Peter Gulia

I’m hoping BenefitsLink “heavy hitters” will help me think through an issue intensified by the new market for 3(16) administrators. An employer (also its retirement plan’s administrator) engaged a 3(16) provider for some plan-administration responsibilities, including deciding claims for a distribution. A participant submitted a claim for a retirement distribution grounded on her severance-from-employment. The employer signed a statement, on the claim form, to confirm that this participant is severed from employment. (For this hypo, assume no other condition could entitle the participant to a distribution. Also, assume the plan has no provision for a participant loan.) Through other services, the 3(16) provider has actual knowledge that the participant continues to perform (personally) services for the employer, and knows the employer classifies the worker as a “1099” contractor. The 3(16) provider believes the employer’s classification is wrong, and was not made in good faith. To meet its ERISA fiduciary responsibilities, must the 3(16) provider reevaluate or question the employer’s classification of the participant as a nonemployee? If so, how much “poking” must the claims administrator do?

Even if the Labor department became motivated to pursue separately the change about which participants count to define a plan that must engage an independent qualified public accountant, many lawyers assume this change would require a rulemaking, which must meet the requirements of the Administrative Procedure Act and other laws for an agency’s rulemaking.

I'll answer my question. The "Changes to Note" on pages 1-2 of the 2016 Instructions does not mention a change in Schedule C. A quick look at the service and compensation codes suggests they remain the same. The explanation of "Bundled Service Arrangements" remains the same as in the 2015 Instructions.

In making disclosures for and reporting on Form 5500's Schedule C, did anything change between the 2015 form and instructions and the 2016 form and instructions?

Even if one might interpret widely the word "document" as used in the administrative-law rule's definition of practice before the IRS, the Secretary of the Treasury lacks power to apply the rule if it exceeds the power Congress granted. The court says there is no practice as a representative until a matter is a dispute, examination, ruling request, closing-agreement request (including the correction procedures), or something else that calls for a submission beyond a tax return or routine report. I concur with the idea that following Circular 230 usually is not too burdensome, and often helps the advisor or service provider. And many TPAs self-impose higher standards.

Thanks, everyone, for the further help. And you’re right that I asked a fact question about a TPA’s work to get information for thinking about how much (or how little) the Treasury department’s rule regulates a TPA’s conduct. 31 U.S.C. § 330(a)(1) grants the Secretary of the Treasury power only to “regulate the practice of representatives of persons before the Department of the Treasury[.]” The United States Court of Appeals held that preparing tax returns is not practice before the Internal Revenue Service, and that the Treasury department lacks power to regulate a preparer who does not appear before the IRS as a taxpayer’s representative. Loving v. Internal Revenue Service, 742 F.3d 1013 (D.C. Cir. 2014). In another case, that court held that 31 C.F.R. § 10.27(b) exceeds the Treasury department’s powers as applied to a person who – even if he or she is an attorney-at-law or certified public accountant the IRS recognized as a practitioner in another matter – is not engaged in a representation about the return or claim for which his or her client agreed to a contingent fee. Ridgely v. Lew, 55 F. Supp.3d 89, 93 (D.C. Cir. 2014). In both cases, the government did not pursue review in the Supreme Court. https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2012cv0565-48 Further, the reasoning of these decisions calls into question whether the Treasury department has power to regulate advice-giving that is unconnected to a written submission (other than a tax return) to the IRS. I won’t get into that analysis. But if you want to read some background, one of my LL.M students published a law-review article. Jamie P. Hopkins, Loving v. IRS: The IRS’s Achilles’ Heel for Regulated Tax Advice?, 34 Va. Tax Rev. 191 (Fall 2014). Why did I ask about how often a TPA gets a Form 2848? The court decisions look to the filing of a Form 2848 as the signal that a practitioner represents a taxpayer, and that practice before the IRS has begun. If, much of the time, a TPA’s work involves no submission (beyond a tax return or information report) to the Internal Revenue Service, for many TPAs the Circular 230 rules might not apply. I’m interested in the topic because, in my experience, many TPAs self-impose professional-conduct standards considerably higher than public law imposes. Again, thank you for indulging my research interest and helping me with useful information.

Thank you for the further information. Here’s why I'm asking. The “Circular 230” rules apply to practice before the IRS. The definitions section states: Practice before the Internal Revenue Service comprehends all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings. If one sets aside the bit about written advice, a TPA who doesn’t write or speak as a taxpayer’s representative concerning an examination or a correction procedure might not “practice” before the IRS, and so might not be governed by its conduct rules. Do you agree? Is there an idea I’m missing?

Thanks. Is there any situation beyond examination?

For which situations does a TPA get a Form 2848 to represent a taxpayer before the Internal Revenue Service?

The conference chairman informed that sessions will be recorded, but the recordings will be made available afterward only to paid attendees. Also, registration closes tomorrow. http://aspparegionals.org/eastern/

If you’re interested in learning more, ASPPA’s Eastern Regional conference in Philadelphia next Thursday includes this workshop: Co-Fiduciary Liability with 3(16) Services and Their Implications Many third party administration firms now include as part of their service options taking on the role of ERISA 3(16) “Plan Administrator.” The decision to offer this service should include consideration of factors beyond the plan administrator duties themselves. Learn about the co-fiduciary issues, how the law is interpreted and ethical dilemmas that you could find yourself addressing. Attendees will understand: 3(16) service responsibilities; Co-fiduciary issues related to 3(16) services; and “Landmines” with respect to the service offering. Ilene H. Ferenczy is the presenter, and I am the moderator.

For one example of the kind of statute jpod and Mojo refer to, see section 106 of Pennsylvania's Banking Code of 1965 at page 14 in this linked-to .pdf. http://www.legis.state.pa.us/WU01/LI/LI/US/PDF/1965/0/0356..PDF With the exception MoJo describes, the statute makes it unlawful for a corporation to act as a fiduciary unless it is a licensed bank or trust company (or is a nonprofit corporation and administers trusts related to the corporation's charitable or similar tax-exempt purposes).

Consider checking the transition rules of the Tax Equity and Fiscal Responsibility Act of 1982.

I apologize for an ambiguity in my observation. I wasn't advocating a view. Also, my question asks whether a hired fiduciary will add value by whistleblowing against the employer that engages the hired fiduciary. MoJo reminds us about an appointing fiduciary's responsibility to monitor an appointee's work at least enough to decide whether to continue or end the appointment.

One (not the only) important test of how much value there is in getting tasks performed by a fiduciary (rather than by a non-fiduciary service provider) is about whether the fiduciary meets its co-fiduciary responsibility under ERISA section 405(a)(3). For example, if a fiduciary knows the employer deliberately has not paid into the plan's trust amounts intended as participant contributions, does the fiduciary sue the employer or call this information to the attention of participants so they can pursue their rights?

The idea of requiring a written plan as a condition to section 403(b) tax treatment is the Treasury department's interpretation. So if practitioners are in doubt about the answer, one should put the question to the Internal Revenue Service, because only its interpretation has much weight in practical application of the Treasury department's interpretation. But let's ask the BenefitsLink community to test a hypothesis: In using a preapproved document for a 403(b) plan, would one "document" the history of the plan's provisions to the same degree one would do so in using the similar kind of preapproved document for a 401(a) plan? Also, does a preapproved document itself (in its adoption agreement and other instructions) tell a user how much of the plan's history of provisions one must or should record in the current document?

Thanks, everyone, for the helpful ideas. The plan's administrator is worried that, unless it does something to negate a potential mistaken assumption, the bank might presume that the administrator should have informed the bank if the administrator saw a defect or problem in the participant's trust document. The 401(a)(9) rule on furnishing information about a trust to a plan's administrator makes some sense if the administrator must decide a point that needs the information. But if a plan's provisions make it unnecessary for the administrator to know who is or isn't a designated beneficiary, receiving information beyond what's required on the plan's claim form (including the claimant's name, address, and taxpayer identification number) is a distraction.

paralegal231, if the New York City Employees Retirement System is a governmental plan not governed by the Employee Retirement Income Security Act of 1974, consider that some of the information above could be partially inapt. Even if NYCERS provides some retirement or death benefits for a non-participant in ways somewhat similar to the provisions and procedures used for an ERISA-governed plan, there might be important differences. You might want to learn more about the System's provisions and plan-administration rules and procedures, and about related New York State law and New York City law.

A profit-sharing retirement plan provides as its only form of distribution, whether for a retirement distribution or a death distribution, one single-sum payment of the whole account balance. A participant dies before receiving a distribution. The participant, with her spouse’s consent to meet ERISA § 205, had made and delivered to the plan’s administrator a beneficiary designation: “ABC Bank, N.A.” The plan’s administrator receives a claim signed by a person identified as a trust officer of ABC Bank. The administrator does not doubt the claim’s authenticity or genuineness. The claim asks the plan to pay the bank (and does not request that the plan treat the payment, or any portion of it, as a rollover). In the envelope with the claim form is a copy of a 13-page trust document and a transmittal letter that says: “Following 26 C.F.R. § 1.409(a)(9)-4, Q&A-6(b)(2), we enclose a copy of the participant’s trust document.” The plan’s administrator believes it need not read the participant’s trust document. Rather, it believes its duty is limited to satisfying itself that the claimant is the beneficiary the participant named (and directing the plan’s trustee to pay that beneficiary). The plan’s administrator is thinking of sending ABC Bank a letter informing the bank that the administrator did not read the trust document the bank furnished, and promptly destroyed it. BenefitsLink mavens: Must the retirement plan’s administrator read the participant’s trust document? Or is it okay to ignore it? Assuming the administrator had no duty to read, and did not read, the participant’s trust document, must the administrator keep the document in the plan’s records? Or is it proper not to keep a writing the administrator never considered? About the proposed letter to inform the bank that the administrator did not read, and no longer can read, the participant’s trust document, is this a good idea, or a bad idea? On all three questions, what is the reasoning for your answer?

Beyond the reasons described above (and without saying whether a filing is required), the plan’s administrator/employer might want its lawyer’s advice about consistency between and among tax returns, and about statute-of-limitations and statute-of-repose defenses. Has the employer filed Form W-2 wage-and-tax statements for 2016? Did those statements report elective-deferral contributions? Has the employer filed Form 941 for 2016’s last quarter? Did it show differences between Social Security or Medicare wages and Federal income tax wages? Will the employer organization’s tax return (on Form 1120, 1120-S, 1065, or something else) claim a deduction for the amounts not paid as wages as contributions to a retirement plan? Even if the retirement plan’s trust didn’t receive money in 2016, could it help to show the plan existed? Could filing a Form 5500 report and return on 2016 help get a statute-of-limitations defense – under ERISA, the Internal Revenue Code, or both – that otherwise might not apply? Would filing a Form 5500 report and return harm the plan’s administrator or the employer?

Another difficulty of arbitration is that a disputant might be unable to bring into a proceeding all the parties and evidence-givers needed to resolve its dispute. (An agreement to arbitrate binds only the parties to the agreement.) What happens when an administrator's defense is that it reasonably relied on the work of a service provider beyond the one it has a dispute with, but that other service provider has not agreed to (and refuses to participate in) the arbitration?

Do retirement plans' recordkeepers include in a service agreement a provision for arbitration of disputes. If a standard service agreement includes an arbitration provision, can an employer negotiate to delete that provision? How big does a plan need to be to have negotiating power on that point?

RatherBeGolfing is right that the IRS's memo (and the scheduled revision of the Internal Revenue Manual) is not a rule to which a court need defer. And the memo states it is not a pronouncement of law. Yet some plans' administrators (or claims administrators) might find it's reasonable to consider the IRS's internal guidance to IRS employees in designing a plan's claims procedure. Some consider it unlikely that a person other than the IRS would pursue enforcement of a plan's provision that restricts a distribution to a participant who has a hardship. While the public policy tries to set bounds on which before-retirement needs are important enough to allow an early payout, some employers feel it's odd for a participant's employer to be stuck with the responsibility of deciding whether a use of property that doesn't belong to the employer is worthy within the public policy.

Would following the IRS's guidance allowing a claims administrator to rely on the claimant's description without reading source documents make evaluations of this kind unnecessary? https://www.irs.gov/pub/foia/ig/spder/tege-04-0217-0008.pdf

Recognizing the general anti-regulatory communications of the Trump Administration, one imagines that the Employee Benefits Security Administration, perhaps after its Assistant Secretary position and some other vacancies become filled, might delay again the previously delayed items. Because to undo or change those items might call for the administrative-law work of making a rule, year-by-year delays seem likelier.