Peter Gulia

Could this idea be done with a profit-sharing plan?

But what if a retirement plan has 35,000 participants and the incremental mailing would result in incremental expenses of $25,000 charged against the plan's assets? If, as My 2 Cents suggests, a fiduciary might find that few participants read the information, shouldn't such a fiduciary at least consider ways to reduce expenses that lower participants' accounts?

I'm showing my lack of memory that results from not using the information in work experiences. While I've advised trustees of defined-benefit pension plans, I've never designed a plan that needed to worry about the 401(a)(26) rule. Doghouse, thank you for reminding me about that constraint.

What about three pension plans, so each owner makes his or her plan-design decisions, funding decisions, and investment decisions, and so none of the owners subsidizes another?

Perhaps there's also room for a mailing efficiency. A plan's administrator could ask its recordkeeper to enclose the 2016 summary annual report in the same envelope that mails the 2017Q4 account statement.

Does this law change mean that a participant might get her December 31, 2017 account statement (in early January 2018 [see 17 C.F.R. 240.10b-10(b)(2)] before she gets her 2016 summary annual report (by January 15, 2018)?

Flyboyjohn, thank you for your further thoughts. All the players considered the Schedule C reporting about a change in the IQPA. The employer described above is not my client.

David Rigby, thank you for the good critical thinking. It happens that the employer I described isn't worried about accounting to shareholders because the company has only one owner, and the owner agrees with the plan's administrator. The plan's administrator is considering filing the IQPA report because the administrator believes doing so is less expensive (for the plan) than replacing the IQPA. Thanks again for the good thinking, and maybe smart BenefitsLink mavens will spot issues we missed.

Consider this scenario: An employee-benefit plan's administrator (the plan's sponsor) and the independent qualified public accountant disagree about a point of accounting for the plan's financial statements. The administrator considers its knowledge of accounting superior to the IQPA's knowledge. The IQPA threatens to issue an adverse report. The administrator says "bring it on." The administrator does not fear that checking the "adverse" box at Schedule H's part III would trigger an examination because EBSA and IRS both have open examinations, with teams of examiners using office space in the plan's sponsor's headquarters. Also, the administrator does not fear the IQPA's explanation because the administrator confidently believes the IQPA is wrong. Beyond widening and intensifying the open examinations, is there any other unwelcome consequence that results from checking the adverse box and attaching the report that explains the IQPA's reasons for its adverse opinion?

ESOP Guy, thank you for your good observations. My experience too is that those who have practical experience with recordkeeping operations spot issues that others miss. I'm interested in what you think about my idea for an element in an employer's QDRO procedures: Before sending an approval of a "live" order that the administrator believes is a QDRO, give the instruction to the recordkeeper. Next morning, check the system to see whether all the changes transacted. If all processed, put the QDRO-approval letters in that afternoon's mail. If anything didn't process, talk with the recordkeeper. It's likely that the recordkeeper's reason for not processing the administrator's instruction will reveal at least one reason for deciding that the order is not a QDRO. What do you think?

Belgarath, thank you for the further explanations. Count your writing here today as a valuable pro bono contribution, supporting mine, to a charity that's doing great things.

David Rigby, both of your observations are good. In formal terms, a recordkeeper doesn't preclude an administrator from doing something; rather, a recordkeeper chooses which service it offers (or doesn't offer). If an employer doesn't have big-plan buying power, what recordkeepers offer often is a practical restraint on what an administrator chooses. You're right that a service agreement would state the add-on services. My work as counsel to administrators is about employee-benefit plans with tens of thousands of participants and enough buying power to custom-negotiate each service agreement. But my inquiry here is about unusual work for a small plan, and they won't ask for the QDRO add-on unless I advise them that it's worth considering. So that's why I ask BenefitsLink mavens: Is a recordkeeper's QDRO-review service worthwhile? (I'm hoping to see the usual sharpness of different viewpoints.)

Belgarath, thank you for this super helpful information. So the only way an employer can get comfort about whether its document states a plan that (if administered according to its provisions) gets the Federal income tax treatment of Internal Revenue Code section 403(b) is to get its lawyer's or other practitioner's written advice?

So if either expense allocation is possible, does a recordkeeper allow an employer to specify which allocation the employer prefers?

If an employer in 2015 states a new plan by using a document that now is waiting for approval and later becomes IRS-approved, does the user get retroactive reliance on the IRS's letter?

Some 401(k) recordkeepers offer an optional service, for an incremental fee, under which the recordkeeper will review a domestic-relations order to decide (but for the plan administrator's rubber stamp) that an order is a QDRO. For those that offer such a service, does the recordkeeper allow the plan's administrator to specify how the expense is allocated among participants' accounts? Can the allocation be proportionate across all participants' balances? Does a recordkeeper require or permit an allocation of these QDRO-service expenses only to the account that is the subject of a division or proposed division? Does the recordkeeper provide an indemnity to stand behind the accuracy of its decision or recommendation? Is this kind of service worthwhile?

David Rigby, thank you for that reminder. But isn't the problem of an employer stealing participant contributions concentrated mostly in plans with few enough participants that an independent qualified public accountant is not engaged?

Belgarath, thank you for the information. Do you know which providers have submitted a document to the IRS?

We seem to have two votes for a non-fiduciary doing no more than informing the employer that failed to pay the contribution. Any different views?

Of the big 403(b) providers, which of them offers an IRS-preapproved prototype or volume-submitter document (or a document so intended)?

Should a recordkeeper or TPA try to get an employer to pay a past-due participant contribution? A recent BenefitsLink forum topic shows how the duty to collect a contribution often is set with someone who decided not to pay the contribution (or his or her subordinate). http://benefitslink.com/boards/index.php/topic/57803-special-trustee-responsible-for-contribution-deposits/ Imagine that you’re such a plan’s recordkeeper or third-party administrator (and you’ve designed your business to be non-fiduciary at every turn). What do you do if a participant contribution is long past due and has not been paid to any trustee, custodian, or insurer? Is it okay to make no effort to get the employer to pay the past-due contribution? Or should you “do something” to try to get the employer to pay? If so, what is the “something” you do?

AndrewZ, thank you for the helpful information. Is the condition that the plan must specify a natural person as the "special trustee" stated on the Adoption Agreement or in its written instructions? If so, I might seek more information about whether the Internal Revenue Service requires adherence on that point as a condition to reliance on the IRS advisory letter. If the condition is not so stated, a user might consider and evaluate the possibilities.

Without disagreeing with My 2 cents’ and Andy the Actuary’s observations, a few further thoughts: If the plan’s administrator accedes to the independent qualified public accountant’s suggestion, there might be an awkwardness about what the administrator reports on Schedule C. Under the Schedule C instructions, “indirect compensation” is “[c]ompensation received from sources other than directly from the plan or plan sponsor[.]” Yet “direct compensation” is only “[p]ayments made directly by the plan[.]” If the investment manager’s fee is paid by the plan sponsor, correct responses to Schedule C’s part I line 2 might be: (d) direct compensation -0- (e) indirect compensation No (f) Did indirect compensation include eligible indirect compensation? [blank] (g) total indirect compensation -0- (h) formula instead of an amount? No To the computer, this might look like the service provider had no compensation. One wonders whether the software would display an “are you sure” message: “Do you intend to report as a service provider a person that had no compensation?” If that happens and the administrator starts thinking about how to “trick the system”, the administrator might reconsider whether to accede to the independent qualified public accountant’s suggestion. If it reconsiders, the administrator might recall that there is a little off-rule guidance that might support a reporting position. The Schedule C FAQs state (in Q 26), not in an answer but rather in a question as a conclusion EBSA assumes: “Plan administrators are not required to report on Schedule C information with respect to service providers receiving less than $5000 in total compensation (direct and indirect) from the plan.” For the auditor, there is an easy retreat. The AICPA tells an auditor to “read the other information of which the auditor is aware [such as Form 5500 and its Schedules] in order to identify material inconsistencies[.]” If the plan’s financial statements show no payment to, and no payable due to, the investment manager, those statements would be not inconsistent with the investment manager’s absence from Schedule C. Likewise, there should be no need for a disclosure reconciling differing amounts between the financial statements and the other elements of the Form 5500 report.

I've enjoyed the benefit I asked for, getting several practitioners' thoughts. Thank you all for helping me focus my thinking.

Mojo, it's easy to agree with your business-sense observations about choice of law for matters other than the terms of an ERISA-governed IRC 401 retirement plan. Your last paragraph shows why an ERISA-governed plan's administrator shouldn't need any State's law.