Peter Gulia

QDROphile is right that a nonqualified deferred compensation plan is not governed by or subject to the same ERISA and Internal Revenue Code rules and conditions that usually apply to an IRC § 401-qualified plan. But if the deferred compensation is provided by a plan established or maintained by an employer (and is not a governmental plan or a church plan), the plan might be governed by title I of the Employee Retirement Income Security Act of 1974. If so, the exceptions that ERISA sections 201, 301, and 401 provide for an unfunded select-group plan excuse such a plan only from Parts 2, 3, and 4 of subtitle B of title I of ERISA, and do not excuse a plan from Parts 1 and 5. Alternatively, an agreement with an employee – especially if just one has deferred compensation – could be so lacking in a need for administration that it might not be a plan (within the meaning of ERISA § 3(2)(A)). Whether ERISA or State law governs, a deferred compensation agreement might include an implied obligation of good faith and fair dealing. So Lou S.’s suggestion about getting a lawyer’s advice makes sense not only to get a clear picture of the employer’s rights and remedies but also because in a later dispute the employer might be well served by showing it acted in good faith and with fair dealing by seeking and following a lawyer’s advice.

Even if a correction expense otherwise might be a proper plan-administration expense, a fiduciary should not authorize the payment or reimbursement of the expense from the plan's assets if instead the expense should be met through a fiduciary's liability under ERISA section 409 to make good the plan's losses that result from the fiduciary's breach. It is possible that a plan-qualification defect happened without any fiduciary having breached his, her, or its responsibility. But much more often a defect happens because, at least in part, a fiduciary breached a duty. In those situations, the breaching fiduciary should bear the correction expense.

Again, thanks for the trove of information, which is a great help. If the client's issue doesn't resolve itself by other means, I'll present all of the possible interpretations, with my own detailed analysis of the merits and weaknesses of each. A risk decision always is for the client.

Again, thank you for the helpful observations. I recognize all too keenly that I alone am responsible for how I advise a client. The challenge is that I can't fail to inform my client about the risk that payments might violate the market-reforms rule and expose the corporation to an excise tax. Yet once I tell them, they'll expect my recommendation about how to remove the uncertainty. They won't like hearing that the expense of seeking a ruling might cost them more than the value of the tax deductions. Not getting a ruling means that two decent businesspeople, who could not have harmed anyone, remain exposed to liabilities. As a lawyer, I must put the problem to the client's choice; but I can choose to give them full-picture information, and empathize.

Flyboyjohn, thank you for the useful information. (I freely admit not knowing this small-business tax rule because it's never before come up in my work as an employee-benefits lawyer.) Returning to the not-so-hypothetical situation I described, New Jersey law precludes the S corporation from buying group health insurance because the corporation's ONLY employees are its two 50% shareholder-employees. (The shareholders decided not to try employing either of the two sons.) And although interpretations of you, J Simmons, and masteff differ somewhat, the corporation's payment for individual health insurance bears at least some risk of incurring the $36,500-per-year excise tax. Suppose the corporation conditions its payment of each individual health insurance premium on the non-violation of the market-reforms rule, with a legally enforceable right to a repayment (with interest) from each shareholder if it is found that the corporation's payment otherwise would violate the market-reforms rule. Would those terms establish the non-violation of the market-reforms rule?

In considering your potential liability exposures, are you worried only about liability to the max-getting principal, or are you also worried about liability to others?

But even if an individual's tax return claimed the IRC 162(l) deduction and the individual confirms that the payment was for a non-group contract, isn't it at least possible that the individual paid the premium from her resources (other than causing the corporation to pay the insurer)?

If one imagines that a client might handle an ambiguity about whether the market-reform provisions apply by taking some risks .... How likely is it that whichever arm of the Government that is supposed to impose the penalties would (or even could) detect the non-compliance? Is there anything about the S corporation's tax-reporting to its shareholders or in a shareholder's tax return that claims the IRC 162(l) deduction that would show that the payments violated the market-reform provisions? Is there anything in other reporting that would show that the payments violated the market-reform provisions?

Thank you for this news. And how much should a TPA bill its client for explaining the Inspector General's request letter?

ERISA section 732(a) states: "The requirements of this part (other than section 711 [mothers and newborns]) shall not apply to any group health plan (and group health insurance coverage offered in connection with a group health plan) for any plan year if, on the first day of such plan year, such plan has less than 2 participants who are current employees." Should "employees" be interpreted to follow the idea in 29 C.F.R. 2510.3-3(b) that a plan in which only business owners participate is a plan without employees? If the only thing an S corporation does is pay the individual health insurance premiums of the corporation's two shareholders (and there is no employee beyond the shareholders), do the Public Health Service Act market reforms apply?

The corporation has two shareholders, sisters, with an even 50% each. One of the shareholders has two children, both of whom are older than 21. Is mom's shares attributed to her adult sons?

Much remarked on in our news is that the idea of an employer paying for its employee's individual health insurance is over. But what if there is no group health insurance available for the employer to buy? Under the New Jersey Small Employer Health Benefits Program, an employer cannot get a group contract unless it has at least one "real" employee. For that purpose, an employee "excludes a sole proprietor, a partner in a partnership[,] and a 2 percent S corporation shareholder[,] as well as immediate family members of such individuals." If all of a corporation's employees are its shareholders and their children, must the business forego the tax advantages of employer-paid health insurance? Or is there a way for the corporation to pay the premiums for each worker's individual health insurance, without tripping on the several prohibitions and penalties we've been reading about?

The linked-to court decision explains a trial judge's finding that a complaint did not sufficiently allege facts that, if proven, could show that an English SPD was not understandable to "average" participants. Among other reasoning, the analysis says it's not about what language a participant speaks; rather, it's about whether participants READ a language other than English AND do not read English. http://www.mdd.uscourts.gov/Opinions/Opinions/13-cv-3684%20Melendez.pdf That said, there might remain a duty to provide some foreign-language assistance.

MoJo presents one clear outlook; any different views?

If a significant part of the problem is using a human being's time to compute the amounts of the restoration and its allocations among participants' accounts, should we ask SunGard Relius and other software developers to make this a routine function? Or is it already a routine computerized function?

Now that we've heard a range of views about what might or might not be reasonable expectations for how an employer keeps or discards documents and records, let's turn to a practical question for TPAs and other employee-benefits service providers: What (if anything) should a TPA tell its client about how long to keep a document or record the TPA prepared or furnished? Some say they like a cover letter or e-mail that transmits a report to include one sentence that describes a suggested minimum retention time. (For example: We suggest you keep the enclosed report about your plan's coverage and non-discrimination for 2013 until at least November 2020, and then get your lawyer's advice about whether destruction of the record is proper.) They like this because, when the client can't find a record it should have kept and whines 'why didn't you tell me?', the TPA will have some evidence that the employer's failure isn't the TPA's fault. Others say a TPA should not volunteer information beyond the services the TPA contracted. What do you think? Would including a suggestion about records retention be helpful or harmful?

For an interesting illustration of some employers joining with unions for a lobbying statement: http://www.solutionsnotbailouts.com/About/business-and-labor-support They suggest that a multiemployer pension plan's trustees might choose a set of cutback provisions that is somewhat more efficient than those that would result under the law that governs the plan's insolvency. In effect, they ask for an opportunity to impose a restructuring before the insolvency happens.

Please understand that my observation is not necessarily a suggestion against allowing securities accounts, but rather a caution about some difficulties in making it an investment alternative for less than all participants.

Is electronic delivery sufficient if the addressee has not consented to it and does not use any computer as part of his or her work for the employer?

Thanks, everyone, for the suggestions. I likely will engage an actuary to help me with the math analysis about (i) estimating how many years are likely to elapse before the plan becomes insolvent, (ii) whether (and how much) the plan's early-retirement reduction is steeper than just actuarial equivalence, and (iii) whether that difference is a logical risk premium for getting some payments before the insolvency cut. I expect to integrate that analysis with my political advice about the likelihood or unlikelihood of Congress changing the law.

Beyond Bill Presson's good point about tax-Code non-discrimination, the plan sponsor might think carefully about how each of the plan document and the summary plan description describes the class of participants whose investment alternatives include the thing that is not available to other participants. Consider too whether the extra thing is or isn't an investment alternative for a beneficiary or an alternate payee. Consider whether a classification is vulnerable to a challenge that it indirectly discriminates regarding race, national origin, sex, or in some other way precluded by Federal law.

Are we talking about a merger of the plans only, or also a merger of the business organizations that maintain the plans? If it's about buying a business organization, isn't it possible that the proper business purpose doesn't necessarily relate to the nature of any acquired business? For example, employees of BNSF Railway, Dairy Queen, FlightSafety International, Fruit of the Loom, Government Employees Insurance Company, Helzberg Diamonds, Lubrizol, and NetJets all are employees of ONE employer. If one were seeking to explain why a merger of business organizations is invalid as a sham, what facts would one look for?

If your firm is engaged by the plan or its administrator, and that administrator has both A and B as its shareholders, members, or partners (and both A and B are trustees), get your lawyer's advice about whether your service contract obligates you to furnish information to both A and B (or, even if that is not obligated, whether doing so might help you protect yourself). Likewise, look to your service contract (and the insurance company's contract) to consider what is or isn't a proper instruction. Perhaps a subpoena is not much of a threat, because even if it is valid and commands you, a subpoena can't require one to furnish a document that does not exist. This post isn't legal advice. If you want advice (which I won't bill for), feel free to call me at 215-732-1552. Don't let A's difficulty with his or her spouse become your problem.

Is there a limit on how many characters one can put in the relevant name field of the form? A convention sometimes used for situations of this kind is "Newname fka Oldname".

Although PensionPro might refer to something else, "IRM" is a customary abbreviation for the Internal Revenue Manual. http://www.irs.gov/irm/index.html For some topics, a practitioner might read a portion of the Internal Revenue Manual as a way to help consider how an Internal Revenue Service examiner or supervisor might think about a point of tax law.