Peter Gulia

Christine, it's at least possible for a directors' resolution or consent to have adopted a plan that then had enough writing to establish a plan. That the directors' act is recorded later doesn't by itself preclude treating the plan as established at the moment the directors acted if the directors then had read and considered sufficient writings. Of course, many stakes turn on how clear and detailed the adopted writings were, and whether those and a participant's election are consistent. Also, consider that some of this might turn on relevant State law and the corporation's bylaws to find what act of the directors is or isn't sufficient as the act of the corporation. No matter which State's law governs the internal affairs of the corporation, it makes sense to check the bylaws. If I can help you kick this around, my office time isn't closing any time soon.

Whether a custodian or a trustee, some fiduciary must hold each right (such as, a participant loan, or a “brokerage” account) that is the governmental 457(b) plan’s asset. And the “custodial account” or trust must meet the conditions of IRC sections 401(f) and 457(g). If a bank or trust company so serves, whether it does so as a custodian or as a directed trustee might not meaningfully affect its duties under most States’ laws concerning holding an asset and not disposing of the asset other than as properly instructed. (Of course, this isn’t advice to anyone.) Steven N, the practical question is whether the bank, trust company, or IRS-approved non-bank custodian is willing to hold the particular kind of asset that the other plan fiduciaries want a custodian or trustee to hold.

Has the employer already paid the late wages (at least the amount of the unauthorized wage reductions) to the affected employees?

Bird, thanks again. Any other mavens to weigh in? Are there some recordkeepers or TPAs, with larger (100 participants) plans, who are gearing up for how to assemble Schedule C information for a draft Form 5500 sent for a plan administrator's review? How do you collect information that isn't in the recordkeeping system?

Bird, thank you for helping me think this through. Does the "employee" exception apply if the relationship between the fund and its service provider is not an employer-employee relationship? For example, if the fund is a Fidelity mutual fund and the manager is FMR Corporation, there is a contract between the fund (or a registered investment company) and FMR Corporation (a registered investment adviser), but FMR is not the fund's employee. And the fund doesn't receive the manager's fee, just the opposite: the fund pays a fee to get the manager's services. Don't the Labor department's FAQs focusing on "investment funds" (EBSA's made-up description) mean that a fund's manager is treated for Schedule C purposes as though it were a service provider to each retirement plan that invests in the fund's shares?

For the mavens who are digging into new Schedule C questions: Assuming no other relationship to the retirement plan, which of the service providers to a mutual fund (manager, underwriter, transfer agent) becomes a service provider to be reported (assuming enough $) on Schedule C because of the plan's investment in the fund's shares?

You might get a few more responses from those who negotiate with multiemployer plans if you post your inquiry in that forum.

Is your client's inquiry about the political subdivision's (the hospital's) financial statements, or about a retirement plan's financial statements?

One practical bit to watch out for. Some computer software for recordkeeping or Form 1099-R is (or was, when I faced this problem) designed to treat a distribution amount of $0.00 as an error (and not of the kind to which a user could respond "Yes we really mean this").

Brian, my clients are facing similar demands. As you noted, the statute allows the plan to “make a reasonable charge to cover … other costs of furnishing” the withdrawal-liability estimate. ERISA § 101(l)(3). A plan could argue that its “other” expenses of furnishing a withdrawal-liability estimate include the plan’s expense for professional services that would not have been used but for the plan’s need to respond to these requests. A requesting employer could argue that “furnishing” must be construed according to the canon of ejusdem generis (“of the same kind or class”) so that the category of “other” costs includes only those that are sensibly similar to the copying and mailing costs that lead the phrase. It might take a while to get to the arguments. A multiemployer plan’s administrator assumes that a requester won’t pay you or me to brief a Federal lawsuit to compel a delivery of a withdrawal-liability estimate on payment of no more than a proper amount (or a return of the improper portion of a charge). But you might have the right situation that makes it worthwhile to pursue an interpretation. Let’s talk next week.

On the "let's be real" point, I would advise a client about an unlikelihood that the Internal Revenue Service would pursue enforcement on a reporting requirement about which the IRS at least allowed confusing communications. But advice about an unlikelihood or even absence of consequences is not the same thing as advice that the omission is correct reporting. A careful lawyer makes clear these different kinds of advice. There is a reference to FAB 2009-02 in the Form 5500 Instructions. But that reference does not say that a person may treat the FAB as an instruction about how to report under IRC 6058.

Internal Revenue Code section 6058 requires an annual return of a funded plan of deferred compensation described in the 400s of the Internal Revenue Code. If a plan includes a 403(b)(7) custodial account, this requirement that the employer (or plan administrator) file an annual return applies. 26 C.F.R. 301.6058-1(a)(2). The context is my written advice to a client about what it may omit, based on FAB 2009-02, from a Form 5500 and related financial statements. Until I find some administrative-law document that speaks for the Treasury department or at least the IRS Commissioner [see 26 C.F.R. 301.6058-1©(5)], my memo must at least warn my client that a Form 5500 that omits 403(b)(7) custodial accounts as permitted by FAB 2009-02 might not meet a requirement that the Labor department lacks power to relieve.

Concerning 403(b) contracts that are de-admitted from a plan after 2008 and meet the conditions stated by the Bulletin, EBSA's Field Assistance Bulletin 2009-02 states some relief from some reporting requirements of ERISA's Part 1 (and relieves a Part 5 civil penalty to that extent). But the FAB does not state any relief concerning an Internal Revenue Code reporting requirement. Moreover, it seems doubtful that EBSA's Robert J. Doyle has authority to state relief from such an Internal Revenue Code requirement. What Treasury department guidance allows an employer or plan administrator to omit de-admitted 403(b) contracts from a Form 5500 filed under the Internal Revenue Code's annual report requirement?

If the employer's preference is to make available a 403(b) non-plan that is not governed by ERISA, the employer might want its lawyer's advice on: (1) whether adopting a written plan could cause the employer to "establish" or "maintain" a plan, that then would (if not a governmental plan or church plan) be governed by ERISA; (2) whether the employer's use of either government agency's correction procedure could suggest that the employer "maintains" the plan that is the subject of the correction.

Gary, if your hypothetical participant is an employee of a corporation, you'd also check whether the modest compensation would be enough to support withholding for Federal, State, and local income taxes and the employee's portion of FICA taxes. For example, if one assumes withholding at about 15% for Federal income tax and 7.65% for FICA taxes (and assumes no withholding for any State or local income tax), a salary of about $28,443 might be needed to pay the $22,000 Roth elective contribution, withhold $6,442.34 toward taxes, and leave 66 cents for a net paycheck. For another example, if our hypothetical employee lives in best city in the world, she would need a salary of about $36,455 to pay the $22,000 Roth elective contribution, withhold $14,454.41 toward taxes [25% FIT, 7.65% FICA, 3.07% PA, 3.93% Phila.], and leave 59 cents for a net paycheck.

The plan's administrator might consider whether the facts and circumstances make it reasonable for the plan's financial statements to report in assets an amount for dividends receivable, and in liabilities an amount for distributions payable, as at December 31, 2009. It's possible that these amounts, along with others, might result in net assets of zero. Following this, if all of the clean-up distributions are promptly paid and delivered in January 2010, the plan's administrator might consider whether the plan did not, under accrual accounting, have assets after December 31, 2009. If the plan's administrator lacks expertise in generally accepted accounting principles, prudence might require the administrator to get advice about whether such an accounting would be consistent with GAAP. And if the plan's financial statements will be audited by a public accountant, it might be smart to seek the CPA firm's advance view about whether the accounting would meet GAAP. I'm not saying that these ideas are suitable accounting or reporting; rather, I suggest only that it might be worthwhile to get professionals' advice.

GMK, to answer your curiosity, I don't remember a situation in which the Labor or Treasury department put a serious effort on helping a retirement plan's administrator resist an improper payment demand, much less an improper restraint on payment. Every now and then, a little speechifying, but not much else. In the 1980s, many retirement plan administrators tried to get help resisting bankruptcy trustees' demands that were contrary to plans' terms, ERISA's and the tax Code's anti-alienation provisions, and even the Bankrupty Code itself. (A bankrupt participant often had no money to pay a lawyer even to file an answer to a bankruptcy trustee's turnover demand.) These efforts went so far that I know of at least one plan administrator's lawyer who petitioned the Internal Revenue Service to tax-disqualify the plan (because its frequent payments to bankruptcy trustees violated the plan's terms and IRC 401(a)(13)). These and other efforts didn't accomplish much. Getting the words in a statute to come to life depends on people who are willing to invest in a lawyer's work. But it's not quick and easy to show how a matter involving one participant in an individual-account retirement plan affects everyone.

jpod has been describing a practical response to an unfortunate situation. Even if not required under any law, sometimes a path of least resistance is to administer an individual-account retirement plan in a way that might be less likely to invite further scrutiny. If a participant disobeys a court's order that binds him or her (even if it doesn't affect the plan), such a participant might be a little less likely to sue because he or she might be aware, or might be advised, that many judges would want to find a reason to dismiss a complaint of a person who previously abused any court's processes. Here's another outlook on this kind of situation. An administrator of an ERISA-governed retirement plan ordinarily must administer the plan according to its documents. ERISA 404(a)(1)(D). But could there be a situation in which an administrator believes that correctly applying the plan likely would result in the plan incurring expenses to defend the plan's fiduciaries and educate a judge? And could an administrator find that those expenses would be more than "reasonable expenses of administering the plan"? See ERISA 404(a)(1)(A)(ii). A plan fiduciary must discharge its duties following all four subparagraphs of ERISA 404(a)(1). It's unclear what balancing might be required or permitted if the circumstances involve a tension between some of these goals. Is there some point at which the duties to obey the plan documents and provide a benefit (the loan) to the participant could be outweighed by a duty to incur no more than reasonable plan-administration expenses? If you were a participant in the hypothetical plan that jpod describes, would you want the plan's fiduciaries to charge your account for your proportionate share of the plan's expenses for defending the plan and its fiduciaries against State court proceedings? How much would you want to pay to make clear that it's proper for the plan to pay the loan that a participant was ordered not to take? I would want the plan's fiduciaries to defend their correct administration; but I suspect that others might have different views.

There is a Ninth Circuit opinion that treated as both a DRO and a QDRO a court order that provided quasi-marital property to a person who never was the participant's spouse and could not be the participant's dependent within the meaning of IRC 152. Owens v. Automotive Machinists Pension Trust, 551 F.3d 1138 (9th Cir. 2009), aff’g 40 Employee Benefits Cas. (BNA) 2382, 2385–2386, 2007 U.S. Dist. LEXIS 7797 (W.D. Wash. Jan. 19, 2007). At least the second prong of the court's analysis (about the meaning of the word "dependent") was, if not wrongly decided, at least wrongly or incompletely reasoned. Nonetheless, a lawyer could develop an argument based on some statutory construction and interpretation ideas that the opinion did not consider. If the plan's administrator denies the nonparticipant's claim, perhaps the potential alternate payee can find a lawyer who would (without a fee) help pursue courts' reviews. The nonparticipant's action might pursue at least two arguments: (1) the proposed alternate payee is the participant's dependent under State law and ERISA 206(d)(3)(B)(ii)(I), even if he or she is not a dependent under IRC 152; (2) 1 U.S.C. 7 is unconstitutional. Matt Bozek's suggestion is practical if there are sufficient assets that can be so divided. Some couples lack $15,000 in savings outside of retirement plans. Again, how much a retirement plan's administrator should or shouldn't get involved in helping divorcing parties redo their divorce negotiation is a question for the administrator.

I apologize for anything that suggested cynicism about the employers or people involved in trying to seek a fair conclusion to what should be a straightforward divorce division. I too have observed that many people of employers, small and big, will extend themselves very far (within the law) to seek a fair result in the face of unfair law. My observation is that those well-intentioned efforts are unfair burdens for the employers and their people involved. At least sometimes, it ought to be okay for an employer not to feel burdened with finding a solution to an unfair law. For those who are seeking a creative solution, one possibility is in my earlier post's point that the text of a court order might support an administrator's finding that the same-sex alternate payee is the participant's dependent.

pmacduff, if your client is the plan's administrator (the employer), does it have a special reason to care that administering the plan according to its terms and ERISA might mean that the nonparticipant gets nothing from the retirement plan? Yes, failing to treat a State-law spouse as a Federal-law spouse might seem unfair, or at least inconvenient, but the United States' Congress chose that policy. Why should it become one employer's duty to resolve the law's incongruity? If an administrator decides that a court order is not a QDRO (because it is not a DRO) and sends appropriate writings to the participant, the nonparticipant, and each's attorney, a claimant would be on notice that he or she must pursue further reviews under the plan's procedures, and, after exhausting the plan's procedures, pursuing court proceedings.

Even if a plan's administrator assumes that 1 U.S.C. 7 makes a same-sex spouse not a spouse within the meaning of ERISA 206(d)(3)(B)(ii), it might further consider whether the proposed alternate payee might be a dependent of the participant. In doing so, a plan's administrator might look closely at the text of the domestic-relations court's order.

MSN and Kevin C, thank you for the helpful suggestions. Do you think that the IRS might use a non-amender route to resolve a situation in which even the first plan document never was done?

K2retire, thank you for confirming one of my suspicions: that, as we approach the five-year anniversary of the law change, some (perhaps many) bankruptcy trustees continue to resist a duty to administer employee-benefit plans. alexa, although a plan's sponsor or administrator might sign a Form 2848 or other power of attorney naming a representative authorized to communicate for the sponsor or administrator, a Form 5500 ordinarily requires the signature of the plan's administrator (not the administrator's agent), and a Form 5300 generally requires the signature of the person that applies for the IRS's determination (not the applicant's agent). Further, unless the plan already provides the desired agent power to amend the plan, it is the bankruptcy trustee that arguably has power to amend the plan to the extent that he or she acts for a successor to the plan sponsor or within the bankruptcy-law powers to administer the plan.

Although I don't here give advice to anyone, one guesses that a bankruptcy trustee's powers include those implied by his or her duties. So if amending an employee-benefit plan is an act that a bankruptcy trustee decides (with court approval, or an absence of disapproval) is necessary and prudent for an orderly administration (and termination) of the plan, one guesses that the bankruptcy trustee has power to amend the plan. BenefitsLink mavens, what's your experience?