Peter Gulia

Apart from whatever tax law might require: If the plan is not a governmental plan or a church plan, ERISA section 402 calls for a plan to be in writing.

Doesn't JRN's query suppose that the plan sponsor decides only which default (Roth or non-Roth) to apply for a participant who has not (yet) specified the participant's choice? And if a plan's sponsor must specify one default or the other, is a reasonable guess about what a typical participant in an affected class would or should prefer a good-enough provision?

It's a shame that non-rule non-enforcement statements in 1988, 1992, and 1996 remain the limited guidance. The 1992 Technical Release stated: "The Department cautions that the foregoing enforcement policy in no way relieves plan sponsors and fiduciaries of their obligation to ensure that participant contributions are applied only to the payment of benefits and reasonable administrative expenses of the plan." If there is such a duty or obligation, isn't that a trust?

Thank you for sharing that information.

I've seen many situations in which a "sample" procedure that accompanies a service provider's prototype, volume-submitter, or similar documents is not the procedure the plan's administrator (the employer) would adopt if it had asked for advice. But from my experiences, both as inside counsel and as outside counsel, in writing or editing suggested procedures, it's not easy to write a procedure that satisfies all audiences. And I've worked in situations in which a client's instructions were to do the least editing that would make a writing not obviously contrary to law, and to ignore everything else. MoJo, just a curiosity for me, is it feasible to propose a revised QDRO procedure to the acquired customers? Or would doing so be a "big lift"?

BG5150, thank you for remembering this source. "f a plan fiduciary determines that the cost to allocate the proceeds among participants whose accounts were invested in the mutual fund during the entirety of the relevant period approximates the amount of the proceeds, the fiduciary may properly decide to allocate the proceeds to current participants invested in the mutual fund based upon a reasonable, fair and objective allocation method." RPG, if the recordkeeper quotes or estimates its fee for the extra allocation, would that information give a plan's administrator some grounds to support a cost-benefit decision about whether it makes sense to allocate a receipt according to some set of records about participants' accounts during past periods (or to use a rounder allocation)? Or is even the effort of doing an estimate not cost-benefit-justified?

I remember a PWBA (in the 1980s) staffer's seminar-law explanation that went like this: A summary annual report is a summary of the annual report's financial statements and schedules. If, obeying the Form 5500 Instructions, the plan's annual report has no financial statements and no schedules, there would be no such information for the SAR to summarize. A regulation allows the administrator to omit information that is not required to be reported on the annual report. 29 C.F.R. 2520.104b-10(d)(1). However, the SAR form for a welfare plan has a paragraph captioned "Insurance Information" in which the administrator names the insurance company the plan has a contract with, and the total amount of premiums paid for the plan year. Also, an instruction in the SAR form's "Your Rights to Additional Information" portion states: "list only those items [that] are actually included in the latest annual report[.]" This way the disclosure text doesn't invite a participant to request a document that does not exist. For the health plan you described, it seems the SAR might be a few succinct paragraphs and tidy on one page.

Without commenting on what act your plan might require of a participant, or of a participant's spouse, to provide the distribution the participant seeks, here's a link to rules for a consular official's notarial acts: http://www.ecfr.gov/cgi-bin/text-idx?SID=37d7caf365c8d58aed2f9b922da4e47d&mc=true&tpl=/ecfrbrowse/Title22/22cfr92_main_02.tpl 22 C.F.R. sections 92.1 to 92.43

ESOP Guy, thank you for the help. What about the menus for participant-directed investment: is it okay that B's menu of funds is not the same as A's menu?

Vesting will be identical, and 100%, for both A and B. But can there be differences concerning hardship distributions and participant loans?

A section 414 employer group includes two corporations at different locations with difference workforces. Corporation A includes the business owner and one other highly-compensated employee, and has a few non-highly-compensated employees. Corporation B has a larger workforce, and has only non-highly-compensated employees. A has a 401(k) plan that provides a matching contribution of 100% on elective deferrals of the first 3% of compensation and 50% on elective deferrals of the next 2% of compensation. A intends this as a safe-harbor plan. B has no retirement plan. IRC section 410(b)(6)© relief concerning the owner's acquisition of B expires with 2016. The owner is considering creating a retirement plan for B's employees that would "mirror" A's matching formula, allow entry on the same age and service conditions as for A's employees, and provide 100% vesting on the matching contribution. But which other plan provisions must be aligned to meet non-discrimination rules? And which plan provisions may differ without tax-disqualifying either plan? Both plans will exclude employer securities and provide participant-directed investment. Both will limit investment alternatives to shares of SEC-registered "mutual" funds. Both will provide daily valuation and daily direction. But does it matter that A's and B's designated investment alternatives differ? If so, what kinds of differences are permitted or precluded? Am I right in presuming that if A's plan allows a hardship distribution, B's plan must? If A's plan allows a participant loan, must B's plan allow it equally?

Without entering the debate about whether an individual-account retirement plan that lacks designated investment alternatives is good or bad: May a 401(a)&(k) plan provide that an election to make elective-deferral contributions (whether non-Roth or Roth) is not a valid election unless it includes the participant's investment direction?

If the only worker is the one shareholder, it seems unlikely that there is a group. But is having a group a condition for the health-insurance income tax treatment your client seeks?

Would the spouse be covered because he or she is an employee's spouse? Or would the spouse be covered because he or she is an employee?

Which definition of group health plan applies or is relevant turns on which law, rule, or insurance regime one seeks to apply or non-apply. Not all definitions are the same. Also, regarding a "micro" business, some of the definitions can be confusing or ambiguous concerning who counts (or doesn't) as an employee.

If the plan's administrator communicates clearly its decision that the State court's order is not a QDRO and its denial of the participant's claim for a do-over on the pension that commenced; explains clearly the administrator's reasons for each decisions (following ERISA section 503 rules and other good claims procedure); and allows the claimant full resort to reviews and appeals under the plan's claims procedures, would doing so harm or weaken the administrator's position?

GMK, thank you for the further information, and your observations. It's talk from IRS employees in recent years that has caused some employer/administrators to ask about what one may accept on the claimant's word, and what calls for an administrator to probe and evaluate.

Wow! Thank you! I had forgotten that earlier discussion. But what if the plan's administrator does NOT tie the gross-up to anything about withholding? Is it okay to accept the claimant's written representation about his or her combined marginal tax rate (as long as it's within a range that could be possible)?

The Treasury department's rule states: "[T]he amount required to satisfy the financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution." Do BenefitsLink mavens read this as allowing a gross-up reflecting the distributee's marginal income tax rates, even if the withholding will be much less? If so, what information about the distributee does one use to discern what marginal tax rate to assume for the gross-up? If one assumes that, beyond the distributee's wages from the one employer, the distributee's tax returns might include other wages and other income, could this make it reasonable to accept a claimant's written representation about his or her marginal tax rate (as long as it's no more than the combination of the highest rates for the jurisdictions shown by the claimant's address)?

You're right that many (likely most) pre-approved document sets don't display a check-off box or other means for illustrating the idea that an adopter might name the Plan Sponsor or Employer organization as a plan's trustee. But the fact that a pre-approved document's maker or sponsor chose not to display something doesn't necessarily mean that what's not readily suggested on that form is not a choice. If the question is "Can the employer be the trustee of a 401(k) plan?", perhaps a lawyer's answer might be "it depends on relevant Federal and State laws; how much research do you want to pay for?"; and a practical answer (sometimes from a lawyer too) might turn on how much effort makes sense in the situation. That might be little to no effort if the questioner or her advisor finds that the potential consequences are modest or unlikely to be meaningfully affected.

Even if appointing as a retirement plan's trustee the plan-sponsor corporation or other business organization (rather than the organization's officer, manager, or employee) does not practically change an acting individual's exposures to personal liability, some plan sponsors prefer to name the organization as the trustee so the liability in the first instance is on the organization, even if an individual also will be exposed to liability (especially if the organization is unable to pay). And some just like the symbolic value of naming the plan sponsor as its plan's trustee. For the many retirement-services providers that seek to avoid too much advice about what a plan's sponsor should do, it's useful to know that a customer's question about whether the plan-sponsor organization may serve as the plan's trustee is not necessarily an idle or useless question. Most small-business customers don't ask this question. But when one does, it can be useful to consider that the answer need not be a too-quick or too-simple No. That said, we recognize that these complexities can be challenging for a TPA, recordkeeper, or other service provider.

Some States’ laws do not preclude a corporation or other non-natural person from serving as a trustee. Or if a State’s law precludes a non-natural person other than a bank or trust company from engaging in a BUSINESS of serving as a trustee, an employer’s service without compensation only for a single-employer plan for the employer’s employees might not be such a proscribed business. Even if a State’s law generally prohibits a corporation that’s not a bank or trust company from engaging in a business of serving as a trustee or other fiduciary, a State’s law might permit a corporation to serve as the trustee of a trust for an employee-benefit plan for the corporation’s employees. To pick just one example, Pennsylvania’s Banking Code expressly permits a non-bank corporation to act as trustee of a trust “for the benefit of [the corporation’s] own employe[e]s[.]” 7 Pa. Stat. § 106(a)(iii).

If the plan's administrator construes or interprets the meaning of "person or other entity", the administrator might consider that, absent special definitions, customary legal usage includes in the meaning of "person" not only a human being but also a non-natural person, such as a corporation. Moreover, ERISA includes a definition for "person". Even if the plan's text doesn't compel following or using that definition, an interpretation that is consistent with ERISA might be stronger. And while it is a separate task, if the plan's sponsor wants to preclude a participant from naming a for-profit person as the participant's beneficiary, an amendment or other revision of the plan could make clear what the plan does not allow.

The Bankruptcy Code in its section 704(a)(11) states: The [bankruptcy] trustee shall ... if, at the time of the commencement of the case, the debtor (or any entity designated by the debtor) served as the administrator (as defined in section 3 of the Employee Retirement Income Security Act of 1974) of an employee benefit plan, continue to perform the obligations required of the administrator[.] There are steps a bankruptcy trustee may take to administer a plan and meet an administrator's ERISA duties. These might include using the plan's assets to defray reasonable expenses of administering the plan. Or if a bankruptcy trustee is in doubt about whether engaging and paying an independent qualified public account and other service providers is prudent and otherwise consistent with ERISA's exclusive purpose, he or she may bring a civil action "to obtain other appropriate equitable relief", which might include an Article III court's approval of one or more plan-administration expenses. One recognizes that difficult circumstances can make unclear exactly what a fiduciary must or should do. But there are ways to find out.

Bankruptcy is not necessarily an excuse from a plan administrator’s duty to file an annual report, including an independent qualified public accountant’s report. Administrative Law Judges have upheld such a position. https://www.dol.gov/ebsa/newsroom/2010/ebsa011510.html