Peter Gulia

Is it feasible to apply each employee's actual 401(k) election that was in effect for each period in which the employee performed the overtime that is a subject of the late-paid wages? If so, is it feasible to correct all W-2s and other tax and information returns for all affected periods?

Back to the originating query, if the employer will amend the plan to discontinue contribution accruals and provide a final distribution, could the employer also provide that for any eligible rollover distribution for which the distributee doesn't specify what he or she wants the default distribution is not a payment of money but rather a direct rollover to the employer's other plan?

Thank you for the help.

Let me ask a question (and please understand that it really is my open question from a lack of payroll knowledge): Once the employer has, on each employee, figured the period's wages, applied section 125 and section 401(k) reductions, counted net wages, computed withholding taxes, applied deductions, and counted payable wages, shouldn't the elective-deferral amounts to be paid over to the plan be known? What further steps are there before an employer is ready to transmit data and remit money to the plan's service provider?

So were the plan's provisions and testing procedures applied consistently across all participants? And if so, were they applied consistently over the years?

If the retirement plan's administrator relies on an incorrect measure of compensation for this participant, how would it affect the administration of the retirement plan? Would a too-low measure of compensation result in this participant getting an allocation of a nonelective contribution less than she is entitled to? Would a too-low measure of compensation result in this participant getting an allocation of a matching contribution less than she is entitled to? Would a too-low measure of compensation distort an ADP test, ACP test, or other measure of coverage or non-discrimination? Is something else affected? Focusing on what plan-administrator error could result from a mistaken measure might help your client spot a problem or exposure (or see a need for a plan revision). Or if the measure of compensation doesn't affect anything (which might be so concerning plans in some circumstances), it might be unnecessary to use any measure of compensation.

Flyboyjohn, thank you for the helpful information. And thank you for politely assuming I know more than I really do. leevena, the point of my hypothetical is to imagine an insurance-buying employer that is less likely to have engaged an employee-benefits lawyer or an actuary, and so looks to other sources of information.

Imagine a business that's big enough to be exposed to the excise taxes for a failure to offer sufficient health coverage but small enough that it chooses not to self-insure its group health plan. This employer wants to know that, assuming the employer's plan provides sufficient eligibility and makes every employee's contribution low enough that all offers are affordable, the group health insurance contract it might buy would meet all other conditions so that the employer is not exposed to play-or-pay excise tax. How will this employer know whether a group health insurance contract provides "minimum essential coverage" and "minimum value"? Does the contract itself state that it meets those conditions? If not, will an insurer furnish some other written assurance that the contract offered meets the conditions? If an insurer offers a group health insurance contract that does not meet "minimum essential coverage" or "minimum value", does some Federal or State law require an insurer to furnish an affirmative warning of that fact?

Internal Revenue Code section 72(m)(10) states: “Under regulations prescribed by the Secretary, in the case of a distribution or payment made to an alternate payee who is the spouse or former spouse of the participant pursuant to a qualified domestic relations order (as defined in section 414(p)), the investment in the contract as of the date prescribed in such regulations shall be allocated on a pro rata basis between the present value of such distribution or payment and the present value of all other benefits payable with respect to the participant to which such order relates.” More than 30 years after the 1984 enactment of the quoted statute, no rule or regulation to interpret section 72(m)(10) has been adopted, or even proposed. Consider also whether the division sought might be affected by a proposed rule to interpret section 402A. The proposed rule is proposed to apply to distributions from designated Roth accounts made on or after January 1, 2015. This was published at pages 56310-56312 in the September 19, 2014 issue of the Federal Register; it’s available at http://www.regulations.gov/#!documentDetail;D=IRS-2014-0032-0001.

While it's so that an ERISA-governed health plan might specify which spouses are eligible and which aren't (and that those provisions are not necessarily a violation of a civil-rights law), many plans don't have clear provisions on this point. Imagine that the employer/administrator's decision in my hypo was not about applying any detailed plan text, but instead was the employer's interpretation of the word "spouse". If that is the hypo's key fact, should the employer/administrator: Allow a spouse enrollment retroactive to January 1, 2015? Or find that the administrator had acted in 2014 in good faith, finding a non-spouse on what the administrator then believed was relevant law concerning such a status question. If the employer/administrator validates its previous decision, should it treat the fact of the Supreme Court decision as though it were a change in whether the participant has a spouse, and allow an election for a coverage period of August through December?

Imagine that in November or December 2014 an employee tried to include her same-sex spouse in group ("self-insured") health coverage. The employee had married her spouse in a State that provides common-law marriage but purported to preclude same-sex marriage. Mistakenly believing that the same-sex spouse was not its employee's spouse, the employer denied the requested enrollment. After the Supreme Court's June 2015 decision, suppose it turns out that the U.S. Constitution precluded the State from not providing common-law marriage for a same-sex couple if the State provides common-law marriage for an opposite-sex couple. So the employee was married when she requested her spouse's enrollment. In July, should the employer allow a spouse enrollment retroactive to January 1, 2015?

Stacey Schuett's complaint against FedEx is a reminder about some difficulties that come from uncertainty about law. In Windsor, the Supreme Court decided that a statute enacted in 1996 never was law because it is contrary to the Constitution. Although the IRS can say it won't tax-disqualify a plan for having treated a same-sex spouse as not a spouse for some plan-administration acts done before summer 2013, a participant's surviving spouse may claim she was a spouse, and is entitled to the rights an ERISA-governed plan must provide for a spouse. Could the Supreme Court's summer 2015 decision also lead to some "effective date" and transition issues?

This summer, we expect decisions from the Supreme Court of the United States on whether a State must provide same-sex marriage (if the State provides opposite-sex marriage) and whether a State must recognize a same-sex marriage that was made under another State's law. These decisions matter greatly to someone who now must travel to be sure of making a same-sex marriage, and to someone who faces uncertainties about whether a court of a State in which he or she is domiciled or resides would recognize his or her marriage made under another State's law. But for employee-benefits practitioners, I wonder if the news already happened. After the 2013 decision and administrative-law guidance, an administrator of an employee-benefit plan that has any provision that turns on the presence or absence of a spouse, has to be ready to apply the provision knowing that a same-sex marriage is at least possible. That's so even if the plan's sponsor and participants are so geographically limited that everyone resides in a State that neither provides nor recognizes same-sex marriage; an ERISA-governed plan usually recognizes a marriage that was valid under the law of the State in which it was made. (We recognize that church plans and governmental plans have quite different paths.) Are there follow-on effects of 2015's same-sex marriage decisions that employee-benefits practitioners would need to do something about?

Some practitioners wonder that EBSA's more recent interpretations have given charitable-organization employers too much false hope about somehow making available 403(b) contracts without doing anything to establish or maintain a plan. If an employer has discretion in administering a retirement plan (which seems inevitable if a participant must not decide her own claims, and an insurer or custodian is unwilling to decide claims), shouldn't a participant get the disclosure and reporting that Congress in 1974 provided for? And if a small business with three employees can file a Form 5500 report on a salary-reduction-only 401(k) plan, why is it too hard for a small charity with three employees to file a Form 5500 report on a salary-reduction-only 403(b) plan?

Belgarath, your example isn't absurd; those possibilities are why some executives negotiate for deferred compensation that's not measured by the employer's investments, but rather by a specified formula (sometimes as straightforward as accumulating amounts with a specified rate of interest), or according to the executive's investment instructions. How an employer and an executive negotiate concerning time value of money and investment risks is just one more dimension of the overall negotiation of deferred compensation.

If the pension plan really is a pension plan and has not elected to be governed by ERISA, the non-application of ERISA means that ERISA does not preempt State law. The common law of trusts and other fiduciary relationships includes duties for a trustee or other fiduciary to communicate to its beneficiaries. Depending on the facts and circumstances, one might interpret such a duty to call for a fiduciary to furnish to participants some summary, rather than the pension plan's governing instrument. This is especially so if the plan allows a participant some choices about the time or form (and indirectly amounts) of her pension benefit. Consider inviting the fiduciaries to seek their lawyer's advice about what means of communicating the plan's provisions is prudent in the plan's and its participants' circumstances.

One imagines that a plan's document doesn't state any approximation method beyond the equivalencies and other methods stated in the 2530.200b regulations (because an attempt to provide something else likely wouldn't have obtained an Internal Revenue Service determination). If so, doesn't inventing an approximation method mean that at least one fiduciary fails to administer the plan "in accordance with the documents and instruments governing the plan[.]"?

That a plan is not governed by Parts 2, 3, and 4 of subtitle B of title I of ERISA, does not mean that the plan is not governed by ERISA. If it's an employer's pension-benefit plan or welfare-benefit plan and is not a church plan, governmental plan, unfunded excess-benefit plan, or other plan excluded under ERISA section 4, ERISA governs, and preempts State law as ERISA section 514 provides.

If the charity indulges an assumption that it received good advice and drafting when it made a document, it is possible that later tax-law changes have been modest enough that the document still follows the employer's intent. But one really can't know that but for reviewing the document and the employer's circumstances. Consider also that the plan might have been made under a set of assumptions about the employer's and its employee's facts and circumstances, and that later events might have changed the facts.

If a participant really is a select-group executive, shouldn't she have the ability to negotiate contract provisions that make any fiduciary responsibility unnecessary?

For different kinds of employee-benefit plans and benefits under them, there are differences about whether the existence or non-existence of a marriage helps or hurts a claimant on his or her particular claim. For example: For a health plan, a participant might want to say that he or she has a spouse, to obtain coverage (or ostensible coverage) for the person described as his or her spouse. For a retirement plan, a participant might say that he or she does not have a spouse, so the participant may elect against a survivor annuity or name a beneficiary other than the participant's spouse. How a participant's or other claimant's statement affects a benefit is among the factors a plan's administrator might consider in reasoning how much evidence and evaluation is prudent.

Thank you for explaining the reasoning.

I have several experiences with abandoned plans, including responding to EBSA investigations, advising a natural person when EBSA asserts that she is responsible to administer the plan, advising service-provider businesses about whether to serve as a QTA, and serving as a plan's court-appointed fiduciary. I can help you think through how to address your inquirer's questions (and some protections your firm, if engaged, should get), but doing so involves more facts, and some observations that I don't want to publish on a website, especially one that EBSA employees read. You're welcome to call me.

Concerning claims to a retirement plan, a question about whether a common-law or informal marriage existed most often arises after a participant's death as competing claims between a claimant who asserts he or she is the participant's spouse and a claimant who would be a beneficiary if the participant did not have a spouse. If your participant is alive and choosing his or her form of distribution, does the plan provide a subsidized survivor annuity or some other benefit that is better for having a spouse? Could an incorrect finding that the participant has a spouse harm the plan? If not, is there some other reason the retirement plan's administrator must or should decide whether the participant does or does not have a spouse?

The administrator's plan for what to do with the $0.06 might lead you to an answer about whether a report on a 2015 plan year is needed, or whether the report on 2014 can be the final report.