Peter Gulia

David and MoJo, thank you for the helpful perspectives. This business owner really does want to do the right stuff. The problem I’m seeking to solve isn’t about the business owner’s readiness to trust a TPA. It’s that he’s so busy that we don’t want to leave an action step to depend on expecting him to read a letter or even an e-mail. He needs to hear a human’s voice telling him what to do. Better still would be someone who stays on the telephone with him until the task is completed. I thought about whether I could provide the reminder-and-nag service. Although my fee is not as big as BG5150’s quote, I’d rather help a small business find a more efficient service. Although the problem I describe happens often and everywhere, the most recent particular situation is in Central New Jersey.

WDIK and MoJo, thank you for the help. Will a third-party administrator run its service so that everything is proactive? Will a TPA tell the employer what to sign and how to sign it? So that the message isn't buried in a letter or e-mail that the employer won't read, will a TPA do the proactive steps by telephone?

Here's today's problem on which I ask for your help. An employer has a 401(k) plan that the employer established without help from anyone beyond the salesman who sold the recordkeeper's packaged service. The recordkeeper's service is unsuitable for this employer because everything depends on the employer knowing that it needs to do something. For example, the employer never filed any Form 5500 report. The recordkeeper's letter said all the right things, but the business owner never read that letter (or any of the few dozen other things that the recordkeeper mailed). The employer has only three people: The owner is the designer of the business' products, the sole salesman, and the corporation's president, secretary, treasurer, safety officer, and everything else that's supposed to be done. A craftsman and a laborer do all the manufacturing. While I don't condone the employer's conduct, I'd like to pursue practical suggestions. Although I'm aware that it's almost impossible to get a service business to act as a retirement plan's named administrator, is it possible to find a service provider that would have a service rep (someone who's smarter than just reading from canned scripts) make telephone calls affirmatively to tell the business owner what he needs to do and why it's important? (It's okay if such a service is more expensive; the business has money to spend.) I understand that this would be a reminder service or an I'm-too-busy-to-read service; but is it possible to buy something like this? If so, what does a micro business pay for this?

Chaz, thank you for the helpful news. Let's hope your client required no more than a penalties-of-perjury statement.

Thank you all for the good help.

Thanks to all. John Feldt, for the big employer's plan, what did you do when an employee did not furnish a marriage certificate?

Thanks. Others' experiences?

When taking health plan enrollments, do employers ask for marriage certificates? I hope that BenefitsLink’s many helpful readers and writers can help expand my knowledge of current benefits-administration practices. My questions are about whether an employer tries to confirm an employee’s statement that he or she is married. (My questions are not about same-sex marriage, but rather about what (if anything) an employer does to check that an opposite-sex marriage exists.) In a decades-ago era, a new employee when invited to enroll in his or her employer’s health plan, would fill-out a form that asked whether the employee is married and next to that yes-or-no question had a line for writing-in the spouse’s name. If an employee completed the form, the employer enrolled the employee and spouse in the health coverage. No one asked for proof. More recently, some employers understand that differences between employment-based health coverage and other health insurance can lead some employees to present as a spouse someone who is not the employee’s spouse. Leaving aside after-the-fact dependent eligibility audits, what do employers now do at enrollment? Do some employers ask for a marriage certificate? Do they ask for anything else? What does an employer do if the employee does not furnish a marriage certificate or other evidence? On the question of whether the employee is married to the spouse claimed, does an employer decide this “bureaucratically” and rigidly, or does an employer use discretion? If there is some discretion allowed, who has authority to make the discretionary decisions? Do the answers vary significantly between health plans that use health insurance as the means of providing the benefits and those plans that are “self-funded”?

GMK, along with others' suggestions about carefully describing limits on information that a plan's administrator furnishes, here's a question for you to consider (I don't pretend to know the relevant law). Could the notice say?: The employer-offered coverage is minimum essential coverage to the extent that a participant or beneficiary uses or would use services that are within the plan's service area; the employer-offered coverage might not be minimum essential coverage within the meaning of Internal Revenue Code 5000A(f) to the extent that a participant or beneficiary uses or would use services that are not within the plan's service area. For more information about how the plan's provisions might affect a person's opportunity to get a premium tax credit under Internal Revenue Code 36B, ask your lawyer.

Although Kevin C. mentions ERISA's provision for co-fiduciary responsibilities, one doubts that it applies. If a plan sponsor's amendment of, or failure to amend, a retirement plan is a settlor business decision, the plan sponsor's failure to establish or maintain a plan that in form is tax-qualified is not a fiduciary breach. Like other commenters, I'm searching for an argument about why the plan-document failure ought to be a fiduciary breach, but I haven't found it. Any more ideas?

masteff, thank you for pointing to Professor Kennedy’s LL.M. series book. I’m guessing that the case cited at that footnote 35 is Trenton v. Scott Paper Co., 832 F2d 806, 9 Employee Benefits Cases (BNA) 1075 (3d Cir. 1987). In that case, Judge Seitz’s opinion for a Third Circuit panel includes two holdings that relate to our discussion: An employer’s decision to create or amend a retirement plan is a non-fiduciary business decision. Even if the employer’s amendment of an existing retirement plan makes the plan top-heavy and tax-disqualified, ERISA provides a participant or beneficiary no remedy concerning that act or its consequence. Some other cases about the lack of an ERISA remedy concerning a plan that is not tax-qualified include: Cowan v. Keystone Employee Profit Sharing Fund, 586 F.2d 888, 1 EBC 1184, n.3 (1st Cir. 1978) (“This section [iRC § 401(a)] does not appear to create any substantive rights that a beneficiary of a qualified retirement trust can enforce”). Vermeulen v. Central States, Southeast and Southwest Areas Pension Fund, 490 F. Supp. 234, 237, n.6 (M.D.N.C. 1980) (“This court agrees with the First Circuit’s holding in Cowan v. Keystone Employee Profit Sharing Fund[.]”). Wiesner v. Romo Paper Products Corp., 514 F. Supp. 289, 291 n.2, 2 EBC 1361, 1363 n.2 (E.D.N.Y. 1981) (“There is no merit in plaintiff's repeated arguments that federal jurisdiction is available because the defendants’ conduct assertedly entails violations of Internal Revenue Code provisions governing pension plans. The sections relied on, 26 U.S.C. [internal Revenue Code] §§ 401, 404[,] and 503, do not create a substantive right that a beneficiary, participant or fiduciary could enforce”). Reklau v. Merchants Nat’l Corp., 808 F.2d 628, 8 EBC 1001, 1004 (7th Cir. 1986) (“There is no basis, under [ERISA § 3002©] or elsewhere in ERISA, to find that the provisions of IRC § 401 – which relate solely to the criteria for tax qualification under the Internal Revenue Code – are imposed on pension plans by the substantive terms of ERISA.”) Hollingshead v. Burford Equip. Co., 747 F. Supp. 1421, 1434, 13 EBC 1302, 1316-1318 (M.D. Ala. 1990) (The employer established a pension plan that was not tax-qualified. The court recognized that the plaintiffs were harmed by a nonqualified plan, but rejected the plaintiffs’ requested relief that the court order the employer to tax-qualify the plan or compensate the plaintiffs for their adverse tax consequences. The court found that the remedy is limited to providing the promised pension, without regard to adverse tax treatment.). Crawford v. Rome, 53 F.3d 750, 756 (6th Cir. 1995) (“[T]he favorable tax consequences of ERISA plans are not mandatory[,] and cannot be guaranteed by judicial intervention[.]”). A. Ronald Sirna, Jr., P.C. Profit Sharing Plan v. Prudential Securities, Inc., 95 Civ. 8422, 9016, and 4534, 20 EBC 2620, 2624 (S.D.N.Y. 1997) (“[N]umerous courts have rejected similar claims of an implied right of action under [internal Revenue Code] Section 401.”). Suozzo v. Bergreen, 00 Civ. 9649, 2002 U.S. Dist. LEXIS 25563 at *4 (S.D.N.Y. Feb. 5, 2003) (“[T]here is no private right of action for an alleged violation of [internal Revenue Code] Section 401, and thus the plaintiff has no claim based on the alleged failure of the Plan to comply with Section 401.”). Hall v. Nat’l R.R. Passenger Corp., 559 F. Supp. 2d 38, 54-55 (D.D.C. 2008) (“no private cause of action arises under I.R.C. § 401[.]”). Beiliang Loh v. Richardson-Browne, Civ. No. 10-0054, 2010 U.S. Dist. LEXIS 128016 at *9 (D.N.J. Dec. 2, 2010) (“Section 401 of the IRS Code does not grant Plaintiff a private cause of action[.]”). Perlman v. Fidelity Brokerage Services LLC, 2:11-cv-00326 (E.D.N.Y. 2013) (“To the extent plaintiff attempts to bring a claim under the IRC, that claim must fail, as plaintiff has no private right of action under the IRC.”).

David Rigby, thank you. And you’re right that many “hats” – including employer, plan sponsor, and plan administrator – often sit on one head. But let’s assume that situation. Imagine that the employer corporation’s sole shareholder, sole director, and president-secretary-treasurer acts both for the plan sponsor and the plan administrator. By failing to amend the plan as needed to tax-qualify, has the chief also breached an ERISA fiduciary duty? If so, what ERISA fiduciary duty did she breach?

masteff's observation is apt for many reasons. Among them is respecting the participant's privacy. It's at least possible that a participant might not have wanted anyone other than the beneficiary to know whom she named as her beneficiary. Or if she did want others to know, it was for her to choose to whom and what she would reveal.

MoJo, thank you for the helpful ideas. Even if the typical “is intended” language, or a purpose statement (whether in the plan’s documents or ERISA § 404(a)(1)(A)), supports interpreting an ambiguity in the plan’s documents to favor an interpretation that would tax-qualify over an interpretation that would not tax-qualify, that might help avoid in-operation disqualifying defects. But it doesn't resolve the problem that the plan in form is not qualified. ERISA § 404(a)(1)(D) states: “Subject to sections 403© and (d), 4042, and 4044, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and — in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title and title IV [of ERISA].” A possible interpretation of ERISA § 404(a)(1)(D) is to “fill-in” a provision that the plan’s documents do not state if ERISA’s title I requires the plan to have the provision. But what if the missing provision is something that Internal Revenue Code § 401(a) calls for as a condition to tax qualification, but is not anything that ERISA requires? In that situation, ERISA § 404(a)(1)(D) doesn’t supply the missing provision. Even if the plan's administrator relies on ERISA § 404(a)(1)(A)’s idea that a fiduciary must discharge its duties for the “exclusive purpose” of providing the plan’s benefits and the administrator finds that the intended tax treatment is one of those benefits, the most that this could support is interpreting the plan in operation as if the plan has tax-qualifying provisions. But that still would not solve the problem that the plan in form is not qualified. If the administrator has some ERISA fiduciary duty to deal with the problem that the plan in form is not qualified, what is the administrator supposed to do? Must the administrator remonstrate with the employer about why it should amend the plan? If the employer doesn’t amend the plan, must the administrator ask a Federal judge to order the employer to amend the plan? What statute would one argue as the source of the Federal court’s authority to order the employer to amend the plan?

Many people guess that a retirement plan’s administrator (not a recordkeeper or TPA) has an ERISA fiduciary duty to maintain the plan as a tax-qualified plan. Recently, a consultant told an employer that this idea is wrong. The consultant said that ERISA requires a plan’s administrator to administer a plan according to the plan’s written terms and ERISA. Further, the consultant said that if a plan becomes tax-disqualified in form because the employer failed to amend the plan, nothing in ERISA requires the administrator (in its role as the plan’s administrator) even to try to get the employer to amend the plan. In fairness, the consultant said that the administrator must use prudent care to not make (and not allow) any communication to describe anything about the plan’s or its transaction’s tax treatment in any way that is false or misleading. The consultant suggested revising the summary plan description to omit any explanation about tax treatment. The consultant suggested editing the § 402(f) notice (if any) so that every explanation is preceded by “If the Plan is a plan described in Internal Revenue Code § 401(a), ….” The consultant said that a plan’s administrator administers the plan that the employer created. Do you think that the consultant is right about the absence of an ERISA fiduciary duty? If not, why not? So that the reasoning is something more than a sense that something doesn’t seem fair or decent, what language in ERISA’s statutory text supports the fiduciary’s duty?

MoJo's suggestion about interpleader or getting consents from all imaginable spouses might be apt. Note the differences in how example 1 and example 3 below (taken from real court decisions) handle the possible effects of a fraudulent marriage. When a participant is survived by a spouse and a putative spouse, which one is treated as the participant's surviving spouse? There is no rule; whether a putative spouse, a real spouse, both, or neither is treated as a participant's spouse depends on a plan administrator's, arbitrator's, or judge's decisions in the particular circumstances. The following two cases had opposite results. In my view, neither court explained the real reason for its decision. A third example illustrates a straightforward application of the law that a person whose marriage has not ended cannot marry another. Example 1. In 1965, John and Susie married in Louisiana. In 1970, a Louisiana court ordered a judgment of separation, but not any divorce or dissolution of John and Susie's marriage. In 1973, Susie, while still married to John, “married” Milton. In 2000, John, while still married to Susie, “married” Gwendolyn in Texas. In 2001, John died (while still married to Susie and “married” to Gwendolyn). He was domiciled in Texas when he died. After John's death, Susie and Gwendolyn each submitted a claim to his pension plan for a survivor annuity; each claimed that she was John's surviving spouse. The pension plan included the following provision: “All questions pertaining to the validity of construction of this Pension Plan shall be determined in accordance with the laws of the State of Illinois and, to the extent of preemption[,] with the laws and regulations of the United States.” (As cited below, these are the relevant facts of a real case.) In resolving the plan administrator's interpleader, the court considered whether to apply Louisiana law, Texas law, Illinois law, or some combination of them in deciding which claimant (if either) was John's surviving spouse. Notwithstanding that neither of the claimants had argued for it, the court chose Texas law. Further, the court used Texas property law to resolve the status question needed to apply an ERISA plan's provision that preempts state law. Following this, the court found that Susie's acceptance of the benefits of her fraudulent “marriage” to Milton precluded her from asserting that she was John's surviving spouse, and recognized Gwendolyn as an innocent putative spouse to be treated as if she had been a spouse. Central States, S.E. & S.W. Areas Pension Fund v. Gray, 31 Employee Benefits Cas. (BNA) 1748, 2003 U.S. LEXIS 18282 (N.D. Ill. Oct. 8, 2003). Example 2. In 1966, Douglas married Ann in Ohio. They lived together in Ohio from 1966 to 1982. In 1972, Douglas began a relationship with Rita. In 1982, Ann left Douglas and moved to Tennessee. In 1985, Douglas and Rita “married” in Nevada. Each of Ann and Rita submitted claims for several benefits to be provided to Douglas' surviving spouse. The pension plan provided that it “shall be construed, governed[,] and administered in accordance with the laws of the State of Michigan[,] except where [sic] otherwise required by Federal law.” In resolving the plan administrator's interpleader, the court considered whether to apply Federal law, Michigan law, or Ohio law, or some combination of them in deciding which claimant (if either) was John's surviving spouse. [See, e.g., Croskey v. Ford Motor Co.-UAW, 2002 U.S. Dist. LEXIS 8824 (S.D.N.Y. May 2, 2002). Note 1. In both of these cases, the court did not apply the contractual choice of law and, even further, ignored the plan's provision that the plan be construed using the plan-specified state law. Note 2. Courts' procedures for an interpleader, which focus on the arguments of the competing claimants and often do not require a stakeholder to assert a position, increase the likelihood that a court will render a decision that is unhelpful for future plan administration. Example 3. Philadelphia Eagles running back Thomas Sullivan was a participant under the NFL Player Retirement Plan. Thomas married Lavona in 1979. Thomas and Lavona stopped living together around 1983, and last had contact with one another around 1985. In 1986, Thomas “married” Barbara. Thomas died in 2002. On the plan’s interpleader, the federal court found that neither Barbara’s unawareness of Thomas’s marriage nor an assertion that Lavona “walked out on the marriage,” even if both alleged facts were fully proven, could have changed the fact that Thomas and Lavona remained married until his death. Likewise, Barbara’s belief that she was married to Thomas could not dissolve Thomas’s marriage to Lavona or permit Thomas’s marriage to anyone while he still was married to another. Lavona is entitled to the pension benefits that were the subject of the court proceeding. Hill v. Bell, 50 Employee Benefits Cas. (BNA) 1220 (E.D. Pa. Nov. 4, 2010); see also Grabois v. Jones, 89 F.3d 97 (2d Cir. 1996) (Junior was married to Annie Marie from 1948 until his death in 1991, and was “married” to Kay from 1962 until his death. After two years of litigation, the appeals court decided that it lacked sufficient information to review the trial court’s findings, including any finding concerning which claimant was the participant’s widow, and so remanded the case to the trial court for it to pursue further development of relevant facts).

Unless the preceding Form 5500 report is so weak that it is not treated as having filed the required annual report (ERISA) or information return (Internal Revenue Code), one doubts that there is a due date for an amended report. Consider whether an amended report affects a statute of limitations or statute of repose that your client cares about.

In addition to David Rigby's good suggestions, consider that a prudent administrator should consider all information reasonably available to it. If the retirement plan's administrator is the employer, and the same employer also administers (or properly has access to the records of) the employer's health plan, a prudent administrator might check the health plan's records to see whether the participant had written anything that named a spouse. If so, the retirement plan's administrator might confirm (not relying on the participant's or claimant's statements) the end of a spouse relationship concerning each person previously named. It's always difficult to prove the absence of a person or relationship. That includes a marriage because there is no unified set of records for the starts and stops of marriage. In situations that involve a small-enough account balance and low risk, I've seen a plan's administrator tell the claimant to get a probate court's order that specifically decides the absence of other possible claimants. This is only some indirect evidence, and not legal protection. If the plan's administrator prefers protection, one might (after prudently exhausting other steps) do a Federal court interpleader, with actual service on all those the administrator imagines might have some claim (including persons that could become personal representative of the participant's estate) and substituted service on those who are unknown or not located. Consider that the plan's expenses for the interpleader might be paid from the plan's assets and, in appropriate facts and circumstances, might be allocated to the account of the participant who made the interpleader necessary or appropriate.

Mr. Presson, if your query is about an "outside" director - one who is not associated with the fund's manager, and who otherwise qualifies as independent under the Investment Company Act of 1940 and other law, such an individual's investment only for herself in those open-end registered investment company shares usually does not involve a prohibited transaction that needs an exemption. If such an open-end RIC fund's manager, as the employer of the manager's employees, wants to include a "house-brand" fund as a participant-directed investment alternative of that employer's retirement plan for only the manager's employees, class exemption 77-3, if all of its conditions are met, exempts a buy or a sell of the fund's shares from ERISA section 406. About independence, the typical desire is for an "outside" director to be independent of each fund's manager; but ordinarily there is no need (or desire) for a director to be independent of the fund itself. PTCE 77-3.pdf

Anything new since 2010? Has any insurer ever paid a claim on this?

While I don’t give advice, here’s a few thoughts that you, with your lawyer’s advice, might consider to help you protect your engagement. (For your convenience, I put them in an order related to the order of your queries.) The 2012 proposed rule is a proposal; the Labor department has not adopted it. Even if not as a QTA, a current fiduciary can engage service providers if he, she, or it does so meeting all duties, including duties under ERISA §§ 404-406. In my experience, the Labor department is reluctant to excuse a plan’s administrator from a duty to engage an independent qualified public accountant to audit the plan’s financial statements. This has been so even when the plan’s expense for the auditor’s fees would result in a serious reduction in participants’ account balances. (I’d like to learn whether others have had similar or different experiences.) A penalty for an administrator’s failure to file an annual report is chargeable, at least initially, against the breaching administrator. The Labor department might assert breaches and penalties against persons who caused or allowed the administrator’s breach. A plan’s administrator might choose to file a Form 5500 annual report using the best information available to the administrator. It is not improper to file a Form 5500 merely because it includes an auditor’s report that is qualified or even adverse. A current fiduciary might be unconcerned with filing a report that reveals breaches of other fiduciaries if the current fiduciary, upon taking office, did what he, she, or it could do to correct and remedy those breaches. An abandoning or otherwise breaching fiduciary should get lawyers for personal advice and defense. A current fiduciary likely needs lawyers’ advice just to meet the fiduciary’s duties. If a current fiduciary is confident that his or her administration is blame-free, he or she might evaluate engaging lawyers at the plan’s expense. He or she would evaluate such a choice knowing that the evidence-law privilege for confidential lawyer-client communications likely would not keep those communications secret from the plan’s participants or the Secretary of Labor. For anything in which the correctness of the fiduciary’s administration could be an issue, one would want that advice or representation from lawyers who are separate from those who rendered advice for the fiduciary’s role as a fiduciary. Given your description about pending litigation concerning distributions that might have involved unfair valuations or unfair allocations (and the possibility of other litigation concerning other breaches), those appointed or engaged to serve this plan might prepare for a long ride. Even if your firm already accepted an engagement, get your lawyers’ advice about what you can do to protect the terms of your engagement and your risks.

vebaguru and MoJo, thanks for the help. vebaguru, do divorces of other participants get a trustee dragged into court proceedings, or is it just about a divorce of the employer's owner (so that the participant and the trustee might happen to be the same person)?

Which years are the subject of the examination? If your client didn't consent to extend the statute of limitations, the IRS's delay might help the taxpayers.

Just to present another outlook, some employers with these plans like to file some kind of Form 5500 (even if not required), hoping that doing so might set up a statute-of-limitations defense or argument, just in case it might be helpful some time years later.

Concerning a small-business defined-contribution retirement plan that provides participant-directed investment, what (in your experience) is the "top five" things that can go wrong that get the employer (in its role as the plan's administrator) or the plan's trustee stuck answering a court proceeding? (For this query, leave out IRS and EBSA administrative enforcement, and consider only something that results in court proceedings in which a plan's administrator or trustee is some kind of defendant.)