Peter Gulia

Consider checking the transition rules of the Tax Equity and Fiscal Responsibility Act of 1982.

I apologize for an ambiguity in my observation. I wasn't advocating a view. Also, my question asks whether a hired fiduciary will add value by whistleblowing against the employer that engages the hired fiduciary. MoJo reminds us about an appointing fiduciary's responsibility to monitor an appointee's work at least enough to decide whether to continue or end the appointment.

One (not the only) important test of how much value there is in getting tasks performed by a fiduciary (rather than by a non-fiduciary service provider) is about whether the fiduciary meets its co-fiduciary responsibility under ERISA section 405(a)(3). For example, if a fiduciary knows the employer deliberately has not paid into the plan's trust amounts intended as participant contributions, does the fiduciary sue the employer or call this information to the attention of participants so they can pursue their rights?

The idea of requiring a written plan as a condition to section 403(b) tax treatment is the Treasury department's interpretation. So if practitioners are in doubt about the answer, one should put the question to the Internal Revenue Service, because only its interpretation has much weight in practical application of the Treasury department's interpretation. But let's ask the BenefitsLink community to test a hypothesis: In using a preapproved document for a 403(b) plan, would one "document" the history of the plan's provisions to the same degree one would do so in using the similar kind of preapproved document for a 401(a) plan? Also, does a preapproved document itself (in its adoption agreement and other instructions) tell a user how much of the plan's history of provisions one must or should record in the current document?

Thanks, everyone, for the helpful ideas. The plan's administrator is worried that, unless it does something to negate a potential mistaken assumption, the bank might presume that the administrator should have informed the bank if the administrator saw a defect or problem in the participant's trust document. The 401(a)(9) rule on furnishing information about a trust to a plan's administrator makes some sense if the administrator must decide a point that needs the information. But if a plan's provisions make it unnecessary for the administrator to know who is or isn't a designated beneficiary, receiving information beyond what's required on the plan's claim form (including the claimant's name, address, and taxpayer identification number) is a distraction.

paralegal231, if the New York City Employees Retirement System is a governmental plan not governed by the Employee Retirement Income Security Act of 1974, consider that some of the information above could be partially inapt. Even if NYCERS provides some retirement or death benefits for a non-participant in ways somewhat similar to the provisions and procedures used for an ERISA-governed plan, there might be important differences. You might want to learn more about the System's provisions and plan-administration rules and procedures, and about related New York State law and New York City law.

A profit-sharing retirement plan provides as its only form of distribution, whether for a retirement distribution or a death distribution, one single-sum payment of the whole account balance. A participant dies before receiving a distribution. The participant, with her spouse’s consent to meet ERISA § 205, had made and delivered to the plan’s administrator a beneficiary designation: “ABC Bank, N.A.” The plan’s administrator receives a claim signed by a person identified as a trust officer of ABC Bank. The administrator does not doubt the claim’s authenticity or genuineness. The claim asks the plan to pay the bank (and does not request that the plan treat the payment, or any portion of it, as a rollover). In the envelope with the claim form is a copy of a 13-page trust document and a transmittal letter that says: “Following 26 C.F.R. § 1.409(a)(9)-4, Q&A-6(b)(2), we enclose a copy of the participant’s trust document.” The plan’s administrator believes it need not read the participant’s trust document. Rather, it believes its duty is limited to satisfying itself that the claimant is the beneficiary the participant named (and directing the plan’s trustee to pay that beneficiary). The plan’s administrator is thinking of sending ABC Bank a letter informing the bank that the administrator did not read the trust document the bank furnished, and promptly destroyed it. BenefitsLink mavens: Must the retirement plan’s administrator read the participant’s trust document? Or is it okay to ignore it? Assuming the administrator had no duty to read, and did not read, the participant’s trust document, must the administrator keep the document in the plan’s records? Or is it proper not to keep a writing the administrator never considered? About the proposed letter to inform the bank that the administrator did not read, and no longer can read, the participant’s trust document, is this a good idea, or a bad idea? On all three questions, what is the reasoning for your answer?

Beyond the reasons described above (and without saying whether a filing is required), the plan’s administrator/employer might want its lawyer’s advice about consistency between and among tax returns, and about statute-of-limitations and statute-of-repose defenses. Has the employer filed Form W-2 wage-and-tax statements for 2016? Did those statements report elective-deferral contributions? Has the employer filed Form 941 for 2016’s last quarter? Did it show differences between Social Security or Medicare wages and Federal income tax wages? Will the employer organization’s tax return (on Form 1120, 1120-S, 1065, or something else) claim a deduction for the amounts not paid as wages as contributions to a retirement plan? Even if the retirement plan’s trust didn’t receive money in 2016, could it help to show the plan existed? Could filing a Form 5500 report and return on 2016 help get a statute-of-limitations defense – under ERISA, the Internal Revenue Code, or both – that otherwise might not apply? Would filing a Form 5500 report and return harm the plan’s administrator or the employer?

Another difficulty of arbitration is that a disputant might be unable to bring into a proceeding all the parties and evidence-givers needed to resolve its dispute. (An agreement to arbitrate binds only the parties to the agreement.) What happens when an administrator's defense is that it reasonably relied on the work of a service provider beyond the one it has a dispute with, but that other service provider has not agreed to (and refuses to participate in) the arbitration?

Do retirement plans' recordkeepers include in a service agreement a provision for arbitration of disputes. If a standard service agreement includes an arbitration provision, can an employer negotiate to delete that provision? How big does a plan need to be to have negotiating power on that point?

RatherBeGolfing is right that the IRS's memo (and the scheduled revision of the Internal Revenue Manual) is not a rule to which a court need defer. And the memo states it is not a pronouncement of law. Yet some plans' administrators (or claims administrators) might find it's reasonable to consider the IRS's internal guidance to IRS employees in designing a plan's claims procedure. Some consider it unlikely that a person other than the IRS would pursue enforcement of a plan's provision that restricts a distribution to a participant who has a hardship. While the public policy tries to set bounds on which before-retirement needs are important enough to allow an early payout, some employers feel it's odd for a participant's employer to be stuck with the responsibility of deciding whether a use of property that doesn't belong to the employer is worthy within the public policy.

Would following the IRS's guidance allowing a claims administrator to rely on the claimant's description without reading source documents make evaluations of this kind unnecessary? https://www.irs.gov/pub/foia/ig/spder/tege-04-0217-0008.pdf

Recognizing the general anti-regulatory communications of the Trump Administration, one imagines that the Employee Benefits Security Administration, perhaps after its Assistant Secretary position and some other vacancies become filled, might delay again the previously delayed items. Because to undo or change those items might call for the administrative-law work of making a rule, year-by-year delays seem likelier.

Without saying whether it’s an accurate or complete description of relevant law, here’s what the Internal Revenue Manual, at 4.72.13.14.1 ¶ 10, says: Excludable employees may be disregarded in applying the universal availability test for salary reduction contributions. See 26 CFR 1.403(b)-5(b)(4). These include: . . . . Employees who normally work less than 20 hours per week (or such lower number of hours per week as may be set forth in the plan) Note: This exception must be based on hours worked and cannot be based on a job classification (such as “part-time employee” or “adjunct professor”) unless the classification is defined in the plan using the permitted hours requirements. Once an employee can no longer be excluded under b), the employee always remains eligible to participate thereafter (i.e., once-in-always-in). See 26 CFR 1.403(b)-5(b)(4)(iii)(B) https://www.irs.gov/irm/part4/irm_04-072-013-cont01.html#d0e2551

Here’s the text of 29 C.F.R. § 2510.3-3(a)-(c): (a) General. This section clarifies the definition in section 3(3) of the term “employee benefit plan” for purposes of title I of the Act and this chapter. It states a general principle which can be applied to a large class of plans to determine whether they constitute employee benefit plans within the meaning of section 3(3) of the Act. Under section 4(a) of the Act, only employee benefit plans within the meaning of section 3(3) are subject to title I. (b) Plans without employees. For purposes of title I of the Act and this chapter, the term “employee benefit plan” shall not include any plan, fund or program, other than an apprenticeship or other training program, under which no employees are participants covered under the plan, as defined in paragraph (d) of this section. For example, a so-called “Keogh” or “H.R. 10” plan under which only partners or only a sole proprietor are participants covered under the plan will not be covered under title I. However, a Keogh plan under which one or more common law employees, in addition to the self-employed individuals, are participants covered under the plan, will be covered under title I. Similarly, partnership buyout agreements described in section 736 of the Internal Revenue Code of 1954 will not be subject to title I. (c) Employees. For purposes of this section: (1) An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse, and (2) A partner in a partnership and his or her spouse shall not be deemed to be employees with respect to the partnership. https://www.ecfr.gov/cgi-bin/text-idx?SID=93795492ebbf6ce09dc6217cdaace5aa&mc=true&node=se29.9.2510_13_63&rgn=div8

My experiences advising those who administer troubled plans are like BG5150’s observation. A few years ago, submitting a .pdf in the slot for an independent qualified public accountant’s report got a helpful lag. In the past two years, the file-or-else letter comes noticeably quicker than before. Don’t expect the Labor department to excuse an audit with no more explanation than that the plan trust lacks money to pay the CPA firm’s fee. If your client is or includes a fiduciary who decided that the plan’s trust would pay or deliver final distributions without setting aside a reserve for plan-administration expenses, consider whether each fiduciary wants his, her, or its lawyer’s advice about whether so deciding breached the fiduciary’s responsibility, and whether the fiduciary might be liable to restore the plan’s assets as needed to meet the plan’s expenses. If you are a service provider that would draft a Form 5500 report on 2016, consider whether the plan paid your fees or what advance retainer you might require before you commit to a service.

As many BenefitsLink people might say, a starting point is RTFD – read the Fabulous document. This matters on your query because a plan might provide more service crediting than applicable law requires. If one thinks service crediting or avoiding a break-in-service might be required by a State’s law (rather than under the plan’s provisions), the plan’s administrator might want its lawyer’s advice about whether the plan is governed by ERISA and, if so, whether ERISA preempts the State law. While I don’t give advice, I’m not readily imagining how a State’s mainstream employment law about family or medical leave would be an unpreempted law that regulates insurance, banking, or securities. ERISA § 514(b)(2)(A). Is the State law you’re concerned about a generally applicable criminal law? ERISA § 514(b)(4)?

If one does not apply for the Internal Revenue Service's written determination, is there any Internal Revenue Code rule that requires restatement of a plan?

If ERISA governs the retirement plan, a State’s community-property law ought not to apply in deciding the plan’s payment. However, States’ laws might apply in sorting out whether the plan’s distributee must pay over to a person who is a rightful taker under State law. Although ERISA preempts State laws, some courts treat a State’s slayer rule as not preempted or finds a slayer rule is included under the Federal common law of ERISA. For example: Mendez-Bellido v. Trustees of Div. 1181, A.T.U. Pension Fund, 709 F. Supp. 329 (E.D.N.Y. 1989); New Orleans Elec. Pension Fund v. DeRocha, 779 F. Supp. 845 (E.D. La. 1991); New Orleans Elec. Pension Fund v. Newman, 784 F. Supp. 1233 (E.D. La. 1992); Addison v. Metropolitan Life Ins., 5 F. Supp. 2d 392 (W.D. Va. 1998); H.E.B. Inv. & Ret. Plan v. Harris, 217 F. Supp. 2d 759 (E.D. Tex. 2002). At least one court held that ERISA preempts States’ slayer laws. Ahmed v. Ahmed, 817 N.E.2d 424 (Ohio 2004).

Even if the public-schools employers attend to these issues, often there might not be much to do. A typical public-schools employer's 403(b) plan is salary-reduction-only. Most often, there is no Form 5500 report to do (or undo). Most often, there is no plan trust to change. Combining two or more governmental plans' written plans into one written plan shouldn't be too difficult. If the combining employers are in a State that has collective bargaining or discussion, each employer should attend to those duties. For example, it's unusual to discontinue an investment alternative without the assent of each union or association.

I've heard some practitioners suggest not restating a plan if doing so might make it more difficult to show that the plan remains the same as what obtained the most recent determination letter. Others hate the distraction and inconvenience of piecing together a plan from more than one document. If you found no amendment is needed, doesn't that mean there is no document failure to correct?

What, if anything, does the health and welfare trust's document provide? If you don't find a right there, get a participant or beneficiary, who can use his or her rights under ERISA section 102-104 and 502.

RatherBeGolding, jpod, and My 2 cents, thank you for helping me sharpen my thinking.

Consider this situation (hypothetical, but I hope grounded in enough reality to be useful for our BenefitsLink conversation). An employment-based retirement plan’s fiduciary seeks a rollover-IRA for default rollovers. The fiduciary receives three offers. Each offer presents a form of agreement closely based on 29 C.F.R. § 2550.404a-2(c)(3), including contract promises and warranties on all five conditions. Every offer represents and warrants that the IRA’s and its investments’ fees and expenses don’t and won’t “exceed the fees and expenses charged by the individual retirement plan provider for comparable individual retirement plans established for reasons other than the receipt of a rollover[.]” Yet these offers differ not only in their illustrations of the capital-preservation investment’s past performance (which anyhow might not predict future performance) but also in the current fees and expenses. If the fiduciary does no analysis, chooses one offer, and over the years it turns out to have had the highest fees and expenses and the worst investment performance, is the fiduciary nonetheless protected by the rule’s safe harbor? (Assume full disclosures, and that neither the selection of the IRA nor investing a rollover into it results in a nonexempt prohibited transaction.) If the fiduciary has some responsibility beyond what the safe harbor deems “satisfied”, what is that responsibility?

Despite an employer/administrator’s worry (as perhaps advised by its lawyer or independent qualified public accountant) that the IRS might tax-disqualify even a plan that adhered to the IRS memo’s conditions, could there be circumstances in which a loyal and prudent fiduciary might decide the plan should take that risk to gain for the plan expense savings? Imagine a plan has been paying its recordkeeper a fee to collect the hardship claims, to image those documents (including underlying source documents), and to review the claims under a procedure the administrator set. Imagine further the plan allocates its expense for that service by charging a $25 processing fee to the account of each participant who gets a hardship distribution. The recordkeeper offers the plan electronic processing of the hardship claims under a method that meets the conditions of the IRS memo. For those claims, the incremental fee is $0. (To make this hypo simpler, assume the plan receives no contribution beyond salary-reduction contributions, so the employer gets its tax deduction whether the plan is qualified or isn’t.) Could a fiduciary decide the harm to participants caused by a tax disqualification (adjusted for probability) is smaller than the burden of the processing expenses made necessary by not allowing participants a choice of the newer claims-handling method?