Peter Gulia

So let's ask the question at least one BenefitsLink reader will raise: What does the plan document say? Also: Has the employer decided to tax-report a portion of the amount it paid for health coverage as the participant's wages? Might the person described as a domestic partner also be the participant's spouse for Internal Revenue Code sections 105 and 106? Might the person described as a domestic partner also be the participant's dependent for Internal Revenue Code sections 105 and 106? Resolving your query might turn on the exact text of the retirement plan's provisions.

It's uncertain, and there are at least two appeals court decisions with reasoning that points in opposite directions. Also, it might be more difficult to challenge a tax as an indirect command to maintain a plan if an employer can meet the condition for non-imposition of the tax by implementing a payroll-deduction convenience that the U.S. Labor department's rule will define as a non-plan.

401 Chaos, thank you for your further observations. Before an employer relies on an indemnity as a reason to take on risks, the employer might want advice about exactly which risks the indemnity responds to, and about whether the indemnity might be legally unenforceable. If the employer knew or ought to have known that it was accepting legal advice from a non-lawyer, a court might be reluctant to enforce an indemnity promise that facilitates the non-lawyer's conduct of engaging in the unauthorized practice of law.

If you're following States' legislation on using a play-or-pay tax to push an employer to make available payroll-deduction retirement savings, this link is to a bill pending in New Jersey's legislature. http://www.njleg.state.nj.us/2014/Bills/A4500/4275_R2.PDF It would, after a phase-in, impose a $500-per-employee tax on an employer that maintains no retirement plan and does not send payroll-deduction contributions to IRAs.

I'm unaware of an employee-benefits lawyer who would say an employer's reimbursement of its employees' payments for individual health insurance is proper.

Whatever one thinks about what JPIngold's client heard about when some document should be adopted, it seems likely that the statement was made by a worker of Voya, which is the recordkeeper for plans that buy under the American Bar Association's program. http://www.abaretirement.com/

Again, a key to avoiding funding of the employer's unsecured promise and avoiding an economic benefit provided by the employer is that the participant buys the insurer's obligation. There is a dance to how the participant's lawyer approaches the insurer and sets up the participant's insurance purchase.

The Internal Revenue Service has recognized some carefully arranged purchases of insurance against an employer’s inability or failure to pay an obligation as not funding a deferred compensation plan’s promise. IRS Letter Rulings 93-44-038 (Aug. 2, 1993), 84-06-012 (Nov. 5, 1983). Among the described facts, the participant paid for the insurance. Also, the participant negotiated the insurance, and did so without involving the employer. Because a letter ruling is not precedent, each taxpayer should get his, her, or its lawyer’s advice. Among other methods, a lawyer might evaluate changes in relevant law. I remember this insurance being available in the 1980s from Bermuda-based insurers. The underwriting tightened in the 1990s.

benefitsguru, I doubt one would find a State statute for the provision you imagine. If for the set of issues you're thinking about State law becomes relevant, consider that an IRA contract often states a choice-of-law provision. Following this, the applicable State law might not be the law of the State in which the IRA holder resided or was domiciled. Imagine that a Vanguard IRA might specify Pennsylvania law; a Fidelity IRA, Massachusetts law; or a "Wall Street" broker-dealer's IRA, New York law or Delaware law. (A choice-of-law provision might matter, for example, if someone assumes that a revocation-on-divorce statute of the State in which the IRA holder resided undid a beneficiary designation, but the IRA's chosen State law has no such law.) As jpod suggests, it's unlikely that the IRA does not state a default-beneficiary provision.

I don’t remember any Treasury department rule that precludes using an electronic signature to adopt a prototype or volume-submitter document. If I’m right, that follows a Federal law presumption that “a signature, contract, or other record . . . [should] not be denied legal effect, validity, or enforceability solely because it is in electronic form[, or] . . . solely because an electronic signature or electronic record was used in its formation.” 15 U.S.C. § 7001(a). Although a Federal agency has some powers to prescribe standards and formats, an agency should not “require retention of a record in a tangible printed or paper form [unless] (i) there is a compelling governmental interest relating to law enforcement or national security for imposing such requirement; and (ii) imposing such requirement is essential to attaining such interest.” 15 U.S.C. § 7004(b)(3)(B). A few recordkeepers permit, and even prefer, using electronic signatures to adopt a prototype or volume-submitter document. But others might do things differently.

Thank you - Bird, masteff, Mike Preston, and Tom Poje - for the further help.

What does the sponsor of the prototype or volume-submitter document say about whether that sponsor will accept an electronic signature?

ETA Consulting and jpod, thank you for the good help. In my experience, many participants prefer to avoid a need to explain a tax position, and so try to persuade the payer to tax-report a payment so everything is logically consistent for the IRS's computers. Does any BenefitLink maven have experience with how a payer reacts to a request that the payer make a finding that the plan's administrator had not made?

Internal Revenue Code § 72(t)(2)(A)(iii): Except as provided in paragraphs (3) and (4), paragraph (1) [the imposition of the tax] shall not apply to any of the following distributions: Distributions which are — (iii) attributable to the employee’s being disabled within the meaning of subsection (m)(7)[.] A fact-finder might find that a distribution grounded on severance from employment is “attributable to the employee’s being disabled” if the employment ended because the former employee is unable to work. In the situation I described, the payer makes its tax-reporting decision separately from the administrator’s decision that a severance from employment entitled the participant to a distribution. If the payer does not put the disability code on the Form 1099-R, will the IRS look for the extra 10% tax?

The participant became entitled to a distribution not because she attained any 50-something age but rather because she was severed from employment. This circumstance is why the tax-reporting question turns on a point the plan's administrator had not decided. BenefitsLink mavens, what happens in the real world?

A participant took a distribution that attracts the extra 10% tax on a too-early distribution, unless the participant is totally and permanently disabled. The plan's administrator approved the participant's claim for the distribution because the participant was severed from employment. (Nothing in the plan's provisions calls for any decision about whether a participant is disabled.) The payer asked the plan's administrator to sign a form to state the administrator's finding that the participant is disabled. The administrator declined to sign, not only because it had not made such a finding but also because such a finding is unnecessary in the plan's administration. The participant is worried that the payer will tax-report the distribution without putting the disability code on the Form 1099-R. She worries that the IRS's computer will flag her tax return as one that ought to have included the form for declaring the extra 10% tax on a too-early distribution. Is the participant's worry grounded in BenefitsLink mavens' experience? If the payer wants to respond to the participant's worry, may the payer make its own decision (without involving the plan's administrator), solely for tax-reporting purposes, about whether the distributee is disabled?

Apart from whatever one might consider necessary or appropriate to meet the terms of a tax-qualification correction procedure, it seems unlikely that a multiemployer plan's trustee (whether labor-side or employer-side) would pay to the plan an amount because of a participating employer's failure to pay a contribution. Consider that the plan's trustee might have some duty to make prudent efforts to collect a past-due contribution. Consider too that the plan's documents or collective-bargaining agreements (or both) might state provisions, including interest, other adjustments, and attorneys' fees, concerning past-due contributions.

LANDO and Bill Presson, thank you for the further observations. So the completeness of the fund facts sheet or a 404a-5 disclosure depends on the compiler, such as Blue River, Broadridge, Morningstar, or Newkirk?

So does anyone know how the soup gets made?

GMK and hr for me, thank you for your helpful ideas. Another curiosity: If it's difficult for a compiler of fund fact sheets to spot a change in narrative information, how does the compiler know whether the prospectus has changed its description of the fund's investment strategies?

My 2 cents, you're right that this plan has no intra-day transaction. What the computers flag is a "round trip" in, out, and in again within a relatively short time, such as 30, 60, or 90 days. Is it correct for a recordkeeper to say that it is impossible or impractical for a fund fact sheet to include one or two sentences on the fund's market-timing restriction?

A participant (in a retirement plan that provides participant-directed investment) received a letter from the plan's recordkeeper informing the participant that the recordkeeper had been instructed by a fund to impose the fund's market-timing restrictions on the participant. The participant feels a little offended because "no one told me ...." None of the plan's "fund fact sheets" say anything about market-timing or other disruptive trading. The prospectus for the restriction-imposing fund has a disclosure, which has no table-of-contents heading, is tucked away on page 47, and is in the middle of surrounding explanations that obviously are irrelevant to a retirement plan's participant. It is believable that someone who generally read the prospectus would have skipped over these sections. While not giving to the offended participant's view, the plan's administrator believes it would be desirable for each fund's fact sheet (customized for the plan) to include a description of the fund's policy against market-timing directions. The recordkeeper, which uses one of the big publishers to compile the fund fact sheets, says it can't be done. Is the recordkeeper correct?

Was this Form 5500 report signed and filed electronically? If so, does whatever one does to get the electronic-filing credentials help to support the signer's authority?

I agree with Bird's observations. As I said in my first post, some service providers allow a person other than the participant to participate in a telephone conversation if the participant, once sufficiently identified, says he or she grants permission for the other person to participate in the conversation and the participant remains on the telephone call. A recording of the telephone conversation is good. An e-mail that will be preserved is another way to get and keep evidence of the permission. One reason there hasn't been much attention to retirement plans' standards for recognizing a power of attorney is that many people practically accomplish the agency, at least for investment directions and often for some transactions, by sharing a username, password, and other identifying information. At least the validity of a military power of attorney often is evaluated generously because such a document is notarized by a military official, and under Federal law the document is exempt from any State-law requirement of form, substance, formality, or recording.

In each of the three decisions I cited as examples, the court analyzed the effect of a power of attorney under the Federal common law of ERISA. In Clouse (the oldest of those cases), Judge Dalzell found that, if the plan grants discretion, a court reviews the plan administrator's decision not as a fresh look but rather under a deferential abuse-of-discretion standard. Because the plan did not grant discretion, Judge Dalzell independently reviewed the effect of the power of attorney. The opinion does so under Federal common law. The opinion's citations include Federal courts' decisions and a national treatise, but nothing State-specific. In the 2013 decision, Judge Fischer observed: "Requiring the Plan Administrator to engage in such an exercise [evaluating the validity and meaning of a power of attorney] would run contrary to ERISA's stated policy of ensuring that plans are subject to a uniform system of law." Slip opinion at page 8.