Peter Gulia

The attached court decision is about whether a child conveived after her biological father's death is his child. Although that decision is about Social Security benefits, one wonders whether health plans face similar or related questions. If so, does a plan document provide a useful definition about who is or was a participant's child? If not (or if the definition is ambiguous or incomplete), what steps does a plan's administrator take in using its discretion to interpret the plan? If the plan provides its benefit through a health insurance contract, does the employer punt these questions to the insurer? If the plan is "self-insured", does the employer check whether the stop-loss insurer would agree with the administrator's interpretation? Let's get the observations of the message board's readers and writers so that we can learn from one another. Beeler8thCir.pdf

At least for retirement plans sponsored by a smaller business, using plan documents to clarify which fiduciary must collect contributions isn’t likely to help much. If a bank trustee doesn’t assent to a duty to collect contributions, who’s left? One imagines that another writing won’t cause an employer organization or a natural person who is an owner of, or subordinate to, the employer to enforce paying over the contributions. But even if one believes that a plan amendment won’t help, a TPA or recordkeeper might prefer to inform plan sponsors about the Relius or Accudraft document: (1) Although enforcement is almost none, some service providers choose to be cautious in steering clear of the unauthorized practice of law. One reason for that caution is that, even in the absence of criminal or administrative enforcement, engaging in anything that a claimant (including its plaintiff’s lawyer) could describe as the practice of law increases the service provider’s exposures for civil liabilities. At least Florida’s supreme court has found that there is a range of allowable plan-documents practice for those who are permitted to practice before the Internal Revenue Service. But there are court decisions that support the idea that exercising discretion about which document to use, or about whether a document is or isn’t appropriate for a potential user, is the practice of law. Being able to say that you passed through every document that your Relius or Accudraft license made available might help defend against an assertion that you engaged in the practice of law. (2) When contributions go unpaid, participants sometimes sue the recordkeeper. When you’re defending such a lawsuit (or arguing why the court should dismiss it), wouldn’t you like to have more evidence that shows you reminding the employer about its fiduciary duties to pay over the contributions? (3) If your written or oral understanding with a plan sponsor includes a general sense that you’ll ‘keep the plan up-to-date’, how would you defend your decision not to furnish an available plan amendment? Some of the observations above mention a TPA’s or recordkeeper’s business expense, and there is always a business decision for you to make. But what if you can manage your incremental business expense so that it’s a dollar or two per plan (because you mail Relius’ or Accudraft’s materials with your short cover letter, and you don’t follow up on whether the plan sponsor completes an amendment)? Would a contained effort help you answer a ‘why didn’t you tell me’ claim?

Did the participant submit a claim for a distribution grounded on his severance from employment? If so, what taxpayer identification number did the claimant certify on his claim form? If the participant's account was credited with a few years' contributions, is the account balance small enough that the plan compels an involuntary distribution without the participant's consent? That some police believe that an arrestee or detainee used identification that was not his is not necessarily conclusive evidence for a retirement plan's administrator's findings (if any is needed). If a distribution, whether requested or involuntary, has become payable, what steps would a plan administrator use to collect evidence toward an evaluation of whether a name or taxpayer identification number certified to the administrator is false? One imagines that the name, TIN, and photograph or description were internally consistent when the employer processed the I-9 form. If a pending claim has no information that is inconsistent with the I-9 information, how would the retirement plan's administrator decide which information (if any) is false? The General Instruction about omitting a TIN if the payee did not furnish a TIN might be helpful. But the payer/reporter might consider getting its lawyer's advice about whether it is appropriate to conculde that the payee did not furnish a TIN. Moreover, if the plan's administrator also is the employer, it might want its lawyer's advice to consider its alternatives for tax-reporting the distribution in light of how the information relates to duties under other laws.

With 27 years' experience (including coaching nonlawyer financial-services people about how they meet the customer expectations K2retire describes), it's no surprise to me that many plan fiduciaries get almost all of their advice from nonlawyers. And I don't seek to change that. But because this bulletin board is public, I try to avoid stating a conclusion (even about a hypothetical set of facts). I don't want a reader to be able to allege (at least not credibly) that he or she relied on what I wrote in a public place. While I might choose to help practitioners toward the answers, I don't want the risk of burning time and money to get rid of a lawsuit.

ERISA 404© relieves a fiduciary from a loss that resulted because a participant exercised control in directing investment of his or her plan account. ERISA 404©(4) provides that a "qualified change in investment options" does not cause a participant not to have exercised control. ERISA 404©(4)©(i) states what information must be in the written notice that is one of the conditions for a "qualified change in investment options". Before getting into the content and timing requirements for the written-notice condition, the plan fiduciary will want its lawyer's advice about how likely it is that a court would agree with the fiduciary's finding that the replacement fund is "reasonably similar" to the replaced fund. As with any kind of ERISA 404© relief, ERISA 404©(4) does not relieve a responsibility for anything other than the "qualified change in investment options". A fiduciary will want its lawyer's advice about whether the plan and its administration meet the conditions for ERISA 404© generally and ERISA 404©(4) particularly.

Under ERISA 408©(1), it is not a prohibited transaction for a fiduciary to receive a benefit that is due to him or her according to the plan's terms. But if the payment described in the originating post was not a proper distribution (for example, because the participant had not retired or severed from employment, and that was the triggering condition under the plan's terms), consider that such a payment might be a prohibited transaction if ERISA governs the plan. The rules and consequences under Internal Revenue Code 4975 are somewhat different. Consider whether the plan's sponsor might have amended the plan before the questioned payment was made.

If the employer is insolvent, it might be reluctant to pay a lawyer, actuary, accountant, or other employee-benefits practitioner for advice about corrections or alternatives. Moreover, even if the employer pays a professional's fee, a practititoner might be concerned about the possibility that a bankruptcy or insolvency estate might seek some kind of claw-back.

Thank you!

Last week, the Financial Accounting Standards Board announced FASB's approval of a new accounting standard (not quite finished) for a little disclosure that might help a careful reader begin its own analysis about the business' exposure to liabilities that relate to a multiemployer defined-benefit pension plan's weak funding. Nowadays, many observers of accounting compare a U.S. standard to an international standard to consider how similar or different they are. What does international accounting standards call for to explain a business' exposure to liabilities that would result if an employer withdrew from a pension plan?

Even if one could be confident that no report is required, a report might nonetheless be permitted. Shouldn't a plan fiduciary want to file something (even if the information reported does no more than identify the plan and show, by context, the reliance on the FAB relief) because a filing might trigger the running of a statute of limitations or a statute of repose, or might support an argument that the plan's administrator acted in good faith?

Shouldn't such a plan's administrator prefer to file an annual report (even with some zeros) to show that it met the ERISA requirement?

I hadn't fully focused on the idea that someone who was INcluded might ground on a claim on the harm that results from getting more choice. Thanks again for helping me think about this.

Thanks for the help. By plan design, this employer means that the provisions about who may or cannot chosse the "brokerage-window" account are "hard-wired" in the plan document. Although a plan's administrator must act with prudence, a fiduciary does so in the course of administering the plan that it is given. And usually an administrator must administer the plan according to its documents unless a provision is contrary to ERISA. Although I don't like what this employer wants to do, I'm unlikely to persuade them unless I can describe a real risk of monetary liability. If an HCE who was denied the opportunity to direct investment using a "brokerage-window" account sues, what is her theory about why the plan's administrator (or any plan fiduciary) had a duty to disobey the plan's written provisions?

One criticism of these studies is that our public-policy interest is not only about those who make elective deferrals but also about those who, in the absence of an implied-consent enrollment, would not make any elective deferral. But another way to consider this strand of research suggests that we experiment with setting the presumed "default" elective deferral at a considerably higher rate. Setting too high a rate might lead some people to opt-out to zero. But we could gradually increase the "default" contribution until we reach the one that causes too much drop-off, and then we'd set the rate one step back.

My client is considering the following plan design. A "brokerage-window" account is an available investment alternative for ALL non-highly-compensated employees, and for those highly-compensated employees who hold the CFA (Chartered Financial Analyst) designation. Although it seems strange to look for a knowledge indicator but not require it for non-highly-compensated employees, the employer believes that this is necessary to avoid non-discrimination problems. Leaving aside any questions about the wisdom of this plan design, am I right in guessing that it does not raise a 401(a)(4) nondiscrimination problem because the only persons discriminated against are highly-compensated employees? Do you agree with the employer's view that 401(a)(4) constrains it not to impose the CFA condition on non-highly-compensated employees? Assume that in this employer's workforce about 40% of NCEs hold the CFA designation, and about 60% of HCEs hold the CFA designation.

Nassau, guessing that your purpose is to help the plan’s administrator, you might suggest that the administrator include in its information-gathering asking its lawyer for advice about whether a separated spouse is a spouse for survivor-annuity or spouse’s-consent purposes. At least a few courts have found that no matter how long a separation continues, a marriage does not end until a court orders the divorce. Example: In 1984, Barbara and Alfred separated. In 1986, Alfred sued for divorce. In 1991, Alfred died. A divorce had not been ordered. Despite seven years’ separation, Barbara was Alfred’s wife until his death. Although the plan had previously paid distributions, she was entitled to the survivor portion of the QJSA that would have been paid in the absence of her consent. Davis v. College Suppliers Co., 813 F. Supp. 1234 (S.D. Miss. 1993). Example: Ben married Wessie in 1954, separated from her in 1957, and lived with Adelaide until his death in 1989. The woman who lived with Ben for about 32 years got nothing, and the legal wife of about 3 years got all death benefits. Hernandez v. Igloo Prods. Corp. Retirement Plan, 868 F. Supp. 200 (S.D. Tex. Houston Div. 1994). Even a finding of fact that the spouse abandoned the participant is irrelevant. In re Lefkowitz, 767 F. Supp. 501, 508 (S.D.N.Y. 1991), affirmed sub nom. Lefkowitz v. Arcadia Trading Co. Ltd. Defined Benefit Pension Plan, 996 F.2d 600, 16 Employee Benefits Cases (BNA) 2516, Pension Plan Guide (CCH) ¶  23880Z (2d Cir. 1993). Other cases that involve “who’s the spouse” questions include: Grabois v. Jones, 89 F.3d 97, 20 Employee Benefits Cases (BNA) 1505 (2nd Cir. 1996); Central States, S.E. & S.W. Areas Pension Fund v. Gray, 31 Employee Benefits Cases (BNA) 1748, 2003 U.S. LEXIS 18282 (N.D. Ill. Oct. 8, 2003); Croskey v. Ford Motor Co.-UAW, 2002 U.S. Dist. LEXIS 8824 (S.D.N.Y. May 2, 2002). If a plan’s administrator makes a discretionary decision on whether a participant did or did not have a spouse, the administrator should follow ERISA’s claims-procedure rules, obtain information necessary to evaluate the claims and other questions presented, obtain and consider its lawyer’s advice, compile a sound administrative record, explain its decisions, and further act with care so that a court may defer to the administrator’s decisions. See, e.g., Blessing v. Deere & Co., 985 F. Supp. 899–907 (S.D. Iowa 1997). Please understand that the information above is general and is not advice to anyone. Also, I haven’t checked it recently.

The rules for tax treatment as a qualified plan suppose that a participant's benefit or allocation must be determinable, and that a plan's administrator administers the plan according to the written plan. An implication of the IRS corrections described in the preceding posts suggests that a plan that was operated consistent with then-apllicable tax law but, at least on some points, contrary to its document can be made okay. And for a provision that isn't yet required to be stated in the form of a plan amendment or restatement but is put into effect "in operation", doesn't this way of doing things require a plan's administrator to ignore the written plan? If the IRS's playbook tells us that it's okay to ignore the written plan whenever the IRS finds that it is or was too inconvenient to have put the plan in writing, what is left of the idea that a plan's administrator administers the plan according to the written plan?

But, since President Carter's 1978 reorganization, the Treasury department lacks power to decide a prohibited-transaction exemption.

Gary, a quick look at EBSA's webpage on class exemptions does not show an update PTCE 93-1. http://www.dol.gov/ebsa/Regs/ClassExemptions/main.html Here's the more important question: Why does this broker-dealer think that, after it makes its profit margin of 20% or more, its excess compensation will still be enough that the b-d can afford to pay up $500 for opening an account?

Belgarath, thank you for suggesting the idea of a TPA or recordkeeper paid by the plan's sponsor, rather than directly or indirectly from the plan's assets. It's been so long since I've seen that arrangement that I had simply forgotten about it. On my hypo, an insurance agency might escape ©(1)(iii)(A)(1) if it is careful enough to avoid becoming a fiduciary, but might be covered under ©(1)(iii)© if its selling is treated as an insurance service. Neither that bit nor the lead-in says that a service is limited to a service provided to the plan or its fiduciary. Arguably, a service provided only to the insurance company might nonetheless be a covered service.

What about an insurance agency that provides no service other than persuading a retirement plan to buy a group variable annuity contract; covered or not?

Looking at the new "compensation disclosure" rule and considering its definitions that provide many ways that one can be treated as a covered service provider, I'm wondering whether much of anybody is not so covered. Thinking about the usual players that serve a 401(k)-style retirement plan, is there anyone that (leaving aside the possibility of compensation less than $1,000) is NOT a covered service provider?

As part of an effort to set domestic workers as not employees, sometimes a service recipient makes sure that the agency not only has full legal rights and obligations to control the workers' performance but also in fact visibly exercises those controls and sometimes rotates the worker assigned to a job. To return to ERISA13's query, it would be nice to learn whether any BenefitsLink reader has had any experience with implementing a qualified plan for a household employee.

Internal Revenue Code section 4972©(6) makes it possible. But I haven't seen it done because the people I know who use domestic help set up arrangements designed to support a position that the worker is not the service recipient's employee.

Chaz and David Rigby, thank you for helping me think this through. The national multiemployer health plan is "self-insured" - that is, the plan pays benefits from the plan's assets without regard to an insurance contract. My dim understanding of labor-relations law is that when bargaining parties do not agree enough to conclude a written collective-bargaining agreement they may nonetheless put into operation those terms (if any) that the parties agreed on and the employer's last offer. In the hypothetical circumstances, the employer believes that it was and is obligated to contribute to the LOCAL health plan at rates ageed in a written memorandum of understanding.