Peter Gulia

If a participant sues the plan’s administrator for its fiduciary breach in approving a hardship claim it ought to have denied, the administrator might use the plan’s readiness to accept a repayment and the participant’s failure to repay to support several arguments, including: The participant lacks standing to pursue the plan’s loss. Because the participant had the use of the money, the participant’s plan account didn’t suffer a loss. The payment of the unentitled distribution was a nonexempt prohibited transaction [see also ERISA § 408(c)(1)], equitable relief [ERISA § 502(a)(3)] can be had from any person, and restoration or disgorgement should be had from the party-in-interest who received the proceeds of the prohibited transaction. Ordering the breaching fiduciary to restore the incorrectly paid amount to the participant’s plan account (without relief from the distributee) would afford a windfall to the participant, and the court instead should order equitable relief to avoid such an unconscientious result.

Luke Bailey, thank you for that helpful observation. In setting up my originating question, I didn’t pause to consider that idea. A plan’s administrator might respond to a participant’s complaint by inviting her to return the money she says she wasn’t entitled to.

Which person, the partnership or each corporation, maintains the retirement plan regarding which you provide services? What is stated in the plan's definition of compensation (whichever definition is relevant to the task you're getting ready to do)?

One imagines the IRS should prefer that a correction of an information return filed electronically also be made electronically. If your client consents, following Dave Baker's suggestion to post here the redacted letter might help you crowdsource finding whether the letter is a fraud.

Of the 1095-Cs that might be questioned, were they filed electronically?

For Form 5500, codes 2G and 2H refer to whether an individual-account plan has participant-directed investment, in whole or in part. Code 2F refers to whether a fiduciary intends to meet conditions that would allow an ERISA § 404(c) defense against a fiduciary-breach claim. spiritrider, if you or your client wants the breakdown between participant-directed and not, consider asking a data collector (perhaps one that advertises on BenefitsLink) what fee it would charge for pulling the Form 5500 data on your question.

I get the idea that a fiduciary shouldn’t leave unimproved a known flaw in the procedure that allows errors because of the procedure’s provisions. And I get the idea that we should not deliberately fail to correct a detected error (if there remains an opportunity to do so). But at least for work done by humans, the only method I know that might reduce errors to zero is reinspection of each worker’s work. And what if a reinspector makes a mistake? Some might interpret ERISA § 404(a)(1) as stating several commands, some of which might sometimes bear some internal tension. And such an interpretation might lead to harmonizing those commands following a retirement plan’s purpose. Section 404(a)(1)(B) refers to “the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims[.]” Yet one might read § 404(a)(1)(D)’s command to administer a plan “in accordance with the documents and instruments governing the plan” as calling for perfect fidelity to a plan’s provisions. But could such a reading conflict, at least at the margin, with § 404(a)(1)(A)’s command that a fiduciary discharge its duties “for the exclusive purpose of providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan”? If participants’ accounts bear the expenses, is it always “solely in the interest of the participants and beneficiaries” to reduce to zero the probability of mistaken claims decisions (especially if an unreviewed mistake grants a participant what he or she asked for)? Perhaps in the fall semester I’ll invite my ERISA Fiduciary Responsibility law students to research and write about these questions. Thank you for a thoughtful discussion.

MoJo, thank you for explaining a view that's helpful for me to think about.

And despite my usually good work, my preceding post has a word missing. If this had been work deliverable to a client, I might have used an assistant to double-check my work (and a client might have borne that expense). But might some clients prefer to tolerate an imperfection?

Should we consider that not all claims are submitted electronically? Of those on paper, might a recordkeeper's employee see a few hundred claim forms in a business day? Might such an employee, even if neither under-paid nor over-worked, sometimes have a bleary-eyed moment in which he believed a question was answered with the form's Yes box checked while the claimant's actual response was a No? Recognizing that each incremental to catch mistakes costs something, could a prudent administrator and a businesslike recordkeeper negotiate how much process and accuracy the plan wants to pay for?

If a plan's administrator and recordkeeper have negotiated a service contract that obligates the recordkeeper to process hardship claims under a procedure set by the administrator, the recordkeeper will want to perform the contracted service. And if a recordkeeper seeks to maintain a position that it lacks discretion because it "performs purely ministerial functions . . . within a framework of policies, interpretations, rules, practices and procedures" instructed by the plan's administrator, the recordkeeper should want the administrator to do enough oversight for the administrator to find that the recordkeeper follows the instructed procedure well enough that one can say it really is the administrator's (rather than the recordkeeper's) procedure. But I doubt an administrator must inspect 100% of the recordkeeper's processing decisions. And for those the administrator evaluates, I doubt prudence requires the administrator to cause the recordkeeper to attain 100% accuracy.

AKconsult, thank you for a helpful explanation!

In typical situations for most single-employer retirement plans, a plan’s administrator might be the same legal person as the plan’s sponsor, or some committee of that person. Typically, such an administrator’s worker also is an employee of an employer that maintains the plan. And usually one assumes the restraints of 29 C.F.R. § 2550.408c-2: Reasonable compensation for services needed to administer a plan doesn’t include any compensation for a fiduciary who gets full-time pay from an employer that maintains the plan. But although that situation might be a norm, it’s not the only way a plan can be administered. MoJo, I’m thinking of a retirement plan that hires its own employees (in addition to the recordkeeper), all of whom do no work for any employer that maintains the plan. In that situation, doing more work in reviewing claims could increase the plan’s expense and so reduce participants’ benefits. RatherBeGolfing, your observation suggests a point that those of the fiduciaries who decide to continue or renegotiate the recordkeeper’s agreement should evaluate whether the scope and quality of those services fits that fee. Also, some service contracts adjust the fees based on independent tests of the service provider’s work. Improving the recordkeeper’s processing (which might in some circumstances support a fee increase) could affect how much supervision or review the fiduciaries find necessary. Mike Preston, thank you for the idea. Assuming the plan’s administrator did not fail to implement a qualified domestic relations order and did not fail to obtain a qualified election (supported by the spouse’s consent) if ERISA § 205 or the plan’s governing documents required it, I assume a nonparticipant’s claim would be beyond those empowered under ERISA § 502(a). Again, thank you, all, for helping me think about this. I wonder if another answer to my question about how much effort to put into reviewing hardship claims is: enough so the fiduciary will have made a prudent effort against the possibility that the IRS might tax-disqualify the plan, but no more than is prudent for that purpose (if the effort would incur unnecessary expense borne by the plan).

RatherBeGolfing is on to something. My hypo is designed to help some fiduciaries gather information about how much effort (beyond the recordkeeper's work) the administrator should put into reviewing hardship claims. And in my imaginary situation, all work done to review hardship claims is paid from plan assets, and so reduces participants' benefits. Some believe the plan's administration should use enough effort for the administrator to have a high confidence level that hardship claims are decided correctly. Others feel that a fiduciary's duty to incur no more than reasonably necessary expenses suggests a greater tolerance for incorrect decisions. A part of their reasoning is their observation that the recordkeeper's processing rarely results in an incorrect denial (and a denial can be remedied through the plan's claims procedure), and an incorrect approval does not harm a participant beyond what the participant asked for. In theory, fiduciaries should care about what is loyal and prudent without regard to what the Labor department might or might not pursue. Yet the fiduciaries feel they should consider the practicalities of the plan incurring expenses to respond to an EBSA investigation (which the fiduciaries believe would not become chargeable to any fiduciary). So let's imagine the fiduciaries adopt a procedure for following the recordkeeper's clerical processing, with after-the-fact reviews of a small random sample that a consultant advises is just enough to detect a defect or systemic weakness in the clerical procedure. If that's the fiduciaries' decision, is there anything for the Labor department to pursue?

Thank you, everyone, for the helpful information. Let's follow-up on MoJo's question: Without doubting the power of the Labor department to pursue a breach of ERISA section 404(a)(1)(D), how likely is it that the DoL would pursue enforcement action against a plan's fiduciary for granting a participant exactly what the participant asked for?

Consider these circumstances: An individual-account retirement plan that includes a 401(k) arrangement allows a distribution as needed to meet a participant's hardship need. A participant submits a claim for such a distribution. The plan's administrator approves the claim, and instructs the plan's trustee to pay the requested distribution. But had the administrator read the participant's claim, it would have known that the participant was not entitled to a hardship distribution. Assuming the plan is ERISA-governed, does the participant have a viable claim against the administrator for its approval of the participant's claim. If there is such a claim, why is it viable or not viable? If there is a claim, what is the measure of the losses that result from the administrator's breach? I guess a court would dismiss a participant's claim. But perhaps I suffer from a failure of imagination. Can anyone pull together a claim a court would recognize?

For a single-employer plan or a multiple-employer plan, ERISA § 403(c)(2)(A)(ii) allows, as an exception from that § 403(c)(1)’s exclusive-purpose and non-inurement commands, a return of an employer’s contribution or payment made by a mistake of fact if the return to the employer is within one year after the mistaken payment of the contribution. Many plans’ governing documents have a provision designed to fit this exception.

If the plan’s provision follows 26 C.F.R. § 1.401(k)-1(d)(3)(iii)(B)(4), that the participant does not own the real property should not, by itself, negate a deemed financial need if the residence is the participant’s principal residence and he or she needs the plan’s distribution to prevent an eviction of his opportunity to live in his principal residence. About whether the participant lacks other resources, consider whether the plan empowers its administrator to rely on the claimant’s written statements.

The originating post refers to a bankruptcy attorney (and doesn't say which person that attorney represents or advises), and doesn't mention any bankruptcy trustee. Also, the originating post says it's a chapter 11 reorganization, so there might have been no appointment of a bankruptcy trustee. (A debtor-in-possession reorganization might be accomplished with no use of a bankruptcy trustee.) Further, it's possible the employer no longer serves as the plan's administrator, and that the current plan administrator or other fiduciary that has power to decide to pay an expense from plan assets is a person that needs no mother-may-I to make a payment from a pension trust not under the bankruptcy court's supervision. The pension plan's current fiduciary might have power to make or instruct a payment, and might be willing to do so. While only the creditor knows the circumstances, there might be little harm that would come from asking for the plan's payment.

And there might be no need to seek a bankruptcy court's approval of an expense not paid by the bankruptcy estate.

Aside from questions about how an employee-benefit plan gets recoveries for a person's acceptance of payments if he or she was not entitled to, let's focus on Brian's query about tax-reporting. Does the reporter have a tax-reporting error that it must correct? If the 1099-R that was filed accurately reports the name and taxpayer identification number of the payee to whom the payer sent a payment, does the fact that a different person received the money mean that there is a tax-reporting error and that it is one the payer or reporter is duty-bound to correct? And if a payer might volunteer to change the tax-reporting for amounts paid in previously-reported periods, how easy or difficult is it to do so?

The employer's reorganization does not by itself impair the pension plan's ability to pay. Even without any action at law, might it be worth asking the plan's current administrator to pay the outstanding invoice (from the plan's assets)?

The key point of DoL-EBSA’s Voluntary Fiduciary Correction Program is excusing a penalty that applies on a nonexempt prohibited transaction or a fiduciary’s breach. If a situation fits within the 19 transactions that can be corrected under the VFCP, neither the plan nor the applicant is under investigation, and the applicant meets all VFCP conditions, a ERISA § 502(l) or § 502(i) penalty is excused on the correction amounts paid without negotiation with the Labor department. (VFCP relief does not apply to the extent that one involves the Labor department in a settlement or a negotiation of the terms of a correction.) Because the Labor department may impose an ERISA § 502(c)(2) penalty on an incomplete or inaccurate Form 5500 report, an administrator might file corrected reports for those reports (if any) that incorrectly stated no contribution was missing or late. As your query explains, for a prohibited transaction regarding an IRC § 403(b) plan there is no IRC § 4975 excise tax to relieve.

A few thoughts and questions for the actuary to consider and get his or her lawyers’ advice on: Employer If the bankruptcy proceeding is under chapter 11, there might not be a bankruptcy trustee serving. If the hospital is a charity, consider whether bankruptcy law and trust law regarding charitable gifts might further limit the pools of assets available to respond to claims against the hospital. Consider whether payment from the business or charitable organization’s bankruptcy reorganization might be unlikely because courts might find that the debtor should not bear the pension plan’s plan-administration expense. Does the debtor (or its attorney) understand that the plan is a person separate from the debtor? Plan Even if the employer is insolvent, this does not necessarily mean that its pension plan is insolvent. Does the pension plan’s administrator need or want the actuary’s cooperation to help accomplish the employer’s reorganization? If the pension plan refuses to pay after the actuary’s reasonable demand, would a court award the unpaid actuary’s attorneys’ fees made necessary by the plan’s unreasonable refusal to pay an owed fee? Risk management Might a lawsuit or other claim attract counterclaims or crossclaims about the actuary’s performance? Professional Does Federal law, including 20 C.F.R. § 901.20(j), allow the actuary to withdraw or disaffirm his or her report? https://www.ecfr.gov/cgi-bin/text-idx?SID=c200ef7b93d787b376d2120dd9a1a124&mc=true&node=se20.4.901_120&rgn=div8 Would withdrawing or disaffirming the unpaid-for report breach any professional-conduct rule of the actuary?

Larry Starr, does the Employee Benefits Security Administration rely on your IRS Form 2848, or does the Labor department ask you to furnish some other power-of-attorney document?