Peter Gulia

John Feldt, that is the clearest thing I have ever read about preapproved documents. Thank you!

Were the plan's participants offered a single sum? If so, do you think the insurer is worried about an adverse-selection risk because the 92-year-old decided that a life annuity is a better deal than the offered single sum?

Mike Preston's practical suggestion for a way to illustrate a non-imposition of, or exclusion from, a State's tax is smart.

Thank you for the yet more helpful observation.

Thank you for the helpful observation. Internal Revenue Code section 410(a)(1)(A) states: "A trust shall not constitute a qualified trust under section 401(a) if the plan of which [the trust] is a part requires, as a condition of participation in the plan, that an employee complete a period of service ...." If the employer had highlighted and fairly explained the issue and the facts in its application; the IRS delivered a clean determination that the plan in form is tax-qualified; the previously disclosed facts of the employer's business operations did not change; and the employer administered the plan according to its terms and in the way the employer had previously explained to the IRS, shouldn't the employer get some "credit" for having acted in good faith?

austin3515, thank you for recalling the IRS announcement. It starts a statute-of-limitations period on "the plan's filing of a return from the applicable Form 5500 series[.]" And the IRS might assert that "filing" means "a complete and accurate Form 5500 series (including all related schedules." So perhaps this takes us to your observation that the IRS proposes to require more information.

Is there an opportunity to identify the plan's trust (or each trust if there is more than one)? (If the statute of limitations has run out on a threat to tax the trust's income, that sometimes can help move a negotiation.)

If one is concerned that the Internal Revenue Service might disagree with an employer's interpretation that a job classification is not a disguised service condition, could one file a Form 5307 application for a determination?

ESOP Guy, thank you for the good help. It always feels a little "too good to be true" that the time for furnishing participants even a summary of the annual report is almost a full year after the end of the year reported on.

If an ERISA-governed retirement plan with a calendar plan year extends from the July date and does not file the Form 5500 annual report until mid-October, what is the due date for furnishing to participants a summary annual report?

No, I think people are honest. Rather, it’s the Internal Revenue Service that suggests that a retirement plan’s administrator should not rely on a participant’s written statement that she has written evidence to substantiate her hardship. My observation is not about the many people who do not make a false statement. Rather, it’s that the IRS hasn’t thought through whether a requirement to furnish documents (rather than confirm that the claimant has them) would get the results the IRS imagines. In my experience, a requirement to submit supporting documents often delays the delivery of money to people who really need it (and already had fairly stated a legitimate hardship). But a paper requirement doesn’t screen out the falsity of a claim made by one of the determined few. Is the purity of a provision against a too-early distribution so important that an employer should be forced to treat its employees as misbehaving children? If all participants bear the expense of receiving, processing, and keeping supporting documents that an employer will have chosen (prudently) not to investigate, what is the purpose of having those documents?

Based on the April 1 release, it seems more likely that the IRS newsletter article might be a reaction to something heard one month before at the February 26-27 joint meeting of the Great Lakes, Gulf Coast, and Pacific Coast Area Tax-Exempt and Government Entities Division councils and Mid-Atlantic and Northeast Pension Liaison groups. That Friday’s talk included an idea about relying on the participant (rather than the plan’s administrator) to keep the evidence that shows a hardship expense. Stephen Swirnow, a lawyer at T. Rowe Price, explained a view that a claims procedure for hardship distributions that relies on the participant to keep his or her documents that support the hardship might, if the plan’s administrator also uses several compensating controls, be sufficient to meet tax-law requirements. While everyone concurs that a 401(k) plan’s administrator should use honest efforts to detect and prevent fraud, that’s hard to do. In real transactions, a fraudster faces the opposing interests of a person that does not want its money or property stolen. But a hardship-claiming participant takes money from his or her individual account; other participants do not suffer a direct loss when their plan pays a hardship distribution its claimant was not entitled to. Scrutiny of hardship claims might slow down payments to participants with legitimate claims, and might not detect enough frauds to be worthwhile. For example, requiring a plan’s administrator to read a claim’s supporting documents that show the hardship expenses might not accomplish much because it’s too easy for a participant to fabricate documents that look real. (The IRS’s newsletter view seems to follow an unstated assumption that requiring a claimant to furnish supporting documents will deter at least some false claims because some would-be claimants are too lazy or uncreative to fabricate documents.) Putting too much effort on hardship claims might be an imprudent expense in a plan’s administration. If a plan pays a service provider to investigate (or even to read, without any further inquiry) hardship claims, how does incurring such an expense advance the exclusive purpose of providing retirement benefits? What do BenefitsLink mavens think?

Without wading into the tax accounting discussion, why ever would a fiduciary discard a record if electronic storage remains inexpensive?

Cédula is an identity document.

Joking aside, some filers prefer a paper form because the filer believes that the Internal Revenue Service does not transcribe every entry into the computer system and suffers some lag time before the transcribed entries are available to those who do selections for examinations, perhaps marginally decreasing the probability of selection. Beyond this, is there any other reason a filer might prefer the paper form?

Even if a fiduciary might have no separate duty to maintain a plan as a tax-qualified plan, a plan's administrator must "discharge [its] duties with respect to a plan ... in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [ERISA's] title and title IV." A disappointed participant might allege that a failure to allocate individual accounts according to the plan's provisions (including those that state allocations following the ADP test) resulted from the administrator's failure to use "the care, skill, prudence, and diligence" required by ERISA section 404(a)(1)(B). If there is such a breach, ERISA section 409 might make the fiduciary "personally liable to make good to such plan any losses to the plan resulting from each such breach[.]" A participant might assert that a tax that would not have been incurred but for the fiduciary's breach is such a loss. Of course, whether a plan's administrator breached its standard of care is a factual inquiry.

Assuming an employer is eligible to decline to answer tax-related questions in an electronic report, under what circumstances would a filer prefer filing a paper Form 5500-SUP over answering similar questions in an electronic Form 5500 or 5500-SF?

Among the many questions you might ask for your ERISA lawyer's advice: Does the plan permit or restrict an assignment of a participant's claim? If the plan permits any assignment, does it restrict permissible assignees to healthcare providers? Even if the plan permits an assignment of a claim, does the plan's claims procedure permit (or preclude) an assignee from acting as a claimant's representative?

Does the human-resources person have authority to decide such an expenditure without the approval of some other executive? If the employment-law, business, and other risks beyond employee-benefits law and tax treatment don't deter the decision-maker, is it feasible to amend the health plan's documents to specify exactly who is eligible? When the employer asks for its lawyers' advice, it might ask whether treating as eligible or covered persons who are not so entitled under the plan documents' provisions is a breach of a fiduciary's duties of obedience, loyalty, impartiality, or prudence?

That something might not be precluded by Federal tax law won't matter if the employer does an act that is beyond its powers under State or local law.

Has the employer's lawyer evaluated whether State and local law grants the employer to make a contribution beyond elective-deferral salary-reduction contributions?

I suggested the questions because I've seen situations in which an employer suffered liability for making a too-hasty decision to treat an amount as not a proper rollover contribution, unfairly depriving its participant of the plan's opportunity to accumulate tax-deferred retirement savings. A disappointed participant might claim, sometimes successfully, that the receiving plan's administrator lacked sufficient evidence to support its finding. It might be easier to defend against such a claim if the administrator even-handedly afforded the participant an opportunity to furnish evidence that could have helped the administrator more thoroughly and carefully consider its decision. That said, the situation described might not involve these concerns.

What evidence did Plan B's administrator evaluate to support its decision that an amount paid to Plan B was not a proper rollover contribution? Did Plan B's administrator afford Plan B's participant an opportunity to submit any evidence he or she might choose to submit to show that the amount paid to Plan B was a proper rollover contribution?

When you re-read Justice Blackmun's opinion of the Court, I think you'll find a few points: The holding is that ERISA can be "applicable non-bankruptcy law" within the meaning of a then-relevant Bankruptcy Code section. The Court did not expressly find that the Coleman Furniture Corporation Pension Plan was an ERISA-governed plan (or that it was not). Nor was such a fact necessary to the reasoning of the Court's holding. The opinion's statement of fact does not say that Joseph B. Shumate Jr. ever was a shareholder of Coleman Furniture Corporation. Mr. Shumate was the last participant of the pension plan because the bankruptcy trustee of Coleman Furniture Corporation decided to pay all participants except Shumate. (The litigation that made its way through four layers of proceedings began as an adversary proceeding of Shumate's bankruptcy trustee suing Coleman Furniture Corporation's bankruptcy trustee.)

Both the Form 5500 instruction about a "one-participant" plan and 29 C.F.R. 2510.3-3 speak in the present tense. For the report of the last year that had a non-owner participant, I would ask EBSA's Office of the Chief Accountant what code or mark the computer wants for the system to know not to expect Form 5500 in later years.