Peter Gulia

Without expressing any conclusion: The regulations state: "A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee." 26 C.F.R. 1.401(k)-1©(3)(iii)(A). And the first of the deemed heavy needs refers to "[e]xpenses for (or necessary to obtain) medical care[.]" 26 C.F.R. 1.401(k)-1©(3)(iii)(B)(1). Might a plan's administrator reason that, for a non-wealthy person, having health coverage is necessary to obtain non-emergency medical care?

Without remarking on the circumstances Pammie57 describes, . . . . If ERISA governs an employee-benefit plan, ERISA preempts State law. A plan or its administrator may set standards about whether to recognize a power of attorney. A plan’s sponsor or administrator may set those standards without following any State’s law. A plan’s administrator may recognize a power even if it is invalid under State law. A plan’s administrator may decline to recognize a power despite the power’s validity under all States’ laws. In reviewing an administrator’s decision, courts may apply the Federal common law of ERISA, even if doing so leads to a different outcome than evaluating a power under State law. For an ERISA-governed employee-benefit plan that grants discretion to the plan’s administrator (as almost all do more than a quarter-century after Firestone Tire & Rubber Co. v. Bruch), a court defers to the administrator’s reasoned decision about whether to recognize an agent who seeks to act under a power of attorney. See, for example, United Refining Company Incentive Savings Plan for Hourly Employees v. Morrison, No. 1:12-cv-238 (W.D. Pa. Nov. 22, 2013); Pension Committee Heileman-Baltimore Local 1010 IBT Pension Plan v. Bullinger, No. 1:92 Civ. 00204, 16 Employee Benefits Cas. (BNA) 1024, 1992 U.S. Dist. LEXIS 17325, 1992 WL 333653 (D. Md. Oct. 29, 1992); Clouse v. Philadelphia, Bethlehem & New England Railroad Co., 787 F. Supp. 93 (E.D. Pa. 1992). If the participant asked a question of the plan’s administrator, the administrator’s fiduciary responsibilities, including the duty of communication, might require it to respond. If the plan document doesn’t state provisions for which powers are recognized or refused, and the plan’s administrator hasn’t yet adopted procedures, now might be a time to develop procedures.

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.

David Rigby's point is well taken. Even if a plan could provide that the plan's administrator may accept a qualified election without the spouse's consent if the administrator is satisfied with a court's separation order, there are several reasons why a plan might not so provide.

A client would be very lucky to engage Carol Calhoun’s advice. In choosing a lawyer to give advice about employee-benefit plans, one need not restrict one’s choice to lawyers located in a particular State. A State can’t regulate a lawyer’s practice if that regulation is preempted by Federal law or would preclude practice authorized by Federal law. Sperry v. Florida ex rel. Fla. Bar, 373 U.S. 379 (1963). A lawyer admitted to law practice in any State may anywhere give advice about Federal law if the lawyer limits her practice to her authorized Federal practice. See, e.g., Surrick v. Killion, 449 F.3d 520 (3d Cir. 2006). For example, a lawyer who labels her practice as limited to Federal tax law may do that practice anywhere. Moreover, a lawyer may give advice about any State’s law if she does so while present in a State for which she is admitted to law practice.

Belgarath, consider posting your query on the board for governmental retirement plans to see whether Carol Calhoun has different or further suggestions.

If it could be legitimate to refuse the settlement money, might it also be legitimate to accept the money and use it for some other employee-benefits purpose?

Field Assistance Bulletin 2006-01 (April 19, 2006) includes this: "[C]ompliance with ERISA’s fiduciary rules generally will require that a fiduciary accept a distribution of settlement proceeds. The Department recognizes, however, that in rare instances the cost attendant to the receipt and distribution of such proceeds may exceed the value of such proceeds to the plan's participants. In such instances, and provided that there is no other permissible use for such proceeds by the plan ([for example], payment of plan administrative expenses), it might be appropriate for a plan fiduciary to not accept the settlement distribution." Query: If it could be legitimate to refuse the settlement money, might it also be legitimate to accept the money and use it for some other employee-benefits purpose?

Is it feasible for the employer to reorganize the work so it is apportioned among a greater number of workers? For example, if the employer's need is to get 300 hours of the described work in a standard school week, instead of using 10 employees at 30 hours a week, may the employer use 12 employees at 25 hours a week, or 20 employees at 15 hours a week. or some other configuration that accomplishes the desired work? (I do not recommend this; I'm curious about whether it would be feasible.)

Consider also that the bulletin is not a rule or regulation made in compliance with the Administrative Procedure Act, and so is not an interpretation that a court must defer to.

Even if the plan's administrator is clear about the right reporting, it's practical to discuss the reporting with at least the independent qualified public accountant and, if the IQPA will seek any lawyer letter, each lawyer you will ask to furnish a lawyer. Your description of the facts suggests also that there might be a need to amend the 2014, 2013, and 2012 reports.

The electronic-delivery rule works well with a workforce organized around knowledge work or office work. For those, it's often so that every employee has an employer-provided desktop computer and is required to use it regularly as an essential part of his or her work. (I have clients that send paper only to the few former employees who have not yet taken a distribution.) For some other workforces, it might be feasible to sort deliveries between e-mail deliveries for current employees who are office workers; and paper deliveries for employees who do not use computers as an “integral” part of one’s work, and for former employees, beneficiaries, and alternate payees. Is anyone experimenting with allocating the expense of paper delivery to those who receive it, while recording the consents of those who will take electronic delivery to avoid the incremental charge?

Before one assumes that SCP is less expensive than VCP, estimate the expense for the professional time needed to research and write tax advice at an appropriate confidence level. The remaining difference might be small enough that a client might prefer the certainty of a correction statement.

For a governmental plan, there might in some circumstances be legitimate reasons for a fiduciary (even one that caused the defect to be corrected) to pay a VCP fee from plan assets. The reasoning would turn on State law, and would be fact-sensitive. Among the many questions: Has the fiduciary obtained all recoveries due from service providers? Does State law preclude the breaching fiduciary from paying a monetary liability? If the plan does not use the IRS's correction program, how bad are the tax consequences? Who bears the tax consequences? If the plan pays the VCP fee, how will the fiduciary allocate it among participants' accounts?

The facts described above suggest that the employer might have given little attention to its plan document. Is there other evidence (beyond the acts done) that tends to show what the employer's true intent was?

It really is an open inquiry, to help me learn about the experiences and perspectives of other practitioners. If one limits the inquiry to whether the text of the 404a-5 rule calls for a particular disclosure, that answer is No. And that answer is logically sensible if one assumes that the purpose of a 404a-5 is to enable a participant to evaluate the consequences of directing her account's investment to one or another investment alternative within the plan's menu of investment alternatives. But some practitioners consider that some participants might not perceive a 404a-5 disclosure as limited to that use. And some employers worry that a follow-the-rule-only 404a-5 disclosure could make the investments look more expensive than is necessary or appropriate, if the text does not include a description of the services provided by using indirect compensation. These and other concerns are among the consequences of a regime that assumes a participant won't read one comprehensive disclosure, and so supplements it with several provisions and rules for limited-focus disclosures. Some practitioners have started editing the "cookbook" 404a-5 disclosure to meet these concerns. I'd be glad to learn more about what other practitioners are doing.

Thank you, Bird. Any different views?

For an individual-account retirement plan, an SEC-registered investment adviser is provided to all participants, without any incremental charge. (The employer/administrator approves an arrangement in which the recordkeeper pays the investment adviser. The recordkeeper gets its money as indirect compensation paid by investment funds' distributors, transfer agents, and managers. Assume everyone involved has done thorough 408b-2 disclosures.) The investment adviser's fee thus is not a charge against a participant's account that is not reflected in the total annual operating expenses of an investment fund. What, if anything, should a participant-level 404a-5 disclosure say about the arrangement for the investment adviser's services?

Belgarath, I think you are on the right frame of analysis. Even if it is feasible to try an alternate correction and to do so without a VCP or other submission, the employer's filing of a tax return (and decision not to correct a previously filed tax return) turns on whether it in good faith believes it has sufficient confidence in a tax-return position, which practically depends on what tax advice you feel comfortable delivering.

AndyH, thank you for the helpful information. Any more contributors?

QDROphile, thank you for the nice bit of Anglo-Norman French.

QDROphile, thank you for the correction. Also, 1.457-10(d).

On your first question, would applying for the Internal Revenue Service's written determination that the plan, as amended, remains a 401(a)-qualified plan include by implication some finding that the plan does not violate anti-cutback rules?

An answer is at 26 C.F.R. 1.457-1(b). For those who want more reasoning than 'because the government agency said so', the logic seems to be that the insurance is not the employee's or insured's coverage; it is the employer's coverage. The participant's right is her employer's contract promise to pay deferred compensation according to the plan's terms to the participant or her third-person beneficiary.

If by the 401(a)(9) required beginning date no one has submitted a claim, the plan's administrator might consider making a record to explain why it decides that it is imprudent to pay a distribution.