Peter Gulia

Beyond others’ observations, consider (and get your lawyer’s advice on) two further ideas about how to illustrate past performance: If you intend a communication as one meant to follow 29 C.F.R. § 2550.404a-5 for disclosures to directing participants, one counts average annual total return and total annual operating expenses for an investment alternative that is not an SEC-registered fund as if it were. Even if an RIA’s model is not an investment alternative, someone might prefer to illustrate it as if it were. Consider how the RIA would comply with investment-adviser law standards for making a communication not misleading.

I don’t venture answers to your questions, but suggest one aspect for the plan administrator’s interpretation of the Form 5500 Instructions. In applying the bit you quoted, one might separate IRC § 72(p) from ERISA § 408(b)(1). For at least some plans and some circumstances, a participant loan might fail to meet a condition concerning income tax treatment under IRC § 72(p) without necessarily failing to meet the conditions for the ERISA § 408(b)(1) exemption. For example, if a participant’s vested account balance when the loan was made was $300,000, a loan of $100,000 could be adequately secured under 29 C.F.R. § 2550.408b-1(f)(2) and, depending on the plan’s and a procedure’s provisions, could meet all conditions of 29 C.F.R. § 2550.408b-1.

The Form 5500 Instructions describe as an “active” participant “any [natural person] who [is] earning or retaining credited service under the plan[.]” This is ambiguous because the mention of service doesn’t say whether it refers to eligibility service, accrual service, vesting service, or participation service. One might be tempted to resolve an ambiguity by referring to the concept of an entry date. And one might invent an interpretation that is logically consistent with 29 C.F.R. § 2510.3-3(d)(1)(ii), a portion of the rule on which the Labor department grounded this bit of the Form 5500 Instructions. Does the plan’s document specify an entry date for those who do not meet eligibility conditions for any accrual other than the prevailing-wage accrual? If not (or if that provision is not what the plan’s sponsor desires), is it feasible to amend the plan to specify such an entry date? Or does the plan’s text support a loyal, prudent, and impartial interpretation that an entry date for a prevailing-wage accrual is the first day on which the employee first performs or otherwise is credited with an hour of accrual service allocated to a prevailing-wage project? Consider establishing each person’s entry date (for the first kind of accrual that makes her a participant), and then applying the participant-counting rules of the Form 5500 Instructions. Consider too that a plan administrator’s decisions about who is or isn’t a participant matter for communications and other purposes beyond Form 5500 reporting. A plan’s administrator might consider circumstances in which someone not counted as a participant for the Form 5500 report is a participant within the meaning of ERISA § 3(7).

If a church plan elects to be governed by the Employee Retirement Income Security Act of 1974, wouldn't ERISA's command for annual reports apply? If so, wouldn't there be a Form 5500 report on which the plan's administrator could attach the election statement?

Juan Kelly and Luke Bailey, thank you for the nice help!

Any help? And is there some other reason why big employers don't do this?

KEC79, perhaps this is an opportunity to show your client why it needs YOUR advice.

Before the plan's administrator acts under an assumption that it should require an assurance that a domestic-relations order will not be presented, the administrator might want its lawyer's advice about whether the plan's provisions support imposing such a condition on a participant's claim for a distribution.

How does an adoption-agreement form that goes with a volume-submitter document handle these questions?

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.