Peter Gulia

Related discussion: If a plan's sponsor has not amended its plan, there might be little or nothing for the plan's administrator to explain to the plan's participants.

I’m less confident that a plan always lacks a choice about whether to pay on a small-estate affidavit. Much turns on the governing documents’ provisions. Especially on exactly how a document describes a “default” beneficiary. It’s one thing if a plan’s administrator considers a State law in resolving a status question that otherwise might not be resolved under ERISA and the Federal common law of ERISA. Or a plan’s administrator might, in its exercise of its discretion, volunteer to consider a relevant State law as an aid to the administrator’s interpretation of the plan. But if applying a State’s law would call for an outcome different than the administrator’s finding about what the plan provides, an administrator or trustee might assume that ERISA preempts State law. (And if even a fiduciary might be content with State law, one might worry that a later claimant could argue that following a preempted law was a breach of the fiduciary’s duties.) Consider too the effect of plan-granted discretion and Firestone deference. If a governing document specifies that the “default” beneficiary is “the participant’s estate”, an administrator might decide (perhaps on grounds of the kind Luke Bailey suggests) that a claimant named in a small-estate affidavit sufficiently represents the estate. But what if a plan’s governing documents specify that the “default” beneficiary is not ‘the estate’ but rather “the personal representative of the participant’s estate”? Could a plan’s administrator decide that the State law referred to in the small-estate affidavit does not make a claimant a personal representative (within the plan’s meaning)? And wouldn’t a court defer to such a decision (if it’s not an abuse of discretion)?

If this plan is not ERISA-governed, one might think mostly about tax treatment (but also at least some about avoiding a self-dealing transaction under a relevant State’s trust law and IRC § 4975). 26 C.F.R. § 1.72(p)-1 begins with an assumption that a participant loan treated as not a distribution must have an interest rate and repayment terms that are “commercially reasonable”. One doubts a tax practitioner should advise a client that zero interest fits the rule’s meaning. On questions about what interest is enough (and not too much), is it mostly a question about how much risk the one participant is comfortable with?

Belgarath, thank you for making clear that an employer/administrator's outlook on what amount to risk without further review doesn't necessarily relate to a State's limit on what can be claimed under a small-estate affidavit.

jpod, thank you for sharing your observations. BenefitsLink mavens, for a plan's administrator to treat relying on a small-estate-affidavit law as low-risk, does it matter what amount is claimed? For example, if a claim is for $100,000 and that amount is within the relevant State's law for a disposition following a small-estate affidavit, does a plan fiduciary treat such a claim as low risk?

Luke Bailey, thank you for your observations, especially about the interaction of Federal law and State law. BenefitsLink neighbors, my query is not about sorting out the law. Rather, my curiosity is about what plans actually do.

ESOP Guy, thank you for this very useful information. On those situations in which a lawyer was asked for advice, about how many ended with the plan acting on a small-estate affidavit? And about how often did a plan refuse to follow a small-estate affidavit?

Some 403(b) plans are governmental plans not governed by ERISA. Some 403(b) plans are church plans that have not elected to be governed by ERISA.

To allow a convenience in collecting the assets of a small estate, some States’ laws permit an affidavit in which one claims she is entitled to the decedent’s property. Under a typical law of this kind, one might collect up to $50,000 without any court-supervised proceeding. If a participant dies with no surviving spouse and no other designated beneficiary, some retirement plans provide that the participant’s estate is the “default” beneficiary. If a plan you administer or serve is in this situation, is the plan willing to pay a taker based on a small-estate affidavit? If a plan is willing, does the administrator use any extra steps to manage the risk that an affidavit is false (or even innocently incorrect), leaving the plan exposed to claims of the estate’s beneficiaries or heirs? Or does a plan refuse to pay on a small-estate affidavit? BenefitsLink people, what are your experiences?

XTitan, thank you for posting this pointer.

And while it is your client's decision, imagine the possibilities that an employer/administrator might prefer to file a report because it might help on one or more statute-of-limitations defenses under ERISA, the Internal Revenue Code, and other law.

RBG, thank you for your observation; it helps me.

If we recognize Tom Poje’s observation and others that assume the IRS won’t tax-disqualify a plan because its employer/administrator didn’t wait for a formal plan amendment and allowed something allowed under the proposed rule, why are some TPAs reluctant to meet some clients’ desire for the more lenient provisions? Is it that doing so would be a pain-in-the-assets?

If a participant submits a claim that meets the conditions for a casualty-loss hardship except that it is not attributable to a disaster declared by the United States, do your employer/administrators deny such a claim? And if they do deny it, does it bother them that one could, with a document, allow such a claim (even retroactively) with no meaningful risk that the IRS would treat this as an administration defect that tax-disqualifies a plan?

401 Chaos, thank you for sharing another perspective. Do you think the plan sponsor you describe might have felt differently if they could engage an independent trust company to make decisions about whether to continue (or remove) the non-fund security as an investment alternative?

If a plan’s sponsor delays plan amendments in response to these changes, how does a plan’s administrator—even if the employer, sponsor, and administrator all are one person—know which provisions to apply? And if an employer puts something in writing, what stops the writing from being a plan amendment?

To apply IRC § 401(a)(9) rules to § 403(b) contracts, minimum-distribution rules similar to those for IRAs (see 26 C.F.R. § 1.408-8) apply, with some exceptions. See 26 C.F.R. § 1.403(b)-6(e)(2) & -6(e)(7). Absent restrictive plan provisions, this permits a participant to meet her minimum distribution using a distribution from any of her 403(b) contracts (counting those she holds as a participant, not as a beneficiary). This information does not answer your questions. But it suggests some possible explanations about why a custodian or insurer might not treat a minimum-distribution provision as one that applies looking only to one plan.

Leaving aside questions about whether a fiduciary’s decision to allow an investment alternative meets its duties of loyalty, situations of the kind my hypo suggests happen, and often happen in the way CuseFan mentions—a spinoff turns something that was employer securities into no longer employer securities. Courts’ decisions following the Supremes’ Fifth Third pleading standard have shown that once a duty of diversification is excused, an investment in a publicly-traded security at an efficient-markets price is not inherently imprudent unless there is material information not disclosed to the investor. Once a menu of investment alternatives has a sufficiently broad range that a participant could meet diversification, ERISA § 404(c) puts the burden on the directing participant. If how much diversification an individual wants is the individual’s choice, might a fiduciary’s analysis about whether to allow or remove an investment alternative focus on whether a participant gets enough information to evaluate it for himself or herself?

J Simmons, than you for your observations. So let’s assume a fiduciary must prudently select and monitor any designated investment alternative. What facts would cause a fiduciary to find that a publicly-traded stock involves a risk a participant no longer can evaluate for himself or herself?

In February, the IRS released Rev. Proc. 2018-18 (published in Internal Revenue Bulletin 2018-10 on March 5), which applied the budget-reconciliation act's Chained Consumer Price Index and redid some inflation adjustments previously announced in Rev. Proc. 2017-37 and Rev. Proc. 2017-58. So the IRS has applied the new method at least once. It's unclear whether there is an ambiguity or difficulty about adjusting the flexible-spending-account limit. We now have a few weeks of participants getting communications that describe the limit as predicted but not established. How have participants reacted to those communications?

A § 401(k) retirement plan provides participant-directed investment (with daily instructions). The plan’s menu is filled with a broad range of diversified SEC-registered mutual funds. (Assume these are prudently selected, prudently disclosed, and meet all ERISA § 404(c) conditions.) Beyond those diversified investment alternatives, the menu for participant-directed investment includes an account that invests in the publicly-traded stock of an operating business. The account is 1% “cash” (to facilitate transactions) and 99% the stock. The stock is NOT employer securities. Assume the plan’s administrator furnishes to participants every securities-law report and other disclosure the stock’s issuer has filed. (The administrator sends these to participants’ work e-mail addresses and the plan’s website a few minutes after the document is filed with the SEC or the stock exchange.) Is it enough that a participant can decide for himself or herself to invest in (or avoid) this stock? Or must a fiduciary evaluate whether this stock account should remain an investment alternative? If there is such a duty, under what facts and circumstances would a fiduciary find that a participant no longer should have the choice?

Just as we were graced this morning with the Bakers' helpful posting about the retirement plans' limits, we'll look forward to BenefitsLink's news when the $2,700 for flexible spending accounts becomes official.

Beyond retirement plans, I advise registered investment advisers about their fiduciary duties and compliance procedures. This can include practical guidance on whether an adviser’s use of a client’s password for systems of a retirement-services provider results in custody or is a deceptive practice. (I informed my clients about Pennsylvania’s new interpretation the same day the Bureau of Securities Compliance and Examinations released it.) Also, I advise recordkeepers, third-party administrators, and other service providers about how to improve privacy, security, and other controls while allowing some access to a participant’s or beneficiary’s adviser (if that’s what my client wants).

If a service provider has responsibility for assembling a draft of the Form 5500 annual report, the provider might consider whether it has some obligation to inform the plan’s administrator about the administrator’s duty to consider whether the plan engaged in a nonexempt prohibited transaction (if the plan paid the distribution-services provider more than reasonable compensation for the services provided).

Has anyone had an EBSA or IRS examiner question a plan’s interest rate for a participant loan? (Despite 34 years’ experience working with retirement plans, I’ve never seen such a challenge.) If an examiner suggested an interest rate was too low (or too high), what reasoning did the examiner give?