Peter Gulia

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.

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?