Peter Gulia

I've seen a 401(a)/401(k) plan that had no provision for a participant to designate a beneficiary. Instead, the plan provided the death benefit to the participant's surviving spouse (and didn't allow any qualified election against that provision) or, on the absence of any surviving spouse, to the personal representative of the participant's estate.

In addition to Matt Bozek's suggestions, there are at least two further opportunities to help protect a non-ERISA plan (and its administrator): (1) Look carefully at the plan's choice-of-law and exclusive-venue provisions. Sometimes it's feasible to use these provisions to apply only the law of a State that doesn't have any deemed-revocation-on-divorce statute. (2) A deemed-revocation statute might say that its general presumption applies "unless it appears from the wording of the [beneficiary] designation ... that the designation was intended to survive the divorce." See, for example, 20 Pa. Consol. Stat. 6111.2. If a beneficiary-designation form had said, above the participant's signature: "I intend all of my beneficiary designations to survive my divorce from any person (including any person designated or mentioned above).", consider whether that might be enough to undo a deemed-revocation statute.

From the Internal Revenue Manual: 5.11.6.1 (01-22-2010) Retirement Income Use discretion before levying retirement income. Also see Delegation Order 5-3 (Rev-1) at IRM 1.2.44.3. A notice of levy is continuous for wages and salary. Other levies only reach property a third party is holding when the levy is received. Reminder: References to property include rights to property. As long as the taxpayer has a fixed and determinable right to property, a levy attaches that right. Therefore, a levy on retirement income can reach payments in the future whether or not the taxpayer has begun receiving payments when the levy is served. This often means that a levy on retirement income reaches future payments. Because this type of levy may begin attaching payments long after the levy is served, follow-up when the taxpayer is expected to become eligible to receive payments. Also see IRM 5.11.5.6.2(7) regarding input of TC 971 AC 687 and IRM 5.11.7.2.5.1, FPLP and Paper Levy, for discussion regarding the Federal Payment Levy Program (FPLP) and paper levies. Consider setting a mandatory follow-up for Bal Due accounts reported currently not collectible. If the taxpayer has the right to receive future payment but has not opted to do so, the levy attaches that right. A levy served while the taxpayer is receiving periodic payments reaches payments due then, as well as payments as they become due later, as long as there is already a fixed and determinable right to the future payments. A levy on a fixed and determinable right to receive future payment (e.g., retirement or pension income, Social Security benefits), made within the statutory period for collection, remains enforceable to the extent of the value of the property levied even if the property itself is not turned over within the statutory period for collection. In other words, a levy prior to the expiration of the statutory period for collection on a fixed and determinable right to receive future payment is still enforceable after the expiration of the statutory period for collection. http://www.irs.gov/irm/part5/irm_05-011-006.html

The attachment, New York's rules for a State or local government employer's deferred compensation plan, includes some law on whether a plan's lead fiduciary may select one person as a service provider for more than one of three roles - Administrative Service Agency (recordkeeper and plan administrator), Trustee, and Financial Organization (investment). Of course, this is merely one example, and another State's law might be meaningfully different. NYSDCB_Rules.pdf

Which State?

About half the States have a statutory law of trusts based on the Uniform Law Commission's Uniform Trust Code (in addition to the common law of trusts).

However, an appointing fiduciary must use procedures to monitor and evaluate the performance of each appointed fiduciary. And if, for any of the subjects, an appointing fiduciary lacks enough knowledge, experience, and expertise to evaluate the appointed fiduciary's performance as a prudent expert would evaluate it, the appointing fiduciary must get enough advice to be able to do its evaluations to that standard of care.

The rule is 26 C.F.R. 1.415©-1(b)(2)(ii)©. A "restorative payment" made to restore a plan's losses if there was a reasonable risk of fiduciary liability is not an annual addition. Conversely, paying up a loss for which there isn't a reasonable risk of liability is an annual addition. It's easy for me to remember because the Treasury department adopted my comment that the liability an employer meets by paying restoration should not be limited to ERISA fiduciary liability (as it would have been under the proposed rule) but should recognize liability under other applicable law. 72 Federal Register at page 16887 (April 5, 2007). To support a position that paying up a "surrender" or contingent deferred sales charge is not an annual addition, an employer might seek its lawyer's written advice that the plan's fiduciary responsible for the selection or approval of the contract with that charge breached its fiduciary duty - or at least that a claimant could plausibly allege a fiduciary breach and that there is a "reasonable risk" of that liability.

Using the Delinquent Filer Voluntary Compliance Program, a small non-governmental tax-exempt organization may file the 104-23 statement (rather than Form 5500 reports) and pay a penalty of only $750. http://www.dol.gov/ebsa/regs/fedreg/final/2002007514.pdf I don't use Corbel/Relius/Sungard documents (or those of any document packager); so I don't know enough about such a document to guess whether it might be sufficient. If the employer and the executive are ending the plan, they might decide that the risks of an error are smaller than the expense of finding out whether there is an error. But I'd preserve a writing that those were my client's instructions.

I misunderstood the originating post, and I'm sorry if I confused anyone. A rule recognizes a post-severance plan-to-plan transfer of assets and obligations from a non-governmental 457(b) plan to another. 26 C.F.R. 1.457-10(b). Some of this transfer's practical consequences are similar to a rollover.

Is the desire for the art enough that the would-be buyer would pay for some professional help to apply for a prohibited-transaction exemption and negotiate the plan's sale of its property?

If the right exceptions are met, ERISA Parts 2, 3, and 4 don't apply, but ERISA Parts 1 and 5 do apply. A practitioner should be guided by his or her client's direction on how much time and money to spend. But because so many charitable organizations' deferred compensation plans have significant defects, I'd be inclined to suggest a glance at the administrative provisions to consider whether there are some that are easy and worthwhile to improve while one is otherwise touching the documents. And if a client instructed me not to pursue this ("why spend effort on a terminating plan?"), I'd preserve a writing that those were my client's instructions.

Pension Girl, in addition to jpod's suggestions, a caution that you might consider. An otherwise supposed provision of a document might be void (and so ineffective) if making the provision is beyond the governmental person's powers under applicable law. An agency, instrumentality, or political subdivision of a State has only those powers that State law grants. A housing authority often is restricted by State (and local) law and the conditions of Federal grants. Perhaps because governmental plans aren't a big class of frequent flyers in the IRS's correction programs, there isn't much IRS guidance on what to do about a situation in which the plan's administration is contrary to a document's ostensible provision that, although consistent with IRC 401(a), is contrary to law. This situation doesn't work well in the IRS's standard correction programs, but can be negotiated using other means. Of course, it's best to get the provisions right before the governmental person adopts a document.

epaley, thanks for your update. Your last two sentences (including Pain In The Administration) are a nice illustration on why the Supremes ought to decide that ERISA preempts San Francisco's ordinance.

Not quite correct; it's the unfunded and select-group conditions plus the filing under 29 C.F.R. § 2520.104-23 that excuses ERISA's annual-report requirement.

But if the employer hasn't filed a return to self-assess the excise tax, is the IRS computer smart enough to generate something that causes the IRS to pursue the excise tax?

If an employer doesn't get a funding waiver and the plan's Form 5500 truthfully reports that the employer did not pay in contributions needed to meet the required funding, what does the IRS or EBSA do?

An employer is small enough that its health plan isn’t governed by Federal COBRA. But the relevant State’s “mini-COBRA” law applies. A former employee elects continuation coverage, and asserts that he is entitled to ARRA premium assistance. The insurer – recognizing that continuees generally, and subsidized continuees even more, are bad adverse-selection risks – has a procedure for trying to get information about whether an employment termination was involuntary. But the employer refuses to respond to the insurer’s requests for information about the termination. Is there anything the insurer can do to compel the employer to cooperate?

The quoted passage means only that a plan that otherwise meets Section 125 doesn't fail to get the tax treatment of a cafeteria plan merely because the plan provides for implied or "default" elections. But such a tax rule doesn't control the law of whether an employer may reduce or deduct an amount from its employee's wages. If not preempted by ERISA or other Federal law, a State's wage-payment law could impose constraints on the "active enrollment" described in the originating post.

If the employer is a non-governmental tax-exempt organization, consider at least the following steps: 1) Check whether the employer informed the Labor department of the plan’s existence. 29 C.F.R. § 2520.104-23. (If not, file a Form 5500 for each plan year not so protected.) 2) Look up (i) the relevant State’s law of not-for-profit corporations (or of the other kind of organization), (ii) the employer organization’s formation (for example, articles of incorporation) and operations (for example, bylaws) documents, and (iii) agreements and other documents concerning the executive/participant to discern what acts are sufficient to commit the organization to the plan’s discontinuance and termination. 3) Amend and restate the plan for the discontinuance and termination: a) Your description of a 2005 restatement suggests that some provisions might be incorrect. For example, there is no rollover from a non-governmental § 457(b) plan. b) Amend the plan to reflect ERISA and the Internal Revenue Code as of the time of the discontinuance and termination. c) If not precluded by an earlier agreement with the executive/participant, consider whether the employer prefers to get rid of payout options other than a single-sum final distribution. (It’s not easy for an out-of-business organization to make continuing payments over years. Further, it’s unclear whether continuing payments would meet the condition of 26 C.F.R. § 1.457-10(a)(1) and -10(a)(2)(ii) that the employer distribute all amounts deferred “as soon as administratively practicable[.]”) 4) Deliver to the participant a claim form that reflects the plan as in effect for the termination. (Or if the plan has been amended to remove every participant choice, a form might be unnecessary.) 5) A § 402(f) explanation isn’t required (and isn’t appropriate); a distribution from a non-governmental § 457(b) plan isn’t an eligible rollover distribution. 6) Withhold Federal, State, and local income taxes from the distribution. 7) Pay the distribution. 8) Tax-report [W-2] the distribution. Throughout, be mindful that another creditor might challenge the deferred compensation plan’s payment to the executive/participant. If there is a risk that not all creditors of the organization will be paid in full, consider recusing and removing the executive/participant from all of the employer’s decisions that relate to the plan. If the organization needs or wants advice about the correct order in which to pay its creditors (including the executive/participant), consult a lawyer who’s knowledgeable on bankruptcy and other insolvency law. If the organization was the plan’s administrator and the organization has a bankruptcy trustee, that trustee “continue to perform the obligations required of the administrator[.]” 11 U.S.C. §§ 704(a)(11); 1106(a)(1).

Tom, yours is a fine question, and one that an employer might think about carefully before it decides whether to try to treat a plan as not governed by ERISA. EBSA's unofficial views attempt to draw a line between a discretionary finding and a mere confirmation of a fact that is within the employer's knowledge. [see FAB 2007-02] For example, an insurer or custodian might seek to corroborate a claim's assertion that the participant is severed from employment. Under EBSA's view, an employer might furnish a written confirmation that, according to the employer's records, the participant is not currently employed by the employer. But it is less clear whether it is possible to remove discretion from findings concerning whether a participant's claim shows an entitlement to a hardship distribution. If an employer is set on trying not to maintain a plan, the employer might consider very carefully what each agreement could obligate the employer to do. How likely is it that the insurers and custodians will accept agreements that limit the employer's obligations to mere fact confirmations - leaving all the discretionary findings to the insurer or custodian? Further, an employer might consider that each decision on whether to make an agreement with a particular insurer or custodian affects which investment alternatives and contractors are or aren't available under the arrangement that the employer seeks to treat as a non-plan. Moreover, even if an employer might restrict its obligations to what the Bulletins "allow", remember that a Field Assistance Bulletin or an Interpretive Bulletin is not a regulation or rule that a court must defer to, or even consider.

In addition to a trustee's duties and obligations to render accounts promptly, under ERISA 103(a)(2) a bank or trust company must certify the information needed for a plan administrator's annual report no later than 120 days after the end of the plan year.

If the retirement plan has few assets other than the plan's claims against breaching fiduciaries, how likely is it that the plan can raise enough money to pay the fees and expenses of the plan administrator and the plan's attorneys long enough to accomplish the win that could get a recovery for the plan? How likely is it that even modest defense efforts could run the plan out of money so that the plan administrator would become unavailable to pursue the plan's claims? Before concluding a decision to pursue or abandon the plan's claims against breaching fiduciaries, shouldn't the plan's administrator get an order from a Federal court that has jurisdiction over the plan?

Kevin C, thanks for adding the link. To resume your 404(a)(1)(D) discussion: Do you think that the scope of review that a fiduciary must use differs based on whether its decision is: an open discretionary decision on whether to include a mutual fund in a menu of investment alternatives for participant-directed investment, or a decision on whether to remove a fund because the fund is so bad that failing to remove the fund disobeys ERISA? If the plan's menu includes other funds (both index and non-index) for the same investment class as the settlor-specified fund that might be removed, how does leaving the settlor-specified fund on the menu harm the plan in a way that wouldn't be the result of a participant's direction?

Here’s San Francisco’s “Health Care Security Ordinance” http://www.municode.com/content/4201/14131/HTML/ch014.html and here’s the implementing regulations http://sfgsa.org/Modules/ShowDocument.aspx?documentid=1246 Here’s the Office of Labor Standards Enforcement’s “Employer Guide” http://www.healthysanfrancisco.org/files/P...loyer_guide.pdf It seems that a failure (if any) can be adjusted with a payment of money.