Peter Gulia

Thanks, RBG, Bird, austin3515, and AKconsult, for the thoughtful information. For a situation in which the trustee won't be a bank or trust company, do you suggest that the business owner accept or avoid a trusteeship? What factors play into which persons to set up as trustees?

RatherBeGolfing, thank you for the further information, especially about a choice between directed and undirected investment. If a sponsor selects the option to recognize a participant's domestic partner as though they were spouses, what provisions does that option invoke? Must a participant who has a domestic partner get the partner's consent to make a beneficiary that would provide a benefit other than to the partner? Does the option invoke any other provision? Now that every State that affords opposite-sex marriage must equally afford same-sex marriage, do sponsors ignore this domestic-partner option, or are there some that ask about it? Does the document permit a user to specify ranges of dates for when the domestic-partner provisions apply and don't apply? For example, could a plan specify that the domestic-partner provisions applied for deaths before August 1, 2016, and do not apply for deaths after July 31, 2016?

Your questions about risks illustrate some reasons why a church might want its lawyer's advice about governing-law provisions; exclusive-venue provisions; use of plan and church claims procedures, and internal dispute-resolution procedures; and restrictions on which persons are authorized to accept service of process.

Larry Starr, thanks for your good grace in engaging with the question. BenefitsLink mavens, I've heard that when a choice isn't directly considered some practitioners choose whichever provision the practitioner believes will incur a less or least expensive correction if the employer operates the plan differently than the written provisions. Is this a sensible work method? If so, how do you use it?

jpod, you're right that 30Rock's query and its assumed facts suggest a likelihood that the church plan's desired provision might have little practical impact, and so might be mostly about the church expressing a policy or belief.

Thank you for the helpful observations. A few specific questions: Do you explain the advantages and disadvantages of automatic-contribution arrangements? Do you talk about whether to allow or preclude participant loans? Do you talk about whether to allow or preclude hardship distributions? Do you discuss the several choices for service-crediting methods? If not, what information do you gather to discern which methods are the better fits for a particular employer? Do you usually discuss whether to include or exclude nonresident aliens? If usually you don't, do you discuss it if the workplace is within commuting distance of Canada's border? And perhaps BenefitsLink mavens will suggest more questions.

jpod's and CuseFan's observations are among the many possibilities. Even without a subsidized death benefit or subsidized survivor annuity, some church plans provide a survivor annuity or impose a spouse's-consent condition even if nothing in public law calls for it. And in setting such a condition a church might choose its private-law meaning of spouse. Also, a church plan's definition of a spouse might not always be about discriminating against same-sex spouses; a plan might recognize spouses more widely than public law does.

For one point about the design of a retirement plan, a recent BenefitsLink discussion shows differing views about which set of provisions is likelier to meet a sponsor’s interest, and perhaps about how the point might be explained in a plan-design discussion (or instead presumed). https://benefitslink.com/boards/index.php?/topic/62281-that-a-retirement-plan-required-no-spouses-consent-for-a-distribution-before-the-participants-death-meant-a-surviving-spouse-gets-no-portion-of-a-27-million-benefit/&page=2 That started me thinking about a practical point: The time available for a plan-design discussion might be limited—whether by a client’s availability or attention span, a client’s choice to limit a practitioner’s time billed, or a practitioner’s choice to limit time to sustain profitability for a fixed fee or an assumed cost. If time is limited so it’s not feasible to discuss all plan-design choices, how does a practitioner leading the discussion decide which topics should get little or no attention (and instead fall into some presumed norm)?

If a plan is a church plan (as ERISA § 3(33) defines it) and has not elected to be governed by ERISA, ERISA § 205 does not apply. For an IRC § 403(b) plan, providing a qualified joint and survivor annuity, a qualified preretirement survivor annuity, or a death benefit absent a spouse’s consent is not a condition for Federal income tax treatment as a § 403(b) plan. If a church plan provides a benefit that varies on the existence or non-existence of a spouse, a plan may (within constraints set by other tax-law conditions) provide the church’s or the plan’s definition of spouse. For benefits other than those stated to meet a tax-treatment condition (such as an IRC § 401(a)(9) provision), a church plan may define a spouse more narrowly, or more widely, than U.S. Federal and State laws define who is or isn’t a spouse. A church might want its lawyer’s advice not only about the question described above but also about many other points for which a church plan may (and a church might prefer to) depart from other retirement plans’ norms. Likewise, a church might want its lawyer’s advice about a church plan’s provisions (if any) about alienations to benefit a nonparticipant other than the participant’s death-benefit beneficiary. A plan not governed by ERISA does not enjoy ERISA’s preemption of States’ laws. A church plan might be vulnerable to some courts’ orders, including some that not only depart from the QDRO norm but also command a payment or set-aside that the plan does not provide and is beyond the kinds and forms the plan provides. Some other opportunities include governing-law provisions; exclusive-venue provisions; use of plan and church claims procedures, and internal dispute-resolution procedures; and restrictions on which persons are authorized to accept service of process. Further, some provisions relate to exercise-of-religion rights under the Federal and States’ constitutions.

David Rigby, I don't advocate or even suggest any legislative choice. For me what's interesting is that while all plans governed by ERISA's Part 2 give a spouse at least some control over a plan's death benefit, a vast many plans give a spouse (of an undivorced, unseparated marriage) almost no control regarding a retirement benefit. Whatever society considers the appropriate degree of control to provide a spouse regarding the participant's retirement plan benefits, it seems perhaps odd to provide more control about the fortuity of death than is provided for a retirement plan's primary benefit.

RBG is right that on the day of the distribution the spouse was then a spouse rather than a survivor. And yes, the bigger amount dramatizes the consequences about what the law and the plan provide. This story caught my attention because a few days ago some of us on BenefitsLink were musing about how ERISA section 205's protection for a spouse might vary according to whether the plan has or lacks annuity provisions. The Congress that in 1984 set rules to try to get spouses to jointly consider joint needs might not have fully considered how many participants would have a right to a distribution without a provision for one's spouse. We recognize that the plan administrator's and the Federal courts' decisions are correct. Rather, I suggest only that the story illustrates some consequences of Congress's legislative trade-offs and public-policy choices in the Retirement Equity Act of 1984.

That a retirement plan required no spouse's consent for a distribution before the participant's death meant a surviving spouse gets no portion of a $2.7 million benefit. The participant's claim was processed on a Friday; he died on Sunday. Wengert Eighth Circuit.pdf

Apart from questions about whether a trust and trusteeship are created and valid under non-tax law, a plan’s sponsor might prefer that the trust be treated as a domestic trust for Federal tax law purposes. “In order for a trust forming part of a pension, profit-sharing, or stock bonus plan to constitute a qualified trust under section 401(a), the following tests must be met: (i) It must be created or organized in the United States, as defined in section 7701(a)(9), and it must be maintained at all times as a domestic trust in the United States[.]” 26 C.F.R. § 1.401-1(a)(3)(i). https://www.ecfr.gov/cgi-bin/text-idx?SID=11fcc33aff5d36a6e50159549926b1f4&mc=true&node=se26.6.1_1401_61&rgn=div8 Unless the retirement plan’s trust meets a transition rule regarding the Small Business Job Protection Act of 1996, the plan’s sponsor might consider sufficiently involving one or more U.S. persons. If the goal is establishing and maintaining the trust as a domestic trust, consider that merely adding a second trustee might not be enough if the first trustee is not a U.S. person and the second trustee lacks power to overrule the first trustee. Some details are in the Treasury department’s rule: https://www.ecfr.gov/cgi-bin/text-idx?SID=77049054e181a5d01c90facf3bef8340&mc=true&node=se26.20.301_17701_67&rgn=div8

RatherBeGolfing, thank you for the helpful information. As I suspected, it seems likely the practical enforcement depends mostly on happenstance. If someone barred from service as a fiduciary starts a new business, establishes a retirement plan, and serves as the plan's fiduciary (especially if the business has no other executive), a TPA behaving correctly might transmit a Form 5500 report and we doubt that EBSA's computers would detect that someone barred from service as a fiduciary is serving. I don't suggest that a TPA should have any responsibility; I'm only observing a weakness in the systems.

Many court decisions about a theft from an employee-benefit plan include an order that a wrongdoer is barred from serving as a fiduciary of an employee-benefit plan. But how (if at all) is such an order practically enforced? Am I right in guessing a TPA might not spot a problem? Leaving aside a 3(16) TPA, an ordinary service provider might not be a fiduciary, and might have no duty or obligation to guard against an ineligible person's service. And if a TPA runs a check on its new customer, would the TPA's check spot this problem? If a Form 5500 annual report includes an ineligible person's name as a signer or authorizer, does anything in EBSA's error-checking or post-filing review catch a problem?

Here's the Labor department's interpretive rule: https://www.ecfr.gov/cgi-bin/text-idx?SID=278017dd2eca615ddfbe139bbbfd3fe5&mc=true&node=se29.9.2510_13_63&rgn=div8

For another commentary about whether to treat plans as distinct when the circumstances show no business reason for more than one plan, see Q&A 14 in the attached American Bar Association session. The hypo invites a substance-over-form interpretation. And the ABA's format for these unofficial Q&A sessions requires the questioner to submit a proposed answer. The proposed answer set up some reasoning an EBSA speaker could use to support saying one must look through the multiple plans and treat them as one that needs an independent qualified public accountant's audit. Yet the EBSA people said it's okay to follow the contrived plans. dol_2009.authcheckdam.pdf

Yesterday evening, I heard that Fidelity, 92 days before the 2016 rule's delayed applicability date, sent many customers a service agreement amendment, which ostensibly was deemed assented to if not expressly rejected. The amendment offered services for which Fidelity expressly recognized its status as a fiduciary. Perhaps such a written undertaking might make Fidelity a fiduciary even if it otherwise might not be under the absence of the 2016 rule. Does anyone know whether Fidelity's amendment is conditioned on the application of the 2016 rule?

Kevin C and RatherBeGolfing, thank you for your helpful observations. Others' outlooks? And does anyone have a guess about how ADP, Paychex, Fidelity, John Hancock, and others that serve small plans will react to the erasure of the fiduciary rule?

Beyond other reasons, consider that not maintaining at least the fidelity-bond insurance required under ERISA section 412 might be a Federal crime. http://uscode.house.gov/view.xhtml?req=(title:29

AlbanyConsultant, some retirement plans allow a beneficiary to disclaim or renounce a benefit; some don't allow this; and some say nothing, which might leave a question about whether a disclaimer is recognized to the plan administrator's construction or interpretation. If a plan recognizes a disclaimer, typical conditions are that the disclaimer must be legally valid under the law of at least one relevant State, and further that the disclaimer must be one that meets Internal Revenue Code section 2518. If New York law is relevant, this link is to the NY Estates, Powers and Trust Law provision: http://public.leginfo.state.ny.us/lawssrch.cgi?NVLWO I would not accept any State statute's recitation that following it results in a disclaimer effective under Internal Revenue Code section 2518. http://uscode.house.gov/view.xhtml?req=(title:26

When Congress wrote this in 1984, the staffers assumed defined-benefit pension plans and money-purchase pension plans would have annuity payouts. And they were told that some individual-account plans that tax law called profit-sharing plans might not provide annuity payouts. I think that's why the statute speaks with a variation for an individual-account plan that is not a pension plan with funding standards. But it's easy to concur with your observation that a good writer with enough time (unlike the pace asked of Congress's staffers) could express the same resulting rules more clearly by stating them from concepts rather than consequences.

If the plan is ERISA-governed, here's the statute on what a plan must, may, and may not provide: ERISA section 205: http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title29-section1055&num=0&edition=prelim

I’m hoping BenefitsLink people will help me crowdsource some background for a research project. The research project assumes that, whether on May 7 or by some later date, a court issues a mandate to vacate the 2016 investment-advice fiduciary rule. The first of the questions is: which plan-sponsor fiduciaries are affected by that result? If one follows the rulemaking’s 2015-2016 reasoning, it is small plans that more need to be protected from communications by those who, but for applying the to-be-vacated 2016 rule, might not be held to fiduciary standards of loyalty and care. But how small is small? In recent years, I’ve seen plans smaller than the Labor department’s $50 million dividing line use registered investment advisers who sign contracts expressly accepting status and responsibility as an ERISA fiduciary. In your experience, what size sorts plans between those unlikely to use a fiduciary adviser and those likely to use a fiduciary adviser?

And in looking to a register of wills or whatever court or office handles administrations or successions of decedents' estates, a plan's administrator might consider also a county in which the administrator guesses the decedent was domiciled, resided, or owned real property.