Peter Gulia

Scuba 401, ERISA § 401(b)(1) means the plan’s assets do not include a stock or bond the RIC “mutual” fund owns. My 2 cents, the originating post supposes some possibility that a plan fiduciary might face compromising interests based on the employer’s business. Considering an anonymous employer and plan fiduciary and now knowing what “that industry” and “those companies” refer to, I didn’t want to suggest any conclusion about the absence of a question to consider. Also, even if the fact that a fund (or a fund’s manager for another fund) invests, or could invest, in securities issued by the plan’s sponsor (or another party-in-interest) might not by itself necessarily lead to a prohibited transaction, a plan’s fiduciary nevertheless must act for the right exclusive purpose, and must not allow its best judgment as a fiduciary to be compromised by an interest other than the plan’s exclusive purpose. Without knowing the facts, we’re just imaging what questions Scuba 401’s client might have.

ERISA § 401(b)(1) [unofficially compiled as 29 U.S.C. § 1101(b)(1)] provides: For purposes of this part [part 4 of subtitle B of title I of ERISA]: In the case of a plan which invests in any security issued by an investment company registered under the Investment Company Act of 1940, the assets of such plan shall be deemed to include such security but shall not, solely by reason of such investment, be deemed to include any assets of such investment company. Thus, the plan’s asset is the share issued by the registered investment company, and not a proportionate interest in a RIC fund’s portfolio securities. However, for a plan established or maintained by an employer that has an investment-related business, other circumstances might raise prohibited-transaction, exclusive-purpose, and prudence issues that would not be faced by an employer that has no investment-related business. Some ERISA lawyers have practical experience with those issues.

Beyond the most recent cumulative list, one might scan the descriptions of documents collected on the IRS's "Recent Published Guidance" webpage. https://www.irs.gov/retirement-plans/recent-ep-published-guidance In my quick look, only two of those documents could affect the provisions of a mainstream 401(k) plan. Consider, however, that webpage states it was last updated on May 24.

Just a curiosity: If specifying the administrator's charge for the report is as simple as multiplying 25 cents by the number of pages, does the 5500 software count the number of pages (including those of uploaded attachments) and compute the arithmetic to fill-in the charge? Or is that too much to hope for?

Does anyone mention a charge more than $5.00 if the report is more than 20 pages?

We're preaching among the choir. I had already furnished to my friend a referral list of ESOP-specialist lawyers for her to suggest to the business founder. After the business founder rejected the idea of using any lawyer, my friend asked about service substitutes. But you've persuaded me I should advise my friend to extricate herself from the situation.

I agree with RatherBeGolfing's observation. But, leaving aside ESOP features, how many hundreds of thousands of retirement plans were created using document-assembly engines with the employer answering questions and marking selection boxes with little or no guidance from knowledgeable practitioners? And let me ask the second of my four questions a different way: If a user had hand-holding from someone like a BenefitsLink maven, which plan-documents system offers the best help in explaining (at least to the knowledgeable person) the available choices? If it matters, the user wants to establish an S corporation ESOP.

If, instead of using a law firm, an employer wants to make an employee stock ownership plan by using the assembly engine of FIS (Sungard) Relius, Wolters Kluwer ftwilliam, or another documents provider, which would you choose? Which has the most flexibility in choices of plan provisions? If the user lacks expert knowledge of ESOPs, which has a questionnaire or input system with the best help in discerning what the employer wants? Which provider's documents are easiest for an employer or its TPA to understand? What other factors should I consider in helping a friend select a plan-documents provider?

CMarkB, thank you!!!!!!!!!

A plan's administrator is pulling together its disclosure under 29 C.F.R. 2550.404a-5. Looking toward the plan year that begins with January 2017, the administrator will send a set of plan communications (some of which meet a 30 days' notice condition) by November 2016, and include in that set a 404a-5 disclosure. In that disclosure, must the investment alternatives' past-performance information be for the 1-, 5-, and 10-calendar-year periods ended December 31, 2015? Or may the past-performance information be for the 1-, 5-, and 10-year periods ended September 30, 2016?

Begin with considering whether State law empowers the particular employer to establish a 401(a) plan. If it does, consider what conditions State law requires for a valid and proper creation of the plan.

If your query is about what provisions a plan could state, include in your research this source: 26 C.F.R. §1.401(a)(9)-3 (Death before required beginning date). http://www.ecfr.gov/cgi-bin/text-idx?SID=b7164a4975c47a7cfc960c662879a745&mc=true&node=se26.6.1_1401_2a_3_29_3_63&rgn=div8

QDROphile is right that this kind of problem can be managed with clear documents. But a carefully stated retirement plan isn't enough. If the problem is - beyond tax withholdings, levies, and garnishments - two or more opportunities for wage reductions or deductions, the employer should consider all of its employee-benefit plans, fringe benefits, and other arrangements that have a possibility of a wage reduction or deduction. Imagine an employer that has payroll slots for health coverage, health flexible spending account, dependent care spending account, disability insurance, life insurance, transportation fringe, 401(k) elective deferrals, and a stock-purchase plan. It might be feasible to ask an enrolling employee for instructions on what to do when there isn't enough pay to fill all wage reductions and deductions. Or an employer might design a series of ordering rules. But to do either calls for someone to see all of the plans and arrangements. How many of us get an employer's request to work on more than one plan?

Fielding Mellish, your query described the plan as a multiemployer plan. Is the plan maintained by more than one employer and collectively bargained with a labor union? Or is the plan a multiple-employer plan, whether an "open MEP" or a multiple-employer plan with sufficient associations that the plan is reported as one plan? If the plan is not a single-employer plan, is there something about the plan's intended uses that led the plan's sponsor to a design choice about how quickly a beneficiary must take a distribution?

Filing a Form 5500 report might be desirable because the IRS counts a plan trust's Federal income tax statute of limitations from that filing. IRS Announcement 2007-63, 2007-30 Internal Revenue Bulletin (July 23, 2007). https://www.irs.gov/irb/2007-30_IRB/ar18.html?_ga=1.225184222.516109692.1475756708

Thank you, everyone, for the good help. While each client will make its own decisions, I'm inclined to suggest reporting Schedule C Part III, and using the "Explanation" element to state succinctly the facts. In some situations those facts might be as simple as 'the administrator selected another accountant' or 'the accountant did not offer the next engagement'.

I suspect there are more questions than is wise to discuss on a bulletin board. If you'd like to talk through the legal and practical issues for some free help between practitioners, just give me a call.

jpod, your question relates to one of several sources for modes of interpretation I've been thinking about. ERISA section 103©(4) requires that an annual report include "[a]n explanation of the reason for any change in appointment of trustee, accountant, insurance carrier, enrolled actuary, administrator, investment manager, or custodian." Why does Schedule C Part III refer to only two of those seven? And if an administrator engaged (or "appointed") an accountant for only one audit, is there a "change in appointment"?

David Rigby, thank you for your further thinking. I agree with your observation that the call to explain a dispute or disagreement suggests a possible purpose about why a termination of either kind of appointment is reported. But another way to consider the same observation is that the absence of a dispute or disagreement might support the idea that there was no termination in the appointment. (It's also unclear what "appointment" refers to.) What if the only reason for the administrator's selection of a new IQPA is a lower fee or superior service? Is a disclosure on Schedule H of the name and EIN of the IQPA that audited that year's financial statements sufficient to disclose a CHANGE of accountant? I don't know what EBSA intends in its use of the phrase "termination of the appointment". If it refers to any end of an engagement, many administrators would be called to report a Part III every year. If it refers to a change from one year to the next in which accounting firm the administrator selected, I wish EBSA would say so. (Maybe someone did, and I just haven't read that guidance.) I haven't yet decided what advice I'll render to any client (although I usually favor more disclosure). For now, I'm searching for more information in a hope that my advice might be grounded on something more than my guess about what EBSA seeks.

My 2 cents, thank you for your helpful thinking. Apart from considering which year, do you think it would be correct for an administrator to decide that there was no termination in the appointment of an accountant (so a Schedule C Part III disclosure is not called for)?

Consider all implications of 26 C.F.R. §1.414©-5. http://www.ecfr.gov/cgi-bin/text-idx?SID=ec7865a93d6d3fb028fbafd74aee2313&mc=true&node=se26.7.1_1414_2c_3_65&rgn=div8

The instructions for Form 5500 Schedule C Part III state: “Complete Part III if there was a termination in the appointment of an accountant . . . during the 2015 plan year. This information must be provided on the Form 5500 for the plan year during which the termination occurred.” Consider the following typical situation. A plan’s administrator and an accounting firm make engagement letters for only one year at a time. The accounting firm (which writes the engagement letter for the client’s adoption) never obligated itself to be available for anything more than one pending audit. The administrator never obligated itself to the accounting firm for anything more than one pending audit. During 2014, the accounting firm completed its work in auditing the plan’s 2013 financial statements and issued its report; and the administrator accepted the report as a satisfaction of the engagement. In 2015, the administrator invited several accounting firms, including the one that in 2014 audited the 2013 statements, to submit proposals. The administrator selected another accounting firm. On those facts, was there “a termination in the appointment of an accountant”? Which facts are significant in deciding whether there was or was not a termination? Has EBSA published any guidance on this? Has the AICPA published any professional literature on this?

Without entering or remarking on this debate about how a fiduciary might go about its decision-making (if any), consider the likelihood that the plan’s governing documents will specify this provision. If the plan sponsor uses a set of IRS-preapproved documents and that form affords a choice to provide automatic elective deferrals as Roth or non-Roth contributions, the plan sponsor will have made the choice. If the document sponsor’s form permits a user to provide an automatic-contribution arrangement but doesn’t allow a choice between making the automatic elective deferrals Roth or non-Roth, the plan sponsor’s act of adopting the documents adopts whichever provision is set by the document sponsor’s documents. And if the plan sponsor uses an individually-designed document, the plan document may specify whether automatic elective deferrals are Roth or non-Roth. If the plan sponsor specifies this Roth or non-Roth provision for automatic elective deferrals in the plan’s governing documents, there ordinarily is no need for a fiduciary’s choice. Rather, the plan’s administrator obeys a plan document. A single-employer plan sponsor’s act of adopting or changing a retirement plan need not be constrained by ERISA fiduciary duties and, absent a collective-bargaining duty or obligation, might involve decisions the plan sponsor alone may consider as a business organization. Under ERISA’s settlor doctrine, a plan sponsor can have made a plan provision that results in an unwise choice for a particular participant (or even many of them), and yet bears no ERISA fiduciary responsibility for such a plan-design choice. {This academic conversation among practitioners is not legal advice to anyone.}

Information about how to end a 403(b) plan, including one that is a 403(b) plan for Internal Revenue Code purposes and yet is a non-plan under ERISA, is in chapter 13 of 403(b) Answer Book published by Wolters Kluwer.

Answers to Tom Poje’s questions relate to GMK’s observations. In 2014, I reviewed a “micro” client’s use of IRS-preapproved documents sponsored by a “mega” national bank. That form included a few pages of Adoption Agreement choices to specify several details for an automatic-contribution arrangement. These included a check-off box to specify that automatic elective deferrals are Roth contributions. (The form has a copyright notice that refers to the bank “or its suppliers”; I believe the form is the work of one of the big plan-document publishers.) To the extent that an automatic-contribution arrangement’s defaults are specified in the plan, ordinarily the plan’s administrator need not make a discretionary choice, and ordinarily should administer the plan “in accordance with the documents and instruments governing the plan[.]” ERISA § 401(a)(1)(D). A plan’s administrator might have some duty to go beyond the plan’s provisions if a provision is inconsistent with ERISA’s title I or title IV. GMK is right that even a fiduciary choice need not perfectly fit each individual. Rather, it can be prudent for a fiduciary to consider all of the surrounding facts and circumstances, including practical constraints, and impartial balancing of different and differing needs, interests, and preferences, to decide a choice for a wide class.