Peter Gulia

Is the plan ERISA-governed? If so, did the plan's investment in the partnership result in, for any of the preceding plan accounting years, the plan's qualifying plan assets having been less than 95% of the plan assets? If so, did the plan fiduciaries have ERISA fidelity-bond insurance with coverage no less than the value of the non-qualifying plan assets. If neither set of conditions for a waiver of an independent qualified public accountant's examination was met, did the plan's administrator engage an IQPA? If an IQPA was engaged, what did the IQPA's report say about the valuation of the plan's partnership interests? If an IQPA was engaged, what did the IQPA's report say about related-party transactions and prohibited transactions? Is the plan's partnership interest allocated only to the accounts of one or two directing participants, or is it allocated to all participants' accounts?

In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, the Supreme Court decided an interpretation of law for courts to apply in their findings on whether relief a litigant seeks is or isn’t provided under ERISA § 502(a)(3). The Court’s holding: If a person had money or property that in good conscience belonged to the employee-benefit plan but dissipated that money or property on nontraceable items, a fiduciary cannot under ERISA § 502(a)(3) attach the person’s general assets. The Montanile rule might not preclude a pension plan from getting remedies for overpayments if the payee did not consume all the money and some amount remains traceable. An answer to my question might help a fiduciary think through a discretionary decision about relative fairness regarding consequences of a mistake. For example, a fiduciary’s thinking about how much value to put on burdens from unsettling a beneficiary’s reasonable expectations might be influenced by considering whether some of that burden is ameliorated by the beneficiary’s enjoyment of some proceeds from the overpayments. I do not suggest any conclusion, or even that these are relevant considerations. It’s only that I imagine someone might choose to consider the information among several kinds of information and several modes of analysis. By the way, the health plan’s case against Robert Montanile is (as much as I know) not yet decided. On the first try, both the trial court and the intermediate appeals court found that the plan could enforce its equitable lien even had Montanile dissipated all the money. The do-over now calls for fact-finding about how much is dissipated and how much remains in Montanile’s possession, including in traceable money or property.

If the plan's provision is the regulations' deemed-need provision, it refers to "[p]ayments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence[.]" The plan's administrator might ask for information so it can decide whether a foreclosure on the brother's property would result also in eviction of the participant from the participant's principal residence.

Is it at least possible that the participant's surviving spouse might have proceeds from the pension plan's overpayments to the participant because the surviving spouse is a beneficiary, legatee, or other taker from the decedent's money and property?

Internal Revenue Code section 72(m)(10) states: “Under regulations prescribed by the Secretary, in the case of a distribution or payment made to an alternate payee who is the spouse or former spouse of the participant pursuant to a qualified domestic relations order (as defined in section 414(p)), the investment in the contract as of the date prescribed in such regulations shall be allocated on a pro rata basis between the present value of such distribution or payment and the present value of all other benefits payable with respect to the participant to which such order relates.” More than 31 years after the 1984 enactment of the quoted statute, no rule or regulation to interpret section 72(m)(10) has been adopted, or even proposed.

Many practitioners had suggested (including at the February 2015 Baltimore conference) that some kinds of mid-year changes should be recognized as sufficiently benign that the change ought not to disrupt an otherwise good safe-harbor treatment. So what do you think of Notice 2016-16? https://www.irs.gov/pub/irs-drop/n-16-16.pdf Does this do enough to meet the concerns practitioners had expressed?

ERISA section 3 [29 U.S.C. 1002] includes definitions for employee organization (4), employee (6), participant (7), beneficiary (8), and person (9). Under these definitions, an alternate payee might be a beneficiary, but is not a participant because she is an alternate payee. By contrast, a participant is someone who is or may become eligible for a benefit because he or she is or was an employee or a member of an employee organization.

If the plan's administrator has not decided that the participant is dead and no one has submitted a claim for a death benefit, the administrator might consider that it has no current need to discern who might be a beneficiary. Consider that reaching-out efforts often spark false claims. If the participant's employment ended in 2014 (and the balance is low enough to call for an involuntary distribution), shouldn't a routine processing of involuntary distributions have emptied the account before 2016? The plan's administrator should use or engage identity-control, death-information, and address-information services that are under the administrator's control, without communication to a person who seems to be the participant's relative.

For those of us who are less immediately knowledgeable than Ubernerd, My 2 cents, David Rigby, and Mike Preston, it would be nice if the IRS published in the Internal Revenue Bulletin the next year's table (even if nothing but its caption changed) with a one-paragraph introduction about why it didn't change.

What are BenefitsLink mavens' thoughts about whether submitting a "zero" filing for a year in which there was no distribution would be helpful or harmful?

Consider at least two further thoughts: Before the employer relies on an insurer's or custodian's promise that it will decide every question, evaluate whether the promise is signed by a person who has actual authority to make the promise as the insurer's or bank's obligation and that the promise is not void or otherwise legally unenforceable for lack of one or more regulators' approvals. Consider whether the employer really will keep its resolve to support its "hands-off" position. For example, imagine a situation in which a court finds the employer in contempt of court for declining to decide whether the court's order is a qualified domestic-relations order. Suppose that it might cost at least a few thousand dollars in unreimbursable attorneys' fees to win an undo of such an order. Will the employer maintain its resolve, and spend money from the charity's assets, to litigate its non-plan position?

About Q2, consider that a plan that never covers an employee might not be an ERISA-governed plan. See 29 C.F.R. 2510.3-3.

If this employee belongs to a "select group" for an unfunded deferred compensation plan, one wonders whether his pay is governed by a written employment agreement. And if there is such an agreement, how does it express his pay?

If the employer is confident that the 403(b) arrangements are a non-plan, here's one practical path some practitioners suggest: If a Form 5500 report or return was filed for a preceding year, do a "final" 5500 so EBSA's and IRS's computers will treat the record as finished. If no Form 5500 report or return was filed for any preceding year, don't start.

A plan that does not provide participant-directed investment is beyond the particular relief that the quoted FAQ states. But not meeting the conditions for an exception from a general rule does not necessarily mean that a situation is within the general rule. A lawyer advising an SEC-registered investment adviser about whether it has custody within the meaning of IAA Rule 206(4)-2 because of the adviser's or its associated person's role concerning an in-house retirement plan might consider all of the relevant facts and circumstances, and interpretations about other situations, to render advice about whether the in-house retirement plan is or is not a client of the adviser. If I can help, please feel free to call me.

Consider whether such an employer might want the written advice of a lawyer who is experienced with ERISA and the Investment Advisers Act. That advice might be useful if it would conclude that the retirement plan is not a client of the registered investment adviser.

The Investment Advisers Act of 1940 rule can apply only if the adviser “ha custody of client funds or securities[.]” 17 C.F.R. § 275.206(4)-2(a) [http://www.ecfr.gov/cgi-bin/text-idx?SID=4bca3a6fcc528a39a291f8260cae61c9&mc=true&node=se17.4.275_1206_24_3_62&rgn=div8];Custody of Funds or Securities of Clients by Investment Advisers, 75 Federal Register 1,484 (Jan. 11, 2010); Investment Advisers Act Release IA-2968 (Dec. 30, 2009). The word client is not specially defined in the rule’s definitions section. But consider this off-rule interpretation: Question XII.1 Q: A related person of an investment adviser ([for example], an officer or director of the adviser) may act as the trustee of the participant-directed defined contribution plan established for the benefit of the adviser’s employees. As trustee of the plan, the related person selects the service providers for the plan, such as an administrator[,] and may select the investment options available under the plan, [for example], mutual funds. Must the adviser treat the assets of the plan as client assets of which it has custody? A: The Division will not recommend enforcement action to the Commission against an investment adviser that does not treat the assets of a participant-directed defined contribution plan established for the benefit of adviser’s employees as those of a client of which it has custody in these circumstances solely because a related person of the adviser is trustee which [sic] may select service providers and investment options for the plan, provided that (i) neither the investment adviser nor a related person otherwise acts as an investment adviser to the plan or any investment option available under the plan[,] and (ii) the investment adviser and the related[-]person trustee are, to the extent applicable, in compliance with the Employee Retirement Income Security Act of 1974 (ERISA) and rules and regulations issued thereunder with respect to the plan. (Posted March 5, 2010.) https://www.sec.gov/divisions/investment/custody_faq_030510.htm The rule and off-rule interpretation cited above are for an adviser registered (or required to be registered) with the U.S. Securities and Exchange Commission. For an adviser registered (or required to be registered) with a State (or several States), no rule or a different rule might apply. This general information is not advice to anyone.

An ESOP retirement plan has fewer than 100 participants at both the beginning and the end of the plan year. All of the plan's assets are "qualifying plan assets" within the meaning of the 104-46 rule. The employer securities are not publicly traded. Is there anything about the ESOP nature of such a plan that would preclude it from relying on the small-plan excuse from an independent qualified public accountant's audit of the plan's financial statements?

An important caution: My example above often won't work. To get the IRC § 7525 privilege, the communication must have been made for the purpose of obtaining tax advice. If the practitioner is an employee or agent of a business that denies that it provides tax advice, that denial might make doubtful the taxpayer's assertion that the communication was made for the purpose of obtaining tax advice.

Do any of the questions involve something for which the Labor department would be the enforcer and disclosing a problem on Form 5500 could cause the agency to have enough knowledge to trigger the shorter statute of limitations?

Remember, this privilege can protect only a communication, not underlying facts. Internal Revenue Code § 7525 provides its limited privilege by analogy to the evidence-law privilege for confidential communications with a lawyer. So a communication can be protected only if, among other conditions, the communication was made for the client’s purpose of obtaining tax advice and was made in confidence (not to be read or heard by a person beyond the client and the practitioner). Likewise, a client that wants to rely on the privilege as a ground for not producing or revealing a communication that otherwise the taxpayer was required to furnish or reveal should do something to invoke the privilege. The Internal Revenue Service ordinarily recognizes a taxpayer’s privilege claim made by the taxpayer’s representative. For an examination, consider that a taxpayer might be represented by a practitioner other than the ERPA who was the maker or recipient of a communication. Under the rule that authorizes an ERPA’s limited practice, an ERPA “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.” 31 C.F.R. § 10.3(e)(2). An examination of a taxpayer might not be so confined.

Internal Revenue Code § 7525, which provides a limited evidence-law privilege in non-criminal Federal proceedings for some confidential communications with a “federally authorized tax practitioner”, refers to 31 U.S.C. § 330. The statute codified there grants the Secretary of the Treasury power to "regulate the practice of representatives of persons before the Department of the Treasury[.]" The statute's implementing rule, 31 C.F.R. part 10, was the ground for the Florida court's legal reasoning. Some might welcome the idea that the § 7525 privilege applies to a communication made for the purpose of getting a practitioner's tax advice that was "within the scope of the individual’s authority to practice[.]" For example, the IRS may not compel an ERPA to reveal a confidential communication her client made to ask for the ERPA's tax advice about whether a user may rely on an IRS letter issued to the ERPA's employer as a prototype sponsor.

The originating query was whether "this taxable fringe benefit [providing health coverage for a domestic partner] is not included in wages for the retirement plan." As QDROphile mentions, a retirement plan's definition of compensation, at least for benefit-accrual purposes, might involve possible variations, even within the range of safe-harbor definitions. Moreover, a plan might state a definition that is not a safe-harbor definition.

austin3515's description is the behind-the-scenes essence of the Florida court's reasoning. It's also the outlook of many employee-benefits lawyers. For advice-giving rights and responsibilities, I continue to advocate getting rid of unnecessary distinctions.

Florida’s Supreme Court decided not to approve a proposed opinion about the unauthorized practice of law. The court reasoned that some of what the proposed opinion would have proscribed is authorized under the U.S. Treasury department’s rules that allow not only a lawyer but also a certified public accountant, an enrolled agent, an enrolled actuary, and an enrolled retirement plan agent to practice before the Internal Revenue Service. The Florida Bar re Advisory Opinion – Nonlawyer Preparation of Pension Plans, 571 So.2d 430 (Fla. 1990) [slip opinion attached]. A State cannot prohibit a practice that Federal law authorizes. Sperry v. State ex rel. The Florida Bar, 373 U.S. 379 (1963). This idea might protect a preapproved document sponsor’s responses to its user’s questions about those documents. To maintain the document that the IRS calls a pre-approved document (such as, a prototype or volume-submitter document), such a document’s sponsor must include the sponsor’s (or its authorized representative’s) address and telephone number, to receive “inquiries by adopting employers regarding the adoption of the plan, the meaning of plan provisions, or the effect of the opinion letter.” One could argue that a plausible interpretation of this Treasury department administrative law is that a document’s sponsor is at least expected to answer a pre-approved document user’s questions. From that premise, one could argue that State law cannot preclude acts that Federal law at least authorizes. About a document sponsor that answers a user’s questions, consider that a nonlawyer is held to at least the same standard of care and expertise as a competent lawyer.