Peter Gulia

One way for a defined-contribution plan (if its investment is not participant-directed) to buy another plan's asset is using an independent fiduciary. Among many other conditions and circumstances, it could work only if it's feasible for the dc plan to take on the asset without impairing the dc plan's liquidity needs (or anything else in the dc plan's interests). Likewise, the dc plan's independent fiduciary must satisfy herself that the price the dc plan would pay to buy the asset reflects a sufficient valuation discount for the lack of liquidity. As always, every person should get the advice of his, her, or its expert lawyer.

On Mike Preston's point, now might be an opportune time for eb practitioners to relearn the rules of Internal Revenue Code section 414(b), ©, (m), and (o). IRC section 4980H©(2)©(i) applies those rules to determine the employer on which to count whether there are or were 50 FTE employees.

Smart points awarded to rcline 46 and david rigby! Let's see who can come up with more ways in which the Affordable Care Act affects the administration of a 401(k) plan.

I'm making a list of the ways in which the Affordable Care Act affects the administration of a 401(k) plan. I'll bet that BenefitsLink mavens can explain things that I wasn't smart enough to see. Let's see who has the most ideas.

When a financial institution (including a broker-dealer or an investment company) designs its customer identification program, the program must include something to check the identity of the natural persons who act for a non-natural person (including a corporation, trust, or employee-benefit plan). See 31 C.F.R. Parts 1020 to 1029 http://www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR&searchPath=Title+31%2FSubtitle+B%2FChapter+X&oldPath=Title+31%2FSubtitle+B%2FChapter+X&isCollapsed=true&selectedYearFrom=2012&ycord=1238 Even if not expressly specified in those rules, some programs call for a natural person's taxpayer identification number, which for a U.S. citizen is the Social Security Number. Many request also a copy of an identity document that includes a photograph of the natural person's face. A strange use when one considers that almost never does an operations employee at the investment house see the face of the natural person. Belgarath, if your client's natural persons do furnish Social Security Numbers, consider suggesting that they inquire about the institution's procedure for destroying the identity-checking records after the uses of them (including internal and external audits of the identity checker's work) are completed. Some financial institutions might not watch their employees and contractors closely enough to prevent, or even detect, identify theft by those employees or contractors.

Let me ask my fiduciary question, once more, using an example: Before the end of February, the plan mails every participant a notice that on April 1 the XYZ Foreign Stock Fund will replace the ABC Foreign Stock Fund. When Sue receives her first-quarter account statement, she sees a $1.20 charge for receiving a mailing about a fund she has no interest in. On August 31, the plan sends every participant an annual redo of ERISA 404a-5 information. Again, the third-quarter statements show that every participant was charged (this time $1.80) for the expenses of assembling and mailing that communication. After this, Sue ($3 poorer) wonders whether the plan's fiduciary could have made the slight change in managers for a foreign stock fund effective on October 1 (so that it could be announced in the 404a-5 mailing) instead of April 1. Does six-months'-worth of investment improvement in a fund in which only 2% of the plan's assets is invested outweigh the incremental $1.20 multiplied by the number of participants? Or expressed in terms of fiduciary responsibility: When the fiduciary decided that XYZ is a better manager ABC is, could the fiduciary properly have considered that XYZ isn't so obviously better that the improvement must be implemented right away?

cbclark, thank you for your helpful thinking. It makes sense to do an investment change quickly if it has become obviously imprudent to continue the to-be-replaced fund. But what if the recently selected fund is better, but only somewhat better, than the to-be-replaced fund? What if the plan has 25,000 participants, and the plan’s expenses to do an off-cycle mailing is about $30,000. Could a fiduciary consider that the anticipated investment performance improvement between the to-be-replaced fund and the recently selected fund might not get to $30,000 in the few months between a quick implementation and waiting for an on-cycle implementation? And would it matter if the investment category of these funds is one that only a minority of participants use, while the expenses are charged (proportionately by account balances) against all participants’ accounts. (For my hypothetical plan, the employer pays none of the plan-administration expenses.) ERISA’s exclusive-purpose command has two clauses: (i) “providing benefits”; (ii) “reasonable expenses”. [ERISA § 404(a)(1)(A)(i)-(ii)] Can a fiduciary properly balance a “providing benefits” goal of seeking an opportunity for better investment performance with a goal of not incurring expenses that burden participants’ accounts in the opposite direction? If, so what methods should a fiduciary use to evaluate how quickly the anticipated investment performance outweighs the incremental expense of announcing the new investment alternative?

Can you think of anything that would make it improper for an employer/plan administrator (for a calendar-year plan that routinely files its Form 5500 report in the second week of October) to combine ALL of the following notices to be sent in mid- to late November? Summary annual report + 404a-5 information + qualified default investment alternative + notice of safe-harbor matching or nonelective contribution / QACA EACA + notice of a change in investment alternatives + restated summary plan description Does any of these communications involve a requirement that it be separate and not "buried" with other communications?

GBurns, thank you for reminding us about this Office of Tax Analysis paper. While it describes some methods that the IRS could use to track from a business to one of its owners, and to find all businesses that tie to the same one owner, the paper doesn't really describe how the IRS would discover that two or more business organizations that don't have a majority owner in common nonetheless have sufficient common ownership among five or fewer persons that the organizations count as one employer. One wonders how recently a government agency has done a study on the number of organizations that have fewer than 50 employees. Even harder would be guessing how many of those organizations are part of an employer group that has 50 employees.

To define an employer that might have enough full-time-equivalent employees that it might incur a 'play-or-pay' excise tax on not offering health coverage, Internal Revenue Code section 4980Hc(2)C(i) provides that "[a]ll persons treated as a single employer under subsection (b), c, (m), or (o) of section 414 ... shall be treated as [one] employer." Imagine that there are six non-natural persons (a mix of S corporations, limited-liability companies, and limited partnerships) that are treated as one employer. None of these organizations uses a common paymaster or shares an EIN with any other. None of these organizations combines its Federal income tax return with any other. None of the five flow-through owners makes a personal income tax return with any other. Together, the six organizations have 73 full-time employees. But none has more than 14 employees. Corporation Alpha, which has nine employees, does not offer health coverage to anyone. (If it helps, organizations B, C, D, E, and F also don't offer health coverage to anyone.) Mary, an Alpha employee, gets a tax credit or cost-sharing reduction that subsidizes her Exchange-bought health insurance. Imagine that the Exchange application that Mary completed asked her for her estimate of how many employees her employer has, and she answered what she knew - nine. Unless the Internal Revenue Service has an amazing relational database, does the IRS lack a practical means to assess the excise tax in circumstances like these? Am I just being stupid, or is there a gap in the Government's ability to enforce the 'play-or-pay' idea?

Brian, your outline of the questions is on track; you or your associate need to step through the details of the facts to make sure that your thinking hangs together. Also, consider (if you haven't already done so) whether separating C from B-A affects any other employee-benefit plan that your client cares about. If after the changes C continues to participate in some A-B-C employee-benefit plan, does doing so make the plan a multiple-employer plan? If so, what consequences does that attract under ERISA and securities law? To improve your client's defense against an assertion that "a principal purpose" of B's and A's distribution of C's shares was "to evade or avoid [withdrawal] liability", try to find another economic purpose for separating the ownership of C from B-A. Perhaps the business of C is somewhat different from the business of B-A and so might attract different investors?

Yes, e-mail allows better targeting at lower expense. And I've even talked with some employers about changing a business so that every employee is required to use e-mail regularly in his or her essential job duties. But there remain some retirement plans with participants who aren't required to use e-mail on the job, and from whom it's difficult to get consent to e-mail for employee-benefits communications. For them, what mailing efficiencies should we consider?

Yes, only with proper tax reporting AND withholding. The once or twice I helped was many years ago, and many rules have changed since then. Among them, QDROphile points out that, following the 1992, 2001, and 2006 changes in the tax and rollover rules, a plan's administrator might consider restraint so that a payee can't effect a purported rollover that isn't eligible. Like many things in American business and legal life, it keeps getting harder to offer administrative convenience to a neighbor.

There is another way, if a plan fiduciary is open to taking some risk. A plan's administrator and trustee might be willing to pay the ultimate takers under a written agreement that those payments are a satisfaction of the plan's obligation to pay the estate. The agreement would include that satisfaction, releases, exoneration, indemnification, and other protections for the plan. I don't suggest even considering this unless: the plan administrator feels like helping meet the request; the plan administrator is regularly represented by its lawyer; the plan administrator's lawyer is comfortable with the requesting lawyer; the plan administrator is satisfied that the indemnitors (including the requesting lawyer) have, and will continue to have, more than enough assets to indemnify a complete loss and expenses; and there is almost no doubt about the correctness of the estate's personal representative's instruction about which persons do and do not get distributions, and what each's share is. I have done this once or twice when my client and I were comfortable with all of the people involved, especially the requesting lawyer.

Given the many regular communications that a retirement plan must send to participants, administrators are looking for opportunities to reduce the number of mailings - to get efficiences on the number of assemblies, and sometimes about incremental postage. (My query is about plans that can't meet the conditions for using e-mail as the exclusive or dominant form for sending a communication.) Do you think it makes sense to combine some communications for mailing efficiency? Would you combine ERISA 404a-5 information with some other notice so that both can go in the same envelope? If so, what other notices or communications are the logical candidates for that efficiency? In what ways do you manage cycles and timelines to make it feasible to combine communications for mailing efficiency? Does it make sense to delay a change in a plan's investment alternatives so that the announcement of the change can be related to a regularly scheduled 404a-5 mailing? In what situation would putting different communications into one mailing introduce a diseffeciency? In what situation would putting different communications into one mailing result in confusing participants and incurring expenses of responding to them that exceed the expense-savings of the mailing efficiency? Other practical suggestions?

Doesn't a typical volume-submitter plan allow a user to use a separate trust document?

Possibly to help pmacduff but also for a little learning among us, I'm interested in seeing what commenters think about two other ways that might resolve the situation. First, in my experience, even some duller lawyers can welcome an opportunity to spot mistaken advice and correct it. The weaker the lawyer's relationship with his or her client, the more it helps if the other practitioner helps the lawyer outside of the client's view, and allows the lawyer to control his or her presentation of the revised advice. (A decent lawyer will at least thank you, and a good lawyer will tell your client that it was you who saved them from the lawyer's mistake.) Second, a service provider's agreement often provides that the service provider is relieved from liability to the extent that the liability is caused or worsened by following the plan administrator's instruction. I've even seen such a provision state expressly that the service provider is relieved from liability even if the service provider actually knows that the plan administrator's instruction is wrong. For example, pmacduff might ask the plan's administrator to confirm in writing its instruction on exactly which participants to include in or omit from the group of highly-compensated employees for the coverage and non-discrimination test services that pmacduff performs. Many TPAs have told me that a contract provision about relief from liability for following instructions might work in a court of law, but won't work in the court of business reputation. They tell me that an employer/administrator expects its TPA to speak up and 'tell the emperor that he has no clothes on'. Is that your experience? If so, do you think that your client's expectation is fair or unfair? And do you worry that too often meeting such an expectation might make the service provider the plan's de facto administrator and so a fiduciary to the plan?

MoJo, thank you for the suggestion about a rollover to an IRA. But shouldn't the plan's administrator be concerned that the portion of the distribution that is a minimum distribution (in this case, all of it) is not an eligible rollover distribution? And thank you for the idea of the plan asking a court to appoint a conservator for the beneficiary.

Bird, you're right that finding the minor also tends to find an adult that the child lives with. But the plan's administrator anticipates a real likelihood that an adult that this minor lives with is someone who has no legal authority to act for the minor (and might prefer not to seek that authority). In some cities, tens of thousands of children live that way - often with a grandparent, other relative, or someone who had some connection to the deceased or otherwise unavailable parent, but frequently without any appointment that grants authority to act for the minor. If the many smart BenefitsLink mavens haven't figured out another solution, it seems that the risk of a foot-fault on the 401(a)(9) rule might be outweighed by the plan's need not to pay a distribution for which it wouldn't get a satisfactory release. Instead, the plan might simply preserve the account until a proper payee becomes available. Again, thanks everyone for the good suggestions.

Thanks, all, for the help. The circumstances are those that masteff describes. The participant was a young woman (who had no spouse). Because a distribution didn't begin one year after the death, the computer-system report flags this account as up for a distribution under the 401(a)(9) five-year rule. Would the can't-find-the-beneficiary idea work if the administrator finds the beneficiary but there is no guardian?

The plan's administrator would be glad to pay the beneficiary's guardian or conservator. But the plan's administrator has been unable to find any such person. The reason for searching court dockets was a hope of finding a guardianship proceeding or, failing that, an estate proceeding that might mention a name of someone who might be proposed as a guardian. All the searches came up empty. Again, even if the administrator finds an address for the child, that does not necessarily mean that we'll find a guardian, and the circumstances suggest that it's likely that the beneficiary is in the care of someone who is not her guardian.

Here's a puzzler for BenefitsLink mavens: A participant died about five years ago. A regular report designed to catch accounts that need a minimum distribution flagged this deceased participant's account as one that should be in the upcoming batch of required distributions. The problem? The participant's beneficiary is her daughter, who recently turned eight (if the birthdate in the recordkeeping system is to be believed). Worse, the plan's administrator already has done some fact-digging and has found the following. The apartment that the participant gave as her address now has as its occupant a person who is unrelated to the participant or her daughter. A search has not found any address for the beneficiary. Searches of court dockets on both the participant's name, her daughter's name, and their common surname did not find any proceeding. Even if a further investigation finds an address for the beneficiary, is it prudent to make the plan's single-sum distribution check payable to a beneficiary that the plan's administrator believes to be an 8-year-old? If that's not prudent, do you think that the Internal Revenue Service (on examination) would accept your decision to disobey the plan's terms?

mal, thank you for the helpful explanation. It shows once again how difficult it is for every practitioner to imagine every concern. So that I might learn some more, what is it about the group health plan's administration that would cause a healthcare provider to learn the identity of a person other than the covered beneficiary?

Yes, I do suggest that a system: warn a participant that a beneficiary designation, even if it does not currently require a spouse's consent, won't be effective if later there is a spouse. remind a participant - when the data sees the presence of a spouse - that a beneficiary designation not consented-to by the current spouse is ineffective. Along with these and other warnings, I envision a system that gets data feeds from the employer's health plan and all other employee-benefit plans and employment-related records. (If not data feeds, the employer that serves as the retirement plan's administrator should update the data frequently and regularly.)

How about the following as another possibility? The plan's administrator accepts a computer-entered beneficiary designation only if it provides 100% of the death benefit to the participant's spouse OR the system confirms that the participant does not have a spouse. If a participant has a spouse and wants to name a beneficiary other than his or her spouse, the administrator requires the participant to put ink on paper and do so in the presence of a notary. GMK is right to remind us that explaining to a court how a system works involves some expense. But in some circumstances, a prudent plan administrator might find that efficiencies from computer-system beneficiary designations outweigh the risk and expense. And at least one Federal appeals court has recognized that acts done using the participant's identifying information and password bind the participant. Foster_v_PPG_Industries.pdf