Peter Gulia

See Internal Revenue Code section 409(h)(2)(B): http://uscode.house.gov/view.xhtml?req=(title:26

Many employers do not use health insurance for a health plan, and instead pay claims from the employer's general assets. Some of these employers buy a stop-loss insurance contract to protect the employer (not the participants) against its risk of outsize claims under the health plan. Can an employer do the same thing with a disability plan? Is there a ready market for stop-loss insurance contracts regarding disability claims?

I see the claims, counter-claims, and cross-claims concerning the mistakenly paid amount. But if a correction kcbirm describes involves some degree of tax-reporting or procedure beyond what ordinarily would be done, shouldn't the mistaken payer bear that incremental expense?

If only the retirement plan's trustee had the right to sell or redeem the investment, should the plan's administrator demand that the investment business pay the administrator's expenses, including professionals' fees, for corrections?

I express no view about whether 29 C.F.R. § 2510.3-21 applies to discern whether a person is a fiduciary regarding any portion of amounts held under a governmental plan. If ERISA does not govern a plan (and does not preempt State law), States’ laws could impose standards of care. While those standards could be more flexible than ERISA, they also could be similar to, or even stricter than, ERISA.

I express no view about the Treasury department's interpretation of IRC 457(b)(3). But if the rule allowed reference not only to a defined-benefit or money-purchase pension plan but also to a profit-sharing plan, imagine how the rule would apply if the referred-to plan's normal retirement age is 18.

To the extent (if any) the group health plan uses a health insurance contract, consider whether a relevant State's insurance law or the contract might provide opportunities different than those of Federal-law COBRA.

kcbirm, we concur that it falls to the plan's administrator to interpret the plan's provisions. My question is what modes of interpretation does a reader use to resolve the ambiguities and discern what the plan provides?

The suggestion in kcbirm’s last sentence often could bring another question: Imagine the plan is stated using prototype or volume-submitter documents; the resulting document states nothing the administrator finds useful to answer questions of the kind Mr Jones asks; and the employer is unwilling to amend the plan because it fears doing so might impair its reliance on the IRS’s approval concerning the documents. How then should the administrator interpret the plan?

Having received your gifts, I feel I ought to share my thinking. What the claims administrator must do in deciding whether the participant has or lacks a severance-from-employment turns on how the plan and the ERISA § 405(c) delegations and allocations set responsibility for that decision. If the responsibility to decide whether a participant has or lacks a severance-from-employment is allocated to the claims administrator, it should decide that question using the claim, the employer’s statement, and any other information the claims administrator knows. It also should seek further information if a prudent fiduciary would do so. A decision-maker might rely on the employer’s certificate of one or more facts, but not on the conclusion to be drawn from the facts. If the responsibility to decide whether a participant has or lacks a severance-from-employment is allocated to the employer/administrator, the claims administrator need not question such a decision unless it knows that its co-fiduciary’s act or failure to act breaches that fiduciary’s responsibility. ERISA § 405(a)(3) has not been litigated often enough to make clear exactly how much knowledge sets up a § 405(a)(3) responsibility. Even concerning a decision that was presumably wrong, a judge might require a claimant to prove (with evidence beyond circumstantial evidence) that the co-fiduciary knew that another fiduciary had breached its duty. For example, in Newton v. Van Otterloo, 756 F. Supp. 1121, 1132-1133, 13 Employee Benefits Cases (BNA) 1532, 1544 (N.D. Ind. 1991), the court found that a directed trustee acted correctly in following a direction to abstain from voting the retirement plan’s shares in the employer’s business. The plan’s trust held a clear supermajority of the shares, and so could decide the matters voted on. Deciding not to vote allowed the only other significant shareholder, the corporation’s chief executive officer, to decide the matters to be voted on, including his reelection as a director. The court found that the decision to abstain breached the directing fiduciaries’ duties. The court found that the decision to abstain would not have been a breach had the directing fiduciaries obtained independent advice. The court found that the directed trustee was not charged with knowledge that the directing fiduciaries had not obtained independent advice. While I don’t suggest that anyone rely on that court’s reasoning, it illustrates some judges’ reluctance to apply ERISA § 405(a)(3).

Thank you for the further helpful thinking.

Has anyone seen an investment adviser's agreement that measured the fee on the whole account, including the loans receivable? Is it feasible for a recordkeeper to report a plan's account balance to include the loans receivable?

Thanks for the good help. A decision that the participant is not severed-from-employment would not lead to logical-consistency problems. Long before the recent change, the participant completed enough years of vesting service to be fully vested. The plan has anti-Microsoft language strong enough to exclude a worker the employer classifies as a nonemployee even if a final court order decides the worker is an employee for every other purpose. Coverage and nondiscrimination testing are unaffected because for 2017 and the next few years the employer will not make a nonelective contribution. (The plan has no § 401(k) arrangement, and no other provision for participant contributions.) So if the issue is whether the participant has a severance-from-employment to entitle her to a retirement distribution, how much inquiry or evaluation should the claims administrator do?

I’m hoping BenefitsLink “heavy hitters” will help me think through an issue intensified by the new market for 3(16) administrators. An employer (also its retirement plan’s administrator) engaged a 3(16) provider for some plan-administration responsibilities, including deciding claims for a distribution. A participant submitted a claim for a retirement distribution grounded on her severance-from-employment. The employer signed a statement, on the claim form, to confirm that this participant is severed from employment. (For this hypo, assume no other condition could entitle the participant to a distribution. Also, assume the plan has no provision for a participant loan.) Through other services, the 3(16) provider has actual knowledge that the participant continues to perform (personally) services for the employer, and knows the employer classifies the worker as a “1099” contractor. The 3(16) provider believes the employer’s classification is wrong, and was not made in good faith. To meet its ERISA fiduciary responsibilities, must the 3(16) provider reevaluate or question the employer’s classification of the participant as a nonemployee? If so, how much “poking” must the claims administrator do?

Even if the Labor department became motivated to pursue separately the change about which participants count to define a plan that must engage an independent qualified public accountant, many lawyers assume this change would require a rulemaking, which must meet the requirements of the Administrative Procedure Act and other laws for an agency’s rulemaking.

I'll answer my question. The "Changes to Note" on pages 1-2 of the 2016 Instructions does not mention a change in Schedule C. A quick look at the service and compensation codes suggests they remain the same. The explanation of "Bundled Service Arrangements" remains the same as in the 2015 Instructions.

In making disclosures for and reporting on Form 5500's Schedule C, did anything change between the 2015 form and instructions and the 2016 form and instructions?

Even if one might interpret widely the word "document" as used in the administrative-law rule's definition of practice before the IRS, the Secretary of the Treasury lacks power to apply the rule if it exceeds the power Congress granted. The court says there is no practice as a representative until a matter is a dispute, examination, ruling request, closing-agreement request (including the correction procedures), or something else that calls for a submission beyond a tax return or routine report. I concur with the idea that following Circular 230 usually is not too burdensome, and often helps the advisor or service provider. And many TPAs self-impose higher standards.

Thanks, everyone, for the further help. And you’re right that I asked a fact question about a TPA’s work to get information for thinking about how much (or how little) the Treasury department’s rule regulates a TPA’s conduct. 31 U.S.C. § 330(a)(1) grants the Secretary of the Treasury power only to “regulate the practice of representatives of persons before the Department of the Treasury[.]” The United States Court of Appeals held that preparing tax returns is not practice before the Internal Revenue Service, and that the Treasury department lacks power to regulate a preparer who does not appear before the IRS as a taxpayer’s representative. Loving v. Internal Revenue Service, 742 F.3d 1013 (D.C. Cir. 2014). In another case, that court held that 31 C.F.R. § 10.27(b) exceeds the Treasury department’s powers as applied to a person who – even if he or she is an attorney-at-law or certified public accountant the IRS recognized as a practitioner in another matter – is not engaged in a representation about the return or claim for which his or her client agreed to a contingent fee. Ridgely v. Lew, 55 F. Supp.3d 89, 93 (D.C. Cir. 2014). In both cases, the government did not pursue review in the Supreme Court. https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2012cv0565-48 Further, the reasoning of these decisions calls into question whether the Treasury department has power to regulate advice-giving that is unconnected to a written submission (other than a tax return) to the IRS. I won’t get into that analysis. But if you want to read some background, one of my LL.M students published a law-review article. Jamie P. Hopkins, Loving v. IRS: The IRS’s Achilles’ Heel for Regulated Tax Advice?, 34 Va. Tax Rev. 191 (Fall 2014). Why did I ask about how often a TPA gets a Form 2848? The court decisions look to the filing of a Form 2848 as the signal that a practitioner represents a taxpayer, and that practice before the IRS has begun. If, much of the time, a TPA’s work involves no submission (beyond a tax return or information report) to the Internal Revenue Service, for many TPAs the Circular 230 rules might not apply. I’m interested in the topic because, in my experience, many TPAs self-impose professional-conduct standards considerably higher than public law imposes. Again, thank you for indulging my research interest and helping me with useful information.

Thank you for the further information. Here’s why I'm asking. The “Circular 230” rules apply to practice before the IRS. The definitions section states: Practice before the Internal Revenue Service comprehends all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings. If one sets aside the bit about written advice, a TPA who doesn’t write or speak as a taxpayer’s representative concerning an examination or a correction procedure might not “practice” before the IRS, and so might not be governed by its conduct rules. Do you agree? Is there an idea I’m missing?

Thanks. Is there any situation beyond examination?

For which situations does a TPA get a Form 2848 to represent a taxpayer before the Internal Revenue Service?

The conference chairman informed that sessions will be recorded, but the recordings will be made available afterward only to paid attendees. Also, registration closes tomorrow. http://aspparegionals.org/eastern/

If you’re interested in learning more, ASPPA’s Eastern Regional conference in Philadelphia next Thursday includes this workshop: Co-Fiduciary Liability with 3(16) Services and Their Implications Many third party administration firms now include as part of their service options taking on the role of ERISA 3(16) “Plan Administrator.” The decision to offer this service should include consideration of factors beyond the plan administrator duties themselves. Learn about the co-fiduciary issues, how the law is interpreted and ethical dilemmas that you could find yourself addressing. Attendees will understand: 3(16) service responsibilities; Co-fiduciary issues related to 3(16) services; and “Landmines” with respect to the service offering. Ilene H. Ferenczy is the presenter, and I am the moderator.

For one example of the kind of statute jpod and Mojo refer to, see section 106 of Pennsylvania's Banking Code of 1965 at page 14 in this linked-to .pdf. http://www.legis.state.pa.us/WU01/LI/LI/US/PDF/1965/0/0356..PDF With the exception MoJo describes, the statute makes it unlawful for a corporation to act as a fiduciary unless it is a licensed bank or trust company (or is a nonprofit corporation and administers trusts related to the corporation's charitable or similar tax-exempt purposes).