-ERISA service and advising about whether a plan's provisions are and were consistent with tax qualification under the Internal Revenue Code of 1954.

And here's a link to Reorganization Plan No. 4 of 1978: http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title5a-node84-leaf188&num=0&edition=prelim That plan makes Treasury department rules authority not only to interpret the Internal Revenue Code and other tax law but also to interpret some sections of non-tax ERISA.

Here's a link to today's publication in the Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2018-02-15/pdf/2018-02918.pdf Proposals that relate to Internal Revenue Code sections 401-416 are at .pdf pages 10 and 11. And here's links to rules interpreting IRC section 411: https://www.ecfr.gov/cgi-bin/text-idx?SID=35e13deb9029e988c2d005510af23f04&mc=true&tpl=/ecfrbrowse/Title26/26cfr1g_main_02.tpl Many of the rules proposed to be removed are about transitions for changes in the statutes.

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.