Peter Gulia

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?

Oops: Is there anything else or further the IRS will require?

Assume the only 403(b) failure an employer seeks IRS relief on is the employer's failure to adopt a written plan. If an employer adopts a written plan and files a VCP submission and pays the $500 (for 20 or fewer participants), is there anything the IRS will require ?

I don't know whether other States impose a similar tax. No client has asked me to do that research.

That a court of Florida might not enforce an obligation (until the tax is paid) is not the only consequence of a failure to pay this tax. Among others: “[A]ny person who fails or refuses to pay such tax due by him or her is guilty of a misdemeanor of the first degree.” Fla. Stat. § 201.08(b). “Whoever makes, signs, issues, or accepts, or causes to be made, signed, issued, or accepted, any instrument, document, or paper of any kind or description whatsoever, without the full amount of the tax herein imposed thereon being fully paid . . . is guilty of a misdemeanor of the first degree, punishable [by imprisonment and a fine, in addition to the unpaid tax, penalty tax, and interest] as provided in § 775.082 or § 775.083.” Fla. Stat. § 201.17(1). While a service provider might decline to offer a service and its client or customer might decide whether to obey Florida’s law, a fiduciary (even one who’s comfortable taking a risk on a civil liability or a tax) might be reluctant to commit a crime. Further, if a plan’s trustee is a bank or trust company, consider whether it might be unwilling to accept a loan agreement if Florida’s tax was not paid.

To meet a concern about using a life insurance contract as a measure of the executive's deferred-compensation right without providing anything that could interfere with the employer's sole and exclusive ownership of its property, I've seen language that refers to the greater of the measuring life insurance contract's actual value or the value the contract would have if the employer had promptly paid over to the insurer each premium equal to each deferral amount and had not taken any surrender under, or loan against, the contract. Understand that I've seen language of this kind, but have not used it in any plan or agreement about which I advised a client. There are practical, and legal, difficulties with such a provision.

AlbanyConsultant, I too read the passages you quote as failing to state, at least by themselves, provisions that would meet ERISA § 205. Understand that even a document the Internal Revenue Service approved under the IRS’s program for IRC § 403(b) preapproved documents could have such a weakness and it would not mean the IRS’s reviewer missed a point. The IRS’s review does not include ERISA § 205. If you still have a task for advising your client, you might check into whether the plan is ERISA-governed or not. If ERISA § 205 governs the plan, a court would, and a fiduciary should, construe or interpret the plan to state provisions that comport with that section.

If the plan your client interprets is an ERISA-governed plan: ERISA § 404(a)(1)(D) requires a plan’s administrator (and other fiduciaries) to “discharge his duties with respect to a plan . . . in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title [meaning title I of ERISA] and title IV.” If an ERISA-governed plan’s documents omit a provision that ERISA requires, a court would, and a fiduciary should, interpret the plan as if it includes the required provision. For example, if a plan’s document does not provide for a survivor annuity or other death benefit required by ERISA § 205, a court will supply the missing provision. At least two court decisions support this reasoning: Lefkowitz v. Arcadia Trading Co. Ltd. Benefit Pension Plan, 996 F.2d 600, 604 (2d Cir. 1993) (for a defined-benefit pension plan that omitted to provide for a qualified preretirement survivor annuity, the court interpreted the plan as providing a QPSA.); Gallagher v. Park West Bank & Trust Co., 921 F. Supp. 867 (D. Mass. 1996) (for an individual-account retirement plan that omitted to state any qualified preretirement survivor annuity or other survivor provision, the court interpreted the plan as providing a 50% qualified preretirement survivor annuity). ERISA § 205(b)(1)(C) applies § 205 to an individual-account plan unless, among other conditions, “such plan provides that the participant's nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a loan outstanding to such participant) is payable in full, on the death of the participant, to the participant's surviving spouse[.]” ERISA § 205(b)(1)(C)(i). For a reprinting of ERISA § 205 (unofficially compiled as 29 U.S.C. § 1055), see: http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title29-section1055&num=0&edition=prelim

Thanks for sharing the story. As someone who previously served over 21 years inside a big retirement-services provider, I remember what it's like to have an employer react to situations like those you describe.

I'm not sure what problem you seek to solve; but if it's about finding investment alternatives and individual-account records for participants under a micro or super-micro plan: I've had successes with Vanguard taking on 403(b) plans with no condition for a minimum amount of assets or a minimum number of participants or employees. If you'd like to talk through the terms under which Vanguard does this, feel free to call me.

MoJo, thank you for sharing information about DoL/EBSA staff views. Was the EBSA employee's reasoning grounded on the idea that if a fiduciary has discretion about whether to pay a distribution, the fiduciary must use the discretion in favor of whichever outcome advances the purpose of providing retirement income to the participant? Was the DoL/EBSA speaker someone from the office of interpretations? Or an examiner? Or a benefit analyst? Or some other kind of staff person?

Yes, a sentencing court can grant relief. The Parole Commission seems to be another route if the court had not granted relief in the original sentencing (perhaps because the defendant might not have known to ask), and the disqualified person prefers not to go to court. In my 33 years of employee-benefits practice, I've never seen a matter involving ERISA 411 (but I assume that's because every applicant with a conviction was screened out before hiring). I teach section 411 to my LL.M. students; thanks for giving me something to think about.

According to the rule, a hearing is "before one or more Commissioners, or before one or more administrative law judges appointed" for the purpose. https://www.ecfr.gov/cgi-bin/text-idx?SID=7c623260ae7a9ec2e2ab0d2e3aab4ab3&mc=true&node=se28.1.4_18&rgn=div8 A rule for considering, and allowing an applicant's response to, an administrative law judge's recommended decision suggests that a hearing by an ALJ is typical. An applicant's representative need not be admitted to practice law in the State in which the applicant resides or works; it's enough to be admitted to practice before the highest court of any State. https://www.ecfr.gov/cgi-bin/text-idx?SID=7c623260ae7a9ec2e2ab0d2e3aab4ab3&mc=true&node=se28.1.4_19&rgn=div8 I'd bet few lawyers have handled even one matter seeking to remove an ERISA 411 disqualification.

A few points of information the employer and its lawyer might explore: To get relief from ERISA § 411, the rule is: Procedure Governing Applications for Certificates of Exemption under the Labor-Management Reporting and Disclosure Act of 1959, and the Employee Retirement Income Security Act of 1974, 44 Federal Register 6,890 (Feb. 2, 1979), 28 C.F.R. §§ 4.1 to 4.17. To guess how long the process might take, the U.S. Parole Commission’s decisions are available not only under the Freedom of Information Act but also under the Commission’s rule. One might look at the records of several cases to get a sense of the durations from filing an application to a decision on it. Beyond ERISA, the employer might ask for its lawyer’s advice about 18 U.S.C. § 1033(e). It makes it a Federal crime for a person convicted of a disqualifying crime to “engage[]” in the business of insurance[.]” Also, it makes it a Federal crime for a natural person to “willfully permit[]” a disqualified person’s “participation” in an insurance business. An otherwise precluded employment can be allowed with an insurance regulator’s express consent that meets the terms of the Federal statute. If the insurance agency or third-party administrator has subsidiaries or affiliates in banking, commodities, securities, investment-advisory, or other financial-services businesses, the employer might want its lawyer’s advice about whether a law that applies to a related business also affects the affiliated group. The employer might want its lawyer’s advice about the effect of representations the employer might have made in applying for fidelity-bond, employee-dishonesty, or other surety or liability insurance.

I do think a plan's fiduciaries have responsibilities concerning the investment of a participant's account until a beneficiary gets control. I also think there are situations in which a plan's administrator might furnish to a claimant or someone who has expressed an interest in becoming a claimant information about how to become an estate's personal representative, including under a State's small-estate procedure.

While I say nothing about what might or might not be qualifying employer real property, consider what arrangements your client would make to ensure that "the indicia of ownership of" the real property would be within "the jurisdiction of the district courts of the United States." ERISA 404(b). While one might use a U.S. bank as the holder, as is commonly done with securities, think through whether a similar arrangement is effective for real property.

Yup, I concur with those two reasons for finding an ERISA-governed plan. Also, I think FAB 2004-01 is incorrect, even under the particular facts it assumes.

If the circumstances and the plan's provision are as 401(k)athryn describes: (It isn't so that the participant/decedent has no estate, because the estate might have a claim to the retirement plan's death benefit.) Doesn't the plan's administrator do nothing until there is a claim to respond to? Doesn't the administrator deny a claim unless it is satisfied that the claimant is the duly appointed personal representative of the decedent's estate? If the plan pays the personal representative, isn't the claim under the plan satisfied? Isn't it the personal representative's duty to sort out who are the estate's distributees? In my experience (which includes thousands of beneficiary claims), it's usually unwise for the plan to try to find a beneficiary and it's much safer to let a beneficiary find the plan.

Just to set up a "devil's advocate" argument: EBSA's Field Assistance Bulletin 2004-01, describing some reasoning for its interpretation that an employer-provided contribution to a Health Savings Account neither establishes nor maintains a plan, says: Because of these differences, we regard court precedent on the significance of employer contributions to group or group-type insurance arrangements as inapposite to HSAs. In the group health insurance context, the employer, whether by choosing an insurance policy or creating a self-funded program, typically establishes the type of benefits provided, the conditions for their receipt, and the manner in which claims will be adjudicated. In the context of HSAs, however, the employer may be doing little more than contributing funds to an account controlled solely by the employee. If an employer does no more than reimburse a premium an employee paid to buy, voluntarily, individual health insurance of the employee's choosing, does such an employer do anything to "establish" the health-coverage benefits to be provided? Or did the individual choose the health-coverage benefit?

If an employer's arrangement to reimburse an eligible employee's payment of a premium for an individual health insurance contract follows all the rules and conditions for a qualified small employer health reimbursement arrangement ["QSEHRA"] described in Internal Revenue Code section 9831(d), the arrangement is not a group health plan for ERISA section 607(1) or 733(a)(1). But do other ERISA issues remain? Does the employer's reimbursement of its employee's premium paid for individual health insurance make the arrangement a welfare plan defined in ERISA section 3? Must a QSEHRA be stated by a written plan? Must a QSEHRA's administrator furnish a summary plan description? Must a QSEHRA's administrator adopt and follow a claims procedure? What further issues should we think about?

As a thank-you to those who aided my research, email me and I’ll send you a copy of my article “Should we write the summary plan description before we write the plan?” (after it’s published).

BG5150, thank you for sharing that story. One wonders how important the other 19 pages were if the plan’s administrator performed its tasks for three years without noticing the absence of an anticipated provision or that someone acted contrary to the written plan’s provisions.

If an employer's arrangement to reimburse an eligible employee's payment of a premium for an individual health insurance contract follows all the rules and conditions for a qualified small employer health reimbursement arrangement ["QSEHRA"] described in Internal Revenue Code section 9831(d), the arrangement is not a group health plan for ERISA section 607(1) or 733(a)(1). But do other ERISA issues remain? Must a QSEHRA be stated by a written plan? Must a QSEHRA's administrator furnish a summary plan description? Must a QSEHRA's administrator adopt and follow a claims procedure? What further issues should we think about?

This discussion is also a nice illustration of the value-added of a good third-party administrator. I confess I've been imagining a situation in which a plan's sponsor gets no service from a lawyer, other practitioner, or TPA, and the only written evidence of what the plan's sponsor intended is the entries in a recordkeeper's computer system that generated the whole kit of plan documents, including the summary plan description.