Peter Gulia

If ERISA governs a plan (and ERISA preempts State law), under what circumstances would a choice of State law be needed?

My 2 cents, Belgarath, and hr for me, thank you for your considerate help. Belgarath, you are right that some preapproved documents include a default: for example, saying a blank line results in a specification of the State in which the plan's sponsor is incorporated or similarly organized. (That's why sometimes a response might be writing-in the word "none" as an attempt to negate such a default.) A CCH/Fort William volume-submitter document I saw recently did not include such a default. I am not worried about the Internal Revenue Service tax-disqualifying a plan. Instead, I'm thinking about whether an employee-benefits lawyer can advise his client that leaving blank (or negating) the State-law specification does not undo the user's reliance on the preapproved document's IRS letter. If one can't be confident about that conclusion, a lawyer advising his or her client about its use of a preapproved document might feel a need to explain the advantages and disadvantages of specifying a State law and the relative probabilities of the risks involved. The IRS's resolve to provide fewer opportunities for a user to get a determination will make more important questions about whether a user's adoption agreement is within, or strays from, a preapproved document's confines. BenefitsLink mavens, any further thinking on whether a fair reading of the Revenue Procedure allows a user to rely on the preapproved document's IRS letter if the user omits a State-law specification that the document asks for?

A typical prototype or volume-submitter document's adoption agreement often includes a fill-in-the-blank choice for specifying a State's law to govern whatever ERISA doesn't preempt (if anything). Imagine that a user prefers not to fill in this blank. (The plan's sponsor is worried that a specification could be argued to constrain the administrator's discretion to a narrower range than would apply if the plan states nothing about State law.) The rules for relying on the IRS's letter for a preapproved document call for staying within the confines of what the IRS approved. But the Revenue Procedure suggests that a user might vary some "administrative" provisions without losing reliance on the IRS's letter. What do you think? If a user's adoption agreement leaves blank the State-law line (or responds "none"), does the user keep or lose reliance on the preapproved document's IRS letter?

jpod, thank you for the helpful learning!

Among other conditions, the exemption requires approvals by a fiduciary who is independent of the person who engages in the covered transaction. The exemption's definitions and special rules states: "A plan fiduciary is independent of a person only if the fiduciary has no relationship to or interest in such person that might affect the exercise of such fiduciary's best judgment as a fiduciary."

Could the administrator omit a report on each of 2013 and 2014 based on an interpretation that the plan had no reportable asset on any day in either year? (Because none of us knows the facts about the "expense recovery", I'm imagining the possibility that the situation that did not produce a payment until 2015 might be one that generally accepted accounting principles might treat as one that had no value to be recorded as at 2013 or 2014.) And could filing Form 5500 reports (perhaps with lots of zero entries for 2013 and 2014) and furnishing summary annual reports to participants help protect the administrator and perhaps other fiduciaries by setting up knowledge to run a statute-of-limitations period? I would at least ask the client to decide what accounting to participants and regulators the client prefers.

While agreeing with much of the practical suggestions, is it so clear that a Form 5500 report would be too much burden or plan-administration expense? If the plan had only 75 participants as at the first day of a plan year and the plan's one asset is derived from assets that were qualifying assets, perhaps no independent qualified public accountant's report should be required. While there might be a recordkeeper's or TPA's fee to prepare a report, it should be not imprudent to incur a reasonable fee for what's necessary to file a report required by the statute.

mbozek is right that broker-dealer compensation, insurance-agency compensation, and other forms of indirect compensation bring in further complexities not only under ERISA but also under banking, insurance, and securities law. (By the way, when I was in-house to a financial-services business, even a rep who renounced his or her commission, incentive compensation, production credit, and contest-qualifying measures still could not be involved in any business with a retirement plan or IRA regarding which he or she was a party-in-interest.) On austin3515's query about what's feasible, it might turn on an economics question: Does the inquiring fiduciary find that providing the advice to the plan's participants is important enough that the inquirer or the plan will pay for the advice of a lawyer who is experienced on all relevant laws? If not, anything that involves any party-in-interest or any person concerning which a fiduciary, an investment adviser, or an investment adviser's representative has an interest ought to be a non-starter.

Here’s an interpretive rule: http://www.gpo.gov/fdsys/pkg/CFR-2014-title29-vol9/xml/CFR-2014-title29-vol9-sec2550-408c-2.xml And here’s an advisory opinion: http://www.dol.gov/ebsa/programs/ori/advisory97/97-19a.htm The idea is to include in “direct expenses” the “salary and benefits paid to certain employees who are engaged full-time to provide administrative services to the Plan, and whose position would be terminated if [the employer] should cease providing services to the Plan[.]” Another advisory opinion recognizes that an employer may be reimbursed for the wages of a full-time employee who provides services to a group of pension plans if none of his or her services is for anything beyond the plans and his or her employment would not continue but for the plan fiduciary’s decision to engage the employee’s services: http://www.dol.gov/ebsa/programs/ori/advisory93/93-06a.htm I have rendered advice about arrangements that used the logic of these interpretations on looser facts. But a third-person broker-dealer’s payments might be difficult to characterize as “salary” or as “direct”.

For an extra-useful software, consider Gary Lesser's QP-SEP Illustrator: http://www.garylesser.com/

Apart from the plan's correction, what income taxes, excise taxes, and corrections are required of the participant?

Thank you for the citation and quotation of the tax-law rule for a distributing plan's administrator. Under Rev. Rul. 2014-9, 2014-17 Internal Revenue Bulletin 975 (April 21, 2014), a receiving plan's administrator may presume a proposed rollover contribution is from an eligible retirement plan by looking up a recent Form 5500 report and observing an absence of code 3C on line 8a.

If your client is the distributing plan or its administrator (and not the receiving plan), is your client's risk (beyond seeing to good transfer and delivery of the property) mostly about the tax-reporting of, and an absence of withholding from, the distribution? If so, try to imagine what arguments the IRS could make for why the plan's administrator should have tax-reported the distribution as not a direct rollover. Then, think of how the administrator would explain that it had not known that the plan the distributee instructed the plan to deliver a distribution to was not an eligible retirement plan. Another mode of analysis: If the administrator were to refuse the participant's instruction to deliver his distribution as a direct rollover to the plan he named, what proper explanation would the administrator give for not following the plan provision that allows a participant to instruct a direct rollover? If the administrator needed or wanted to put the explanation in the form of a claim-denial letter that meets all elements of the claims-procedure regulations under ERISA 503, how would the administrator describe its finding that the plan named as the recipient is not an eligible retirement plan? Likewise, a good claims-denial letter describes what further information the claimant could furnish that would "perfect the claim" or persuade the decision-maker to change its analysis. What further information would persuade the distributing plan's administrator that the receiving plan is an eligible retirement plan?

Isn't the fiduciary (not necessarily tax) correction making prudent efforts to collect the interest the plan (and, one assumes, each participant's account) was entitled to? (Isn't the plan entitled to the amounts the borrower agreed to pay? Or did the service provider also generate mistaken loan agreements?) Is the correction category "Loans Failing to Comply with Plan Provisions"?

As a variation against the general principle jpod and I mentioned, there is one non-precedential letter ruling in which the IRS allowed 403(b) contributions for employees of a limited-liability company because, among other facts, the company was a disregarded person for Federal income tax purposes.

For a church plan that did not elect to be governed by ERISA, consider also whether a State's law statutory and common law of trusts and other fiduciary relationships might apply.

What did the automatic-contribution arrangement's notice say about the period allowed for an election different from the presumed election? What did the notice say about when the presumed contributions would begin?

Consider 26 C.F.R. 1.403(b)-2(b)(8)(ii): "... a subsidiary or other affiliate of an eligible employer is not an eligible employer under paragraph (a)(8)(i) of this section if the subsidiary or other affiliate is not an entity described in paragraph (a)(8)(i) of this section."

Consider whether the remaining fiduciary might engage in a self-dealing prohibited transaction because the fiduciary has some personal interest involved. Of all the possible buyers in the world, why is the ex-wife the best buyer? And if selling to the remaining fiduciary's ex-wife really is the best deal for the plan, consider whether one might remove doubt about a possibly self-dealing or indirect prohibited transaction by using an independent fiduciary.

dv13, for the deferred compensation and the employer might become willing to divide, how much of it is no longer subject to a forfeiture risk (beyond the employer's inability or unwillingness to pay what becomes due)?

Is the employer a church?

K2retire, thank you for the help. BenefitsLink mavens, any different or further observations? Is there an argument for automatic Roth contributions under an assumption that an eventual retiree's income tax rates are not likely to be lower than current rates?

An employer presumes that retirement savings is good for the employee who doesn't opt out. But how does an employer decide whether Roth or non-Roth contributions are better for such an employee?

If a 401(k) retirement plan allows a choice between Roth and non-Roth elective deferrals and provides an automatic-contribution arrangement, how often is the default Roth elective deferrals and how often is the default non-Roth elective deferrals?

Consider 26 C.F.R. § 1.457-4(d), which under some conditions might allow deferrals from compensation that will be paid after the participant's employment ends if the compensation is paid within 2½ months after the employment ends and is payments for accrued bona fide sick, vacation, or other leave if the former employee could have used the leave if his or her employment had continued; or is payments that would have been paid to the former employeee while he or she continued in employment with the Employer and is regular compensation for services during the Employee’s regular working hours, compensation for services outside the Employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar compensation. But this does not allow a deferral from other pay that is paid because of severance and that would not have been paid or used by an employee.