Peter Gulia

As Bill Presson explains, recognition as an ERPA can be useful for one who lacks the wider rights of practice that come with the first four categories of practitioners. 31 C.F.R. § 10.3(e)(2): Practice as an enrolled retirement plan agent is limited to representation with respect to issues involving the following programs: Employee Plans Determination Letter program; Employee Plans Compliance Resolution System; and Employee Plans Master and Prototype and Volume Submitter program. In addition, enrolled retirement plan agents are generally permitted to represent taxpayers with respect to IRS forms under the 5300 and 5500 series which are filed by retirement plans and plan sponsors, but not with respect to actuarial forms or schedules. http://www.ecfr.gov/cgi-bin/text-idx?SID=26de942d1f173f514d88111e2fe63237&mc=true&node=se31.1.10_13&rgn=div8

The not-so-hypothetical situation I described yesterday is based on a real situation I worked on. Unlike ESOP Guy’s illustration of a different fact pattern, there was no investor before the retirement plan’s purchase of all the corporation’s original-issue shares. Rather, the retirement plan paid the corporation an amount for 100% of the corporation’s original-issue shares. The appraiser’s report said the corporation’s value was identical, to the penny, to the amount the retirement plan paid in for the shares. So if, as the appraiser’s report concluded, the corporation had no value beyond its money (which it didn’t have before the only investor put it in), why would an investor part with money with no expectation of a return? RatherBeGolfing is right that investors generally, and investors in these businesses particularly, might not be coldly rational. But meeting ERISA and Internal Revenue Code rules for doing transactions at fair-market value calls for a valuation grounded on what such a hypothetical arm’s-length investor would do. There can be proper ways to value the fair-market price of a share of a start-up business. But that isn’t what was done in the appraisal I saw.

Wouldn’t a rational investor pay no more than fair-market value based on what a share’s value is when the investor makes the purchase (rather than what the value becomes after the investor made her purchase)?

Here’s a question to ponder: If a corporation invites an arm’s-length investor to purchase 100% of the corporation’s original-issue shares before the corporation has any customer, any business activity, any franchise right, any intellectual property, any other property, any money, or any other asset (beyond the corporation’s right to be a corporation), how much should the investor pay for the shares? If your answer is anything more than $0.00, why?

If a plan has a significant number of participants who get postal-service mail (rather than e-mail), some such plans bunch many required notices (at least for retirement plans, or for all health, other welfare, and pension benefits) so they can be mailed in one envelope - often in late November, to include notices to be delivered at least 30 days before a new year begins. (Please understand that I don't advocate for or against this idea; I seek only to learn more.) Has anyone made a list of the many notices and other required or desired communications one could put into such a Thanksgiving envelope?

And as everyone suggests, if the contribution obligation might have already accrued, read carefully the plan's governing documents to consider its express and implied provisions; and read carefully the summary plan description to evaluate whether the plan's administrator met its fiduciary responsibility in communicating the plan's provisions.

There was a BenefitsLink conversation in 2002. Working from the six authorities cited there, one might use legal-research tools and methods to find what's been published over the past 15 years.

If you're asking about a nonelective contribution, one of the several practical points - rules about how long after a relevant year an employer may pay the contribution while still getting a tax deduction attributable to that year - might not matter much if the tax-exempt organization lacks income against which the deduction might be useful. I've had experiences working with charitable organizations to write plans and summary plan descriptions that conditioned a nonelective contribution on the employer's collections of a specified set of revenues. Setting up provisions of that kind calls for careful lawyering, which often must consider business and legal questions beyond those customary for most employee-benefits practitioners.

The Labor department PROPOSES to delay the fiduciary rule from April 10 to June 9, 2017. Ending a month’s internal deliberation on what the Labor department might do or propose about an investment-advice fiduciary rule and related prohibited-transaction exemptions, today the Labor department filed [at 8:45] the prepublication text [31 pages] of a proposed delay rule, which is scheduled to be published in tomorrow’s (March 2) Federal Register. The proposed rule – if adopted, published, made effective, and not enjoined – would extend the applicability date of the 2016 investment-advice fiduciary rule from April 10 to June 9, 2017. It would likewise extend the expiration date of the 1975 investment-advice fiduciary rule. The proposed rule would extend the availability date of the Best Interest Contract Exemption from April 10 to June 9, 2017. Likewise, relevant dates for other new and revised exemptions published on April 8, 2016 would change to June 9, 2017. Comments on the proposal to extend expiration, applicability, and availability dates beyond April 10 are due March 17. (Comments beyond whether to delay are due April 17.) If the Labor department’s people can read and analyze the many comments in two weeks, it might be feasible to publish the delay rule in early April, slightly before current law’s April 10 “compliance” date.

Knowing that you're a careful practitioner, let's assume you already read the plan's document and didn't find enough information there. Is your query about whether an excess is treated as attributable to the latest contributions in the year or as evenly proportioned across the whole year?

And does anything preclude a 100% owner from using a limited-liability company (for whatever protections it affords) while treating the company as a disregarded entity so its business stays on Schedule C?

Federal court upholds investment-advice fiduciary rule. The 2016 investment-advice fiduciary rule wins; the challengers lose. The U.S. District Court for the Northern District of Texas acted in a case that consolidated three civil actions challenging the investment-advice fiduciary rule. (Challenges in other districts’ courts have been unsuccessful.) Chief Judge Barbara M. G. Lynn found that recent executive actions (the President’s memo and the acting Secretary of Labor’s news release), which plaintiffs’ attorney Eugene Scalia had yesterday brought to the court’s attention, “do not moot this dispute.” Today, attorneys of the Justice department asked the court to stay its proceedings until March 10. Filing her 81-page opinion and order, Judge Lynn denied that request. Deciding the case, Chief Judge Lynn denied all challenges, and granted the Labor department’s request to uphold the 2016: investment-advice fiduciary rule; amendment of Prohibited Transaction Exemption 84-24; and Best Interest Contract Exemption. If you want to read the full story, I attach the court’s opinion. Chamber of Commerce v Hugler opinion.pdf

If the employer/administrator has made written QDRO procedures, it might want to revise that document to specify which person directs investment during the period you describe. Perhaps BenefitsLink mavens might weigh in on which provision is more likely to support efficient plan administration.

Each of the rule, each prohibited-transaction exemption, and each amendment of a previously published exemption is an administrative-law act, each of which could be changed. For BenefitsLink readers following this topic, here's a link to the President's memo as published in this morning's Federal Register. https://www.federalregister.gov/documents/2017/02/07/2017-02656/fiduciary-duty-rule

On Q1, read the plan or agreement to consider which person decides whether a claim sufficiently states an unforeseeable emergency, and how much discretion the person has. A discretionary decision-maker might consider a non-cessation of deferrals as some evidence suggesting that the claimant might not really need an emergency distribution. On Q2, read the plan, the forms, the claims procedure, and for a point not resolved by those consider the administrator's discretion.

Without wading into the public-policy discussion, here's a practical point some practitioners might consider. Even if the applicability date of the 2016 investment-advice fiduciary rule somehow becomes delayed, this might not delay the availability date of the Best Interest Contract Exemption. An investment or service provider that is (or might be) an investment-advice fiduciary under the 1975 rule might want to use the new exemption to exempt a prohibited transaction that might be impractical or more difficult to exempt under other exemptions.

A further thought: In some of the situations I mentioned, there was a concern that allowing early distributions would deplete the plan's assets so much that the plan would become unable to pay for necessary services, including an independent qualified public accountant's reports the Labor department insisted on. In one of those situations, the administrator balanced the concerns by allowing partial distributions, but leaving reserves to meet anticipated payments to service providers. These situations can be fact-sensitive.

ETA, your concern is why the group's consensus was only that a fiduciary might consider how an earlier distribution affects the allocation of the plan's expenses. Your allusion to the blackout rule is interesting. In one of the situations I remember, the plan's administrator decided, without any lawyer's advice, to send a blackout notice, explaining that the plan would delay distributions until the wind-up administration was completed. That administrator also treated a participant's complaint about not getting a distribution before the final distribution as a request to review a denied claim, and followed the plan's ERISA section 503 claims procedure. Returning to AlbanyConsultant's query, might the differences in how the plan's expenses would be allocated among participants' accounts be small enough that the claimed in-service distribution would not significantly harm other participants?

MoJo, thank you for the good story. Just curious, is the German lawyer a Rechtsanwalt or a Notar (whose law-practice powers include drawing documents)?

Thank you for the further information. And it's easy to like a call-the-lawyer procedure. For a plan that has enough volume on these questions, it can be worthwhile to invest some effort to make a written procedure.

My 2 cents, I think you're right that an administrator is wise to be cautious about recognizing an agent to do an act concerning a qualified election or spouse's consent under ERISA section 205 or Internal Revenue Code sections 401(a)(11) and 417. Yet there are other claims or instructions a participant might make, for which an administrator might be called to decide whether to recognize or refuse an agency. Some plans permit a participant's agent to make the participant's claim for a distribution.

David Rigby, thank you for your confirmation. If you'll indulge me once more, in your wide experience have you ever seen a situation in which a plan's administrator was presented with a power of attorney and was in doubt about whether to allow or refuse what the agent wanted to do? If so, what methods did the decision-maker use to discern whether to say yes or no?

This question has come up a few times in one of my monthly among-practitioners groups. There, a consensus view was that a fiduciary might have some duty to consider whether allowing a distribution before everyone gets the final distribution could result in the earlier-paid participant not bearing her fair share of the plan's wind-up expenses. (All of our discussions involved situations in which expenses are paid from plan assets, and unallocated amounts were insufficient to meet the plan's expenses.)

Many practitioners suggest that at least one of the starting points for solving a question about plan administration is to RTFD - read the Fabulous document. And for some of those questions, a next step is to read the plan-administration procedures. My question today is about how much, if anything, preapproved documents say about whether the plan allows some acts to be done by a participant's agent; and, if allowed, what form of power of attorney is sufficient for the administrator to recognize the agent and the agent's powers. I'll start our unofficial survey. I searched prototype and volume-submitter documents of several big investment houses and recordkeepers, and found a complete absence of any expression about circumstances in which the plan recognizes or refuses a power of attorney or other agency. Would you please confirm whether the plan document you most often work with is the same or different? And if the plan document yields a nothing, does the set of documents include a model or sample procedure that says anything about how to handle a power of attorney?

Thanks for the further information. In my experience, the Labor department is quick on checking the attachments for information that would identify a natural person. I've seen a posted display including the attachments in as little as an hour after the submission.