Peter Gulia

I’d like to know what BenefitsLink mavens think about the following hypothetical snafu: For decades, an employer’s collective-bargaining agreements provided for contributions to a multiemployer health plan tied to the union local. (Although in formal terms the plan has two slates of trustees – elected from employers and from the union, in practical operation the union local’s staff runs the plan; and the union local’s chief makes the plan’s coverage-buying and management decisions.) For decades, the employer has regularly paid contributions to the local health plan. In the most recent collective bargaining two years ago, the parties bargained to impasse. The employees have continued to work. The employer has continued to meet all obligations that it agreed to in the incomplete collective bargaining along with all obligations of the expired collective-bargaining agreement that were not displaced. Among these obligations, the employer has continued to pay its contributions to the local health plan. Several months AFTER the collective bargaining ended, without the employer’s consent or involvement, the local health plan arranged to get coverage from a national multiemployer health plan. The employer signed nothing. All enrollment forms were signed only by the employee, with nothing written by the employer. Although some employees pay contributions (if the “premium” for his or her coverage is more than the amount that the employer is obligated to pay), the employer has no involvement concerning those payments. The employer has never agreed to a dues check-off or wage deduction for any purpose. After the local health plan switched coverage, the union local’s agent requested a few times that the employer sign the national health plan’s participation agreement. The employer declined to do this. The employer believes that it never agreed to become a participating employer under the national health plan, and that it never agreed to do anything other than pay an amount of money to the local health plan. This absence of a participation agreement now seems to be at a boiling point. The national health plan has informed the local health plan that, if the desired participation agreement is not received by a due date that the letter specifies, the national health plan will end coverage for the employer’s employees (and their spouses and dependents). If it matters to our thinking, the documents of the national multiemployer health plan make clear that the plan is not insurance. (Although to participants the plan looks like mainstream PPO health insurance with big insurers, those insurance companies provide only administrative services.) The local multiemployer health plan’s most recent Form 5500 reported the plan’s arrangement with the national plan as though the arrangement were insurance. Its preceding year’s Form 5500 reported that the plan bought coverage from a health maintenance organization. If the national health plan ends its coverage, am I right in guessing that the national health plan does not provide COBRA continuation coverage because the loss of coverage would not have resulted from a termination of employment or reduction in hours? Assume that the employees continue to work at least full time and work all regularly scheduled shifts. If the local health plan ends its coverage, is it likewise so that the local health plan does not provide COBRA continuation coverage? The employer’s obligation to pay contributions to the local health plan was grounded on a natural understanding that the local health plan would provide coverage to the employer’s employees. If the employer knows that coverage is not provided, must the employer nonetheless continue to pay its contributions? Assuming that the national plan’s fiduciaries lacked express knowledge that a group of employees had been enrolled despite the absence of the employer’s participation agreement, do the fiduciaries have any responsibility for suddenly ending coverage after having allowed the situation to continue for a year and a half? If, because of these circumstances, an employee lacks any health coverage and has an expensive hospitalization, could the employer or the union local be liable for those uncovered expenses? Does the employer have any legal responsibility to help its employees get health coverage? The employer might feel a moral responsibility to help its employees get other health coverage if the employer can do so without violating any law. If the employer wants to help its employees get coverage through means other than multiemployer health plans, is there anything that the employer can do? Or does labor-relations law preclude the employer from communicating with the employees other than through their bargaining representative?

The plan's administrator might consider whether its duties include a duty to obey the plan's terms (to the extent that the plan's terms are not contrary to applicable law). Also, some plan administrators might correct an election if the participant shows that a failure to meet a due date resulted from the participant's physical or mental disability. In the absence of such a disability, a plan's administrator might evaluate carefully - especially if applicable law includes a fiduciary duty of impartiality - whether and why it should afford relief to a participant who failed to meet a due date that others were bound by (and met).

Does the West Virginia statute or other law really restrain the payment, or is it rather a restraint on the payee's deposit or negotiation of a payment? If the retirement plan is administered by a State or local government official, does West Virginia law permit the official to ask for the Attorney General's advice? On the idea you describe about paying for the services of a distributee's conservator, one wonders whether citizens might question such an expense as possibly an inappropriate use of the State's or its political subdivision's resources? Or if the plan might bear such an expense, one wonders whether the plan's participants might question the expense? Although a plan fiduciary might have some duty of obedience to administer a plan according to applicable law and the plan's terms (to the extent that the plan's terms are not inconsistent with applicable law), such a duty might have some room for recognizing duties to incur only those expenses that are no more than what is necessary and proper to administer the plan. Of course, this isn't advice, bur rather some partial suggestions about how one might prepare to seek advice.

Christine, as I read the Bulletin’s key condition, it is that the contract rights against the insurer are legally enforceable by a participant without involving the employer. I don’t read the key sentence as requiring that the insurer’s rights against the group holder (if there is one) or against a participant – or, differently stated, the group holder’s or a participant’s obligations – must be enforceable by the insurer without the employer’s involvement. To use one of your examples, that an employer might choose not to get involved in whether a participant takes a minimum distribution does not impair a participant’s right to take a distribution (if he or she otherwise is entitled to it). The second contract provision you quoted could be troublesome if a plausible interpretation of it (considering the whole contract) is that the insurer is not obligated to pay a benefit unless the plan administrator has confirmed to the insurer that the benefit is correct under the plan. If such an interpretation is correct, that would mean that a participant acting alone could not enforce his or her contract rights. However, some 403(b) insurers purport to “require” a plan administrator’s decision even in circumstances for which the “requirement” cannot be a correct reading of the annuity contract.

Nassau, your starting point might be to consider carefully which person is your client, and perhaps more importantly, who is not your client. For example, if your client is the plan administrator’s recordkeeper, it might have nothing to consider until an instruction is submitted to it. Or if your client is the plan’s administrator, it might have nothing to consider until it has received a claim to approve or deny. (Your description of the hypothetical facts suggests that the participant is not your client.) If a need develops, read carefully all of the plan’s documents. That the participant’s account balance is more than $5,000 does not, by itself, require a qualified election. An individual-account (defined-contribution) plan might provide a 100% death benefit to a surviving spouse, and following this might not require a qualified election for a retirement distribution if the participant cannot or does not elect that it be paid as a life annuity. See ERISA § 205(b)(1)©. If an ERISA-governed plan (as applied to the participant’s claim) ordinarily requires a spouse’s consent to complete the participant’s qualified election, only three possibilities would excuse the spouse’s consent: (1) there is no spouse, (2) the spouse cannot be located, or (3) the spouse’s consent cannot be obtained “because of such other circumstances as the Secretary of the Treasury may be regulations prescribe.” ERISA § 205©(2)(B). (That third category might apply only if the rule is not contrary to the United States Constitution and otherwise is valid law.) Concerning whether there is a spouse, at least one court found that even a finding of fact that the spouse had abandoned the participant would be irrelevant. In re Lefkowitz, 767 F. Supp. 501, 507-508 footnotes 11-12 (S.D.N.Y. 1991), aff’d sub nom. Lefkowitz v. Arcadia Trading Co. Ltd. Defined Benefit Pension Plan, 969 F.2d 600, 16 Employee Benefits Cas. (BNA) 2516, Pens. Plan Guide (CCH) ¶ 23880Z (2d Cir. 1993). On the idea that a participant’s spouse “cannot be located”, at least one court decision suggests that an administrator, to meet its fiduciary duties, must not simply accept the participant’s statement, but instead must do something independently to evaluate whether the spouse can be located. Lester v. Reagan Equipment Co. Profit Sharing Plan, 1992 WL 211611, 1992 U.S. Dist. LEXIS 12872 (E.D. La. Aug. 19, 1992). If the third class of possible excuse from requiring the spouse’s consent might apply, a possible excuse might be as follows: Q-27: Are there circumstances when spousal consent to a participant’s election to waive the QJSA or the QPSA is not required? A-27: Yes. .... Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. 26 C.F.R. § 1.401(a)-20 Q&A 27. A lawyer who advises a plan fiduciary might consider advising her client that – while it might be proper to furnish information that the participant needs to understand the plan’s provisions – it is unwise for the fiduciary to attempt to advise the participant. Along with several other reasons, an act, even one that is obviously sound and in the participant’s interests under the terms and related law of the employee-benefit plan, could disadvantage other rights and interests of the participant. The above suggestions are no more than a few incomplete ideas about how a lawyer might prepare to consider her client’s questions; and this is not advice to anyone.

If a designer seeks to allow different investments for a highly-compensated employee, what about this: A plan that includes non-highly-compensated employees and some highly-compensated-employees provides participant-directed investment. The separate plan for the differently-investing highly-comjpensated employee does not provide participant-directed investment. Can this work, or is it too clever? Could the IRS argue that the opportunity not to be burdened by a duty of participant-directed investment is a right or feature not available to the non-highly-compensated employees?

If EBSA's investigator suggests that the former trustee might benefit from a separate lawyer's advice, that's an idea that the former trustee should consider quite carefully. And everyone on the scene should consider the several possible implications of the investigator's suggestion. Without knowing the facts of the situation (and you're right not to describe them on a public bulletin board), I won't pretend to say what's at stake. But it's easy to imagine that there are stakes, and that there could be differing interests.

Without considering whatever might or might not be required by law, I've never heard of an EBSA Investigator attempting to deny anyone an opportunity to get the advice of his or her lawyer. In my experience, an EBSA Investigator who has been informed that an interviewee is advised by a lawyer usually is cooperative about scheduling to meet the lawyer's reasonable availability. About the former trustee you describe, you and your lawyer might consider the possibilities that such an interviewee might choose the plan's regular counsel (if that lawyer is available and willing to so serve), or might choose a different lawyer. Because of possibilities for differing interests among the plan, all or some of the current trustees, and all or some of the former trustees, using a separate lawyer is something that a smart interviewee might at least consider, or even insist on.

It seems at least possible for a governmental employer to maintain a SEP with contributions other than salary-reduction contributions. If you need or want the details, check with the top expert, Gary Lesser, or buy his SIMPLE, SEP, and SARSEP Answer Book (which also advertises in BenefitsLink). And in thinking about rules against pay-to-play, don't limit your vision to the Federal Investment Advisers Act rule. The IAA does not supersede or preempt State and local laws that regulate lobbying and political activity (rather than conduct as an investment adviser). Almost all States, many municipalities, and some retirement plans have State and local laws that impose consequences on political contributions that, directly or indirectly, could benefit those who could influence a retirement plan's selection of a service provider.

At least under the 1974 law, the EBSA staff people - even in unofficial Q&A sessions - decline to say much about how an employer would find whether an employee is literate in another language but not in English. Although an employer might (or might not) be aware that its employee speaks another language, it much less often knows that an employee reads another language and does not read English. At least unofficially a staff person has suggested that, if plan assets would bear either expense, an employer might consider whether volunteering some foreign language assistance is less expensive than finding out who is literate in a foreign language but not in English. See Q&A 20 http://www.americanbar.org/content/dam/aba...uthcheckdam.pdf

Because BenefitsLink is a publisher, it's smart to be respectful of other publishers' property and rights. On posting (rather than linking to) an article or other publication, perhaps BenefitsLink should limit that to a short excerpt that is within fair use under U.S. copyright law. http://www.copyright.gov/fls/fl102.html Another use that BenefitsLink might permit is if the poster is the author and still owns the rights.

Even if the plan's purchase of the real property might not be a prohibited transaction, the plan's later sale to the trustee's wife (whether directly or indirectly through a strawman) would be. (For a plan not governed by ERISA, the citation is Internal Revenue Code 4975.) But if the trustee wants to buy and later sell this property, it's a straightforward matter to get an individual prohibited transaction exemption. An exemption would require, among other conditions, using an independent appraiser or valuation expert so that the plan sells at the correct fair market value price.

JBones, could it be as simple as asking the plan's sponsor to amend the plan, with retroactive effect, so that all documents are internally consistent?

Nassau, you didn’t quite say whether the person who might be an agent for someone was the participant/decedent’s agent or is the named beneficiary’s agent. If the participant named an agent, the agency ended with the principal’s death. If the agent is the beneficiary’s agent, what might the agent hope to do with whatever power the retirement plan might recognize? Has anyone filed a claim? Or is there perhaps nothing that now needs the administrator’s decision?

Leaving aside any question about what the payroll service did or failed to do .... Before considering any potential correction, the plan's administrator and the employer (are those the same corporation?) might prefer to evaluate whether there was or remains an error. For a participant who expressed his or her elective-deferral amount as x% of compensation, what (if anything) did the salary-reduction agreement say about what measure of compensation the x% is applied to? If the form said nothing on that point, should the salary-reduction agreement be read in context with the plan? Among the plan's several definitions of compensation, how does the plan define accrual compensation? And does the plan's provision for elective-deferral contributions (or limits on them) say anything about whether they're counted in relation to accrual compensation? Even if the x% should have been measured on compensation before the contributions for health (includling dental) insurance, did the employer and an affected participant, by conduct, change the salary-reduction election? Although a plan, summary plan description, and sra form might describe a method for changing an elective-deferral election, did the documents restrict changes to only the method described? If not, did a participant - by his or her conduct of accepting more pay without complaint (and perhaps adopting plan account statements that reported the lower contributions) - adopt or ratify a change of his or her elective-deferral election? (That view might be stronger if there are several writings, including pay confirmations, that show the revised amounts.) Although a State's wage-payment law (if not preempted by ERISA) might preclude a wage deduction that is more than what the employee authorized under the kind of writing required by the wage-payment law, the State law might not preclude a wage deduction that is less than what that writing authorized. When a situation of this kind is discovered in January or February, some practitioners suggest that a plan's administrator and employer wait for the employee's reaction to his or her W-2. If there is a complaint, respond to it. If an employee does not complain, that might be some further evidence that he or she assented to the contributions that were made. Of course, these are only practitioner-to-practitioner ideas (not advice), and each person should get the advice of his, her, or its lawer.

Last year I handled an EBSA investigation that, after my first letter (which set up my role as the target's attorney), was conducted entirely by e-mail. However, for beginning a response to an investigation, it's good practice to confirm, with the right supervisor or director and independently of the investigator who presents himself or herself, that the chain-of-command has authorized the investigation or inquiry. And you want to find out whether it's a P-53, 43, 47, 48, 52, or some other track. For a Benefit Advisor's easy Benefit Assistance inquiry, one might use less formality (but not for anything that poses a security or privacy risk).

The concerns about keeping clear of prohibited transactions and of disclosing that the plan trustees must not allow obligations to bondholders to impair their undivided loyalty to the plan seem much smaller than wondering who would invest in the bonds of an issuer that lacks sufficient power to increase the issuer's revenues.

Even if a debtor's retirement plan benefit is not excluded (as not property of his or her bankruptcy estate), a benefit can be exempt if it is "[r]etirement funds [sic] to the extent that those funds [sic] are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986." 11 U.S.C. 522(d)(12) [attached]. USCODE_2009_title11_chap5_subchapII_sec522.pdf

ERISAatty, if you'd like my help in thinking through your situation, please feel free to call me. I'm reluctant to discuss my observations on this practitioenrs' bulletin board because EBSA staff lawyers are among the readers.

For plan years that begin on or after November 1, 2011, the administrator and other fiduciaries of an individual-account retirement plan that provides participant-directed investment must see to it that participants (and those beneficiaries and alternate payees who are directing persons) are furnished sufficient information for them to make informed decisions. This disclosure is required (under an interpretation of fiduciary duties under ERISA 404(a)) even if none of the fiduciaries wants the protection of ERISA 404©. What are the essential differences (if any) in the disclosures required under these two rules? Is there ary disclosure required for protection under the 404© rule that is not required under the 404(a) rule?

Thanks for the help. And it is interesting that the promoters of the "Fiduciary Warranty" are some of the same insurance companies that also are deffendants in the undisclosed revenue-sharing and hidden-fees complaints.

ERISAatty, if your inquiry is about an existing deferred compensation plan or agreement, look at what that contract language says, and if it's not there consider what the relevant law of contracts is. When I advise an executive who is negotiating her deferred compensation, I sometimes advise that she insist on a clause affirmatively stating that her counterparty cannot assign any right and cannot delegate any performance. Rather, the contracting parties may change a right or obligation only under a complete novation. Admittedly, asking for a nondelegation provision isn't exactly necessary, because a delegating party remains liable for the performance delegated. See Restatement (Second) of Contracts section 318 (1981). But sometimes it helps to put the text in the contract: if the employer might imagine anything of the kind you've described, an express provision might remind the employer about the obligations before the executive would have to "go to law" to enforce the promises due her. If you advise the employer, consider that a delegation, even if not precluded, does not end the delegating party's obligation of performance (that is, the obligation to pay the promised deferred compensation).

More than a few insurance companies provide as a part of the package of investments and services for a retirement plan a "Fiduciary Warranty" that a plan's investment alternatives (within the provider's platform) will meet some specified ERISA conditions, and the insurer will indemnify the plan against its losses that resulted because, and bear the attorneys' fees of defending against a claim that, the plan's investment alternatives did not meet the specified conditions. The salespeople continue to tout these indemnities as a real value. Here's my question for practitioners: has any employer tendered a claim under one of these Fiduciary Warranty promises? If so, was it a good or bad experience for the employer? Did the insurer promptly start paying the employer's attorneys' fees? Did the insurer allow the employer to choose the law firm; or did the insurer try to push the employer to the insurer's preferred law firms? Or is a "Fiduciary Warranty" all sizzle and no steak?

3.14159265358979323..... and so on, consider that you might not get much expert opinion on this public website. Although some practitioners who read and write in BenefitsLink might be capable of giving advice about the situation you've described, practitioners are governed by professional, ethical, and practical rules. In my experience, a lawyer or an expert witness is unlikely to say much beyond generalizations until he or she has had some conversation with the inquirer and has ruled out conflicts of interests.

Christine, I haven’t looked State-by-State, but I happen to know Minnesota’s announcement. Minnesota’s Department of Revenue announced that, at least for wages paid before January 4, 2011, the Department won’t enforce Minnesota law that requires income tax withholding from wages to the extent of the portion of an employee’s wages that results from providing health coverage regarding a child who is not the employee’s dependent and is excluded from income for Federal income tax purposes. The period of this non-enforcement is ambiguous because the Department announced that it will not require this withholding “until the Minnesota legislature has had the opportunity to fully [sic] address adoption of the provisions contained in the [Federal law].” The announcement does not state what facts would lead the Department of Revenue to find that the legislature had a sufficient “opportunity”. Minnesota’s Department of Revenue did not announce a non-enforcement policy for reporting (rather than withholding from) wages. But the announcement suggests that the Department might have assumed such a policy: Since employees will be required to include those federally exempt benefits as income on their 2010 Minnesota income tax returns unless Minnesota law is changed, the Department of Revenue encourages employers to share this information with affected employees so the employees can decide whether to elect additional withholding if they are concerned about being sufficiently withheld. Employees can elect additional Minnesota withholding by completing Form W-4MN, Minnesota Employee Withholding Allowances/Exemption Certificate. The non-enforcement policy permits an employer to count Minnesota income tax withholding by applying Minnesota tax rates to Federal income tax wages. But because this is not required, a careful employer should explain to its employees what method the employer uses. In counting the Federal income tax wages of an employee whose child was covered under a health plan, the coverage of the child might be partly included and partly excluded. For example, if a child was not a dependent at any time in 2010 but was covered throughout 2010, an employer might treat 75% (9/12) of the year’s value of the child’s coverage as excluded from the employee’s Federal income tax wages, and might treat 25% (the portion of the year before the IRC § 105(b) exclusion began on March 30, 2010) as included. Or counting days might treat 75.89% (277/365) as excluded. If some of a child’s coverage is included in the employee’s income, that is measured by the “fair market value” of the coverage for the included period. The fact that the presence or absence of the child from the employee’s family coverage happens not to change the contribution required of the employee doesn’t by itself change the “fair market value” of the coverage.