Peter Gulia

Again, thanks for helping me. I told the inquirer no more reasoning than that I don't like the smell. The inquirer decided that it need not act as a fiduciary in doing the settlor act of deciding the plan's provisions. From my smell advice alone, the inquirer decided to provide QDRO distributions for ALL alternate payees without regard to the participant's severance or age. (So no worry about whether a dependent was deprived of something because of his or her lack of resources.) But here's the employer's next question: Is there any reason why it cannot or should not amend the plan to get rid of all forms of distribution other than a single sum?

Thank you all for your help. When I was asked about this (and I haven't yet answered the inquirer), my initial reaction was similar to what Belgarath describes. However, the inquirer (an employer that has the usual roles of sponsor and administrator) explained that the purpose is to get the set of QDRO provisions that results in the least plan-administration expenses. Moreover, the inquirer explained that this matters because the plan (not the employer) pays the plan's expenses; there are unusual volumes of not only QDROs but also failed QDRO attempts; and it is impractical to allocate all of the QDRO-administration expenses to the accounts of the participants and alternate payees involved, resulting in some expenses being charged against all individual accounts (including participants who generate no QDRO activity). While I worry that the provision doesn't seem even-handed, the inquirer's view is that ERISA section 206(d)(3)(E)(i)(I) {Internal Revenue Code section 414(p)(4)(B)} gives a plan settlor a choice between providing for a QDRO distribution before the participant's earliest retirement age or not so providing. And the inquirer doesn't see on the face of the statute anything that requires a plan settlor to make that choice the same way for all QDRO distributions. If the only reason I can give for not writing the provision is my nose test, I can go with that. But it would be nice to have a little more detail. Any further ideas from the BenefitsLink mavens?

May an individual-account retirement plan provide that a QDRO distribution to an alternate payee is permitted before the participant's earliest retirement age IF the QDRO provides its distribution to the participant's spouse or former spouse, BUT also provide that a QDRO distribution before the participant's severance from employment or age 50 is NOT permitted if the distribution would be payable to the participant's dependent (including the participant's spouse or former spouse as a fiduciary for a dependent)?

On draper1's hypothetical, consider the possibility that the decedent's obligation to serve as the plan's administrator might have become the obligation of his or her estate. If so, the estate's personal representative should administer the plan, or should appoint someone to administer it. Also, if it happens that such an estate's personal representative and the participant's beneficiary are the same person, he or she might choose between a termination and continuing to administer the plan until the beneficiary chooses or is required to take a distribution.

rcline46 is wise to remind us that those who enforce fair-competition laws (and others) might pick up on an Internet conversation. But consider that much of the information might be readily available. One might ask people among your family and friends to share with you the summary plan description, summary of material modifications, 404a-5 information, and other disclosure documents they received from other retirement plans. You might want to study how different sets of lawyers and businesspeople solved the same exercises. Along the way, you'd see some descriptions about how plan-administration expenses are allocated to an individual's account.

If the employer does not volunteer to pay the plan's administration expenses and the plan's administrator has adopted a written procedure for charging the expenses of locator efforts to the account of the individual to be located, should it be prudent for such an administrator to omit using a locator service if the expense of it is more than (or equal to) the individual's account balance?

While MoJo describes an additional reason why a plan's administrator might decline to reinstate a participant's account, it seems to me that the court's opinion squarely supports a view that - even in the absence of any conspiracy or collusion - neither the plan nor its administrator is responsible if the administrator designed and operated prudent identity and security procedures. As a part of an explanation that its efforts to seek a return of the plan's money are enough to be prudent in the circumstances, an administrator might support its decisions with its finding that the plan might encounter difficulty proving the theft. In the absence of the thief's admission, some circumstances might involve inconclusive evidence that the human who caused a few sets of digits to be received by the plan's computer was anyone other than the participant. Moreover, even with solid proof of what happened, a plan's administrator, trustee, or other fiduciary might decide that prudence calls for not spending other participants' accounts to pay for a still uncertain opportunity to obtain an uncertain recovery. I think that the court's reasoning would support similar findings that the plan's administrator is not responsible in other situations, including Mojo’s moving-out example (whether selling a house or ending a rental). Is it unfair to make a participant responsible for controlling his or her address and changing his or her password?

The attached court decision found no responsibility to reinstate a 401(k) account that an ex-wife stole from her former husband. The participant neglected to change his address in the plan's records when he moved from the marital residence. The ex-wife used a plan mailing with information about identity-control procedures to change the participant's password. Comments? Foster_v_PPG_Industries.pdf

This is a good illustration of why ERISA ought to require that all fiduciaries, including a plan's administrator, ought to be independent of the plan-sponsor employer.

If your client’s only purpose is to satisfy an IRS reviewer, consider simply deleting the plan’s definition for spouse. In the absence of a special definition, the word means what it means in context. For a provision that’s in the plan because a tax-qualification rule requires it, a use of spouse means what it means according to the relevant statute. To the extent that 1 U.S.C. § 7 applies, it affects every Federal statute’s use of spouse.

Read Revenue Rulings 68-123, 77-290, 83-126, and 83-127. Based on this and anything else that you and your lawyer find, consider whether the compensation is or is not the nun's income for Federal income tax purposes. If it is not (and there is no other compensation), ask for your lawyer's advice on whether it might be a good-faith interpretation to not count the nun in either part of the fraction or ratio.

Even if relevant law does not require plan provisions about insurer refunds, might we prefer plan document provisions so that deciding what to do with dividends, demutualization proceeds, medical-loss-ratio rebates, and similar payments need not be a discretionary decision? If so, can a plan provide that all such payments belong only to the employer?

shERPA's observation reminds us of one of the soft spots of the rules for a hardship (or unforeseeable-emergency) distribution - recognizing that the fungible nature of money can interfere with distinguishing between allowed and unallowed purposes and how they affect a participant's claim to use her retirement account. A plan's administrator sees the claim before it, but ordinarily lacks information on the complete picture of the participant's uses of money. A participant who submits an unpaid bill for something that the plan recognizes as a hardship might have used up money that could have gone toward that unpaid bill on paying for something that the plan does not recognize as necessary. But it's the administrator's job to apply the plan's terms to the claim that is submitted.

Here's what 403(b) Answer Book says: Q 6:30 How may a state retirement system fund be a Section 403(b) investment? An investment under a state teachers' retirement system generally is not a permitted Section 403(b) investment. Likewise, an investment under a separately funded employee retirement reserve governed by the state insurance department's supervision generally is not a permitted Section 403(b) investment. [Rev. Rul. 82-102, 1982-1 C.B. 62, revoking Rev. Rul. 67-387, 1967-2 C.B. 153; Rev. Rul. 67-361, 1967-2 C.B. 153] But a contract under a plan that was established on or before May 17, 1982 in good-faith reliance on either of the revoked rulings may continue to cover those participants covered on May 17, 1982 if the plan and the investment meet all conditions required by current Treasury regulations. If either transition rule applies, the contract may continue to cover those participants covered on May 17, 1982, including “an employee who becomes covered for the first time under the plan after May 17, 1982.” [Treas. Reg. § 1.403(b)-8©(3)] As Tom Geer notes, a question about what investment is or isn't permitted is separate from a question about which person may administer a 403(b) plan. As Matt Bozek observes, section 1.403b-3(b)(3)(ii) is mostly about restraining a plan's documents from allocating to each participant alone responsibility to administer the plan. Any non-natural person that considers whether to accept an appointment to serve as a plan's administrator should get its lawyer's advice about how non-tax law might affect the service. To return to what I suspect was joel's original inquiry, the Internal Revenue Code does not preclude a State government agency from arranging a 403(b) plan for those State and local government employees who are public-schools employees (if the arrangement is proper under State law). If the transition rule described above does not apply, the arranger would limit the investments to annuity contracts and custodial accounts that hold regulated investment company shares.

Given the difficulties and frustrations that several posters have described, another step that a TPA might consider to protect itself is to make sure that its service agreement with the plan or its administrator does not obligate the TPA to furnish anything beyond what the TPA has received from the insurers and investment funds. It's not a wholly satisfactory solution. (We recognize that, no matter how clearly and loudly a TPA warns an employer and plan administrator about what services are not included, it's impossible to control what a plan's administrator wants.) But when a client or customer is upset about what didn't get done, it's still better to start that conversation without worrying about the TPA's contract responsibility or other liability.

On #2, the rule puts the duty on the plan's administrator. (That was a change that commenters on the proposed rule requested.) Paragraph © recognize that a plan's administrator may designate a person to act on its behalf in furnishing the information. However, if such an agent doesn't do what's required, the plan's administrator remains responsible.

I consider unwise some of the choices that EBSA made about which pieces of information to present (for all investment alternatives). And the rule's analysis and writing quality isn't 'A' work in very respect. But the reg writers did consider differences between SEC-registered and unregistered investments. For a few of these points, the rule includes specific provisions, and others show clear recognition of differences for unregistered funds. The rule's preamble explains the Labor department's reasoning for seeking symmetry between registered and unregistered investments. Moreover, the ERISA rule doesn't always give in to the securities-law way of doing things, sometimes requiring (for all investment alternatives, including registered investments) that information be presented differently than what securities law calls for. It might be work for trustees who are not in the business of being trustees to pull together the information to be disclosed. But if a plan asks a participant to choose between a trustees-managed fund and other funds, shouldn't a participant get the same base information on every investment alternative so that one could make an informed choice?

On #1, while I don't give advice, let me suggest a way that you and your lawyer might think about it. If the menu of mutual funds has 17 funds, the plan you've described has 18 investment alternatives. The one investment alternative that is not a registered investment company happens to have the plan trustees as its manager. The "pooled account" seems to be within the rule's definition: "Designated investment alternative means any investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts."

alisonr, it's not clear whether you advise the claimant or the plan's administrator, but either way you might consider giving advice about the plan's claims procedure and the effects of it. For the claimant, working with the claims procedure might be an opportunity to find out what evidence would satisfy the plan's administrator. Or if the administrator's decision doesn't change, exhausting the plan's claims procedure (including all reviews and appeals) might be a condition that must be met before a court would consider a claim for the benefit. For the administrator, using the claims procedure might be an opportunity to double-check the soundness of the decision. And if an administrator has a correctly designed claims procedure and has used it properly and fairly, courts usually defer to the administrator's decision. On the underlying question, what explanation did the decision-maker furnish for why it believes that the evidence the claimant furnished is insufficient to prove the marriage?

By the way, I've been successful in making a bank that received a payment eat the fraud loss if the bank lacked good evidence that the receiving account belonged to the plan's payee, or lacked good evidence that the purported account holder is the same person as the one who opened the account.

How does the plan's administrator know that it was not the participant who changed the banking information? Is there any independent evidence to corroborate the participant's description of what happened? I imagine that the recordkeeper's computer knows that the participant's identity credentials were used, but doesn't know which human caused those digits to become entered into a computer. Or is there more to the mechanics than I know about?

For withdrawal-liability purposes, courts have interpreted ERISA section 4201's (29 U.S.C. 1381) use of the word “employer” to extend far beyond the particular business organization that had an obligation to contribute to a plan. In addition to looking to common-control and affiliated-service-group concepts, courts interpret the word “employer” considering alter-ego, veil-piercing, fraudulent-transfer, and similar theories. And as you already knew, ERISA’s withdrawal-liability part expressly provides: “If a principal purpose of any transaction is to evade or avoid liability under this part [ERISA §§ 4201-4225], this part shall be applied (and liability shall be determined and collected) without regard to such transaction.” ERISA § 4212©, 29 U.S.C. § 1392© (emphasis added). Keep in mind that a business or other person asserted to be part of the employer has to fight the battle with some extra disabilities: ERISA/MPPAA's pay-first, dispute-later rule; arbitration before an arbitrator who's not required to explain his or her decision with a reasoned written opinion; and the reluctance of a Federal court to consider a case until after arbitration is exhausted. That said, there are some opportunities for planning an acquisition to eliminate or reduce the risks. I don't want to discuss them in bulletin-board format, but jpod you're welcome to call me.

Depending on the provisions of earlier documents, it's possible that a pension plan amendment might be another settlor act. See generally Lockheed Corp. v. Spink, 517 U.S. 882 (1996); Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73 (1995); Walling v. Brady, 125 F.3d 114 (3rd Cir. 1997); Pope v. Central States, Southeast and Southwest Areas Health and Welfare Fund, 27 F.3d 211 (6th Cir. 1994); Hartline v. Sheetmetal Workers' National Pension Fund, 134 F. Supp. 2d 1 (D.D.C. 2000). However, one wonders what grounds or mode of analysis trustees could have for saying that a plan amendment was a "business" decision. Who or what authorized a trustee to act as a principal or agent to make a business decision about a worker's compensation or an employer's obligation? But if the trustees act within a current plan provision that grants the trustees discretion concerning whether to admit or refuse a participation agreement, exercising that discretion would seem somewhat likely to be a fiduciary function.

Mr. Ecklund, I'd be interested in your thoughts about a follow-on question: Imagine that - before the union's decertification and before the current collective-bargaining agreement expires - the employer proposes a participation agreement that would obligate the employer to pay the multiemployer pension plan enough contributions on enough employees and shifts so that a withdrawal would not be triggered. In evaluating whether to accept or decline the proposed participation agreement, do the plan's trustees have a fiduciary duty to evaluate whether the contribution obligation or the withdrawal liability is in the plan's best interests? If so, what facts and circumstances should the trustees consider to evaluate which right is better? Is it as simple as taking whichever right seems likelier to reduce (or at least not worsen) the plan's under-funding? If triggering the withdrawal would result in the bigger, longer, or more certain right for the plan, may the trustees nonetheless choose the employer's continuing participation if the trustees find that not keeping the employer in the plan would lead to an implosion and mass withdrawal?

austin3515, let's accept your premise that many independent qualified public accountants do a good job; but let's seek to learn a little more. The weakness that I sometimes worry about with a limited-scope audit is that the readers of the CPA's report don't get the CPA's opinion that the plan's financial statements are fairly stated, and so don't get the implied assurance that the plan's true assets are not materially MORE than what is shown. What audit procedures does a CPA perform to consider whether the plan might own assets beyond those that the trustee and plan administrator reported? If the CPA is engaged to do a full-scope audit, would those 'completeness' procedures be more (or more likely to detect what's missing or inconsistent)? Even if those 'completeness' audit procedures for a limited-scope audit are no less than those audit procedures for a full-scope audit, does the plan that receives a limited-scope report get less practical "insurance" because it's more difficult to state the malpractice claim if no opinion was delivered?