Peter Gulia

austin3515, a further way to think about the hypothetical situation you described is to ask yourself a rhetorical question: Why did these particular LP interests suddenly become the best thing that the retirement plan could invest in? If there isn't a cogent investment-grounded answer to that internal question, it seems likely that at least one transaction is a prohibited transaction (although perhaps one that might be or become exempt). If you're not sure that everything is perfect, consider suggesting to your client that it engage an independent fiduciary to make the plan's decisions.

Another of the several possible consequences is that a Federal court or State court in proceedings on an ERISA benefit claim could construe the plan as including the provisions the plan is required to provide, and as not including any provision that the plan is precluded from providing. The court could then apply the plan as so reformed, and could decide the claimant's benefits under the reformed plan.

Brenda Wren, has your client asked you to evaluate whether the remaining participant and business owner's tax situation could be improved by deliberately treating the plan as tax-disqualified?

Also, the IRS in 2002 published a Spanish version of the OLD edition of the 402(f) eligible-rollover-distribution explanation. http://www.irs.gov/pub/irs-irbs/irb02-18.pdf

If you go to the IRS's website page for "Forms and Publications" and put "(SP)" in the Find box (and leave the Find function set to "Product Number"), the search retrieves 117 forms and publications. Then, you might scroll through the list to see whether you find anything that might help meet your client's purpose.

What matters is whether a practitioner furnished enough information and explanation so that his or her client could have made an informed choice about whether to seek a determination letter.

Section 114(b)(1)(I) refers to Internal Revenue Code section 3121(v)(2)©, which describes a nonqualified deferred compensation plan. But unlike the rule for "qualified-like" plans, section 114's rule on what retirement income a State can't tax applies for a nonqualified plan only concerning "substantially equal periodic payments" for life or at least ten years. If the hypothetical participant's $1 million payout from a nonqualified plan was paid in a single sum, that fact might have lost whatever protection section 114 otherwise might have provided. If not precluded by 4 U.S.C. 114, a State might tax the portion of a deferred compensation payout that accrued while the participant was a resident of, or worked in, the State.

Consider the potential application or non-application of section 114 of title 4 of the United States Code: §114. Limitation on State income taxation of certain pension income(a) No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State (as determined under the laws of such State). (b) For purposes of this section— (1) The term “retirement income” means any income from— (A) a qualified trust under section 401(a) of the Internal Revenue Code of 1986 that is exempt under section 501(a) from taxation; (B) a simplified employee pension as defined in section 408(k) of such Code; © an annuity plan described in section 403(a) of such Code; (D) an annuity contract described in section 403(b) of such Code; (E) an individual retirement plan described in section 7701(a)(37) of such Code; (F) an eligible deferred compensation plan (as defined in section 457 of such Code); (G) a governmental plan (as defined in section 414(d) of such Code); (H) a trust described in section 501©(18) of such Code; or (I) any plan, program, or arrangement described in section 3121(v)(2)© of such Code (or any plan, program, or arrangement that is in writing, that provides for retirement payments in recognition of prior service to be made to a retired partner, and that is in effect immediately before retirement begins), if such income— (i) is part of a series of substantially equal periodic payments (not less frequently than annually which may include income described in subparagraphs (A) through (H)) made for— (I) the life or life expectancy of the recipient (or the joint lives or joint life expectancies of the recipient and the designated beneficiary of the recipient), or (II) a period of not less than 10 years, or (ii) is a payment received after termination of employment and under a plan, program, or arrangement (to which such employment relates) maintained solely for the purpose of providing retirement benefits for employees in excess of the limitations imposed by 1 or more of sections 401(a)(17), 401(k), 401(m), 402(g), 403(b), 408(k), or 415 of such Code or any other limitation on contributions or benefits in such Code on plans to which any of such sections apply. The fact that payments may be adjusted from time to time pursuant to such plan, program, or arrangement to limit total disbursements under a predetermined formula, or to provide cost of living or similar adjustments, will not cause the periodic payments provided under such plan, program, or arrangement to fail the “substantially equal periodic payments” test. Such term includes any retired or retainer pay of a member or former member of a uniform service computed under chapter 71 of title 10, United States Code. (2) The term “income tax” has the meaning given such term by section 110©. (3) The term “State” includes any political subdivision of a State, the District of Columbia, and the possessions of the United States. (4) For purposes of this section, the term “retired partner” is an individual who is described as a partner in section 7701(a)(2) of the Internal Revenue Code of 1986 and who is retired under such individual's partnership agreement. (e) 1 Nothing in this section shall be construed as having any effect on the application of section 514 of the Employee Retirement Income Security Act of 1974. Consider too that this Federal statute allows each State to define who is its resident or domiciliary. If the Federal statute's protection concerning "qualified-like" retirement income otherwise would apply, the participant described in your hypothetical might want his or her tax lawyer's advice about whether the participant is a resident or domiciliary of State A.

Yes, an appointer must monitor its appointment. Along with other steps, an appointer might satisfy itself that each year's Form 5500 was filed and that sufficient fidelity-bond insurance (I'd want much more than the statute's amount) is maintained. Can we think of anything else that remains with the employer after an independent administrator is on the job?

Bill, thank you for describing your idea of scheduling the times for attention. About your first-paragraph observation, if the plan's named administrator is an external business, what remaining duties (beyond paying over the specified contributions and furnishing vesting service info to the administrator) might an employer have?

An organization organized after October 9, 1969 must file an application. See Internal Revenue Code (26 U.S.C.) sections 501(a), 508(a); 26 C.F.R. sections 1.501(a)-1(b), 1.508-1(a)(1). Whether one feels comfortable with making or receiving, without waiting for the IRS letter, contributions intended as 403(b)contributions turns on one's evaluation of the risks and burdens, including one's sense of how likely it seems that the applied-for exemption will become recognized. The plan fiduciaries might prefer that none of the investments bears any exit charge. USCODE-2011-title26-subtitleA-chap1-subchapF-partI-sec501.pdf USCODE-2011-title26-subtitleA-chap1-subchapF-partII-sec508.pdf CFR-2012-title26-vol7-sec1-501a-1.pdf CFR-2012-title26-vol7-sec1-508-1.pdf

Again, thanks to everyone for the many thought-provoking suggestions. By the way, Bird hits it on the head: The recordkeeper's instructions about how to get electronic signer credentials and what website held the unfiled draft Form 5500 were near the END of a many-pages dense-text letter that purported to explain how the recordkeeper had compiled the draft Form 5500 (which was not enclosed with the letter, or ever furnished on paper). To those who mentioned an availability of services, I'm keeping your names so that, if my new client doesn't terminate the plan (which might be a realistic possibility), we can consider changing or adding service providers. One remaining question, does any business offer a service of acting as a plan's administrator so that the employer wouldn't need to read or sign anything beyond the plan documents?

Thank you, everyone, for the good suggestions about working with a TPA.

If the plan is ERISA-governed and the appointer has discretion to appoint (or decline to appoint) the second trustee, a mainstream interpretation of ERISA's definition of a fiduciary and ERISA's standard of care is that the appointer must use no less care, skill, caution, and diligence than would be used by an experienced fiduciary making a similar appointment. (And if applying that standard too literally results in an illusory standard of care, a fiduciary must nonetheless perform according to a minimum degree of care that's fitting for a fiduciary.) Without needing to focus on whether the candidate is a U.S. or non-U.S. person, a fiduciary should do at least a check for a crime that under section 411 would preclude the candidate's proper service. A more careful fiduciary might, in some circumstances, consider some further investigations into a candidate's honesty and reliability. Also, an appointer might consider: Why is someone who has no relationship with the employer willing to serve?

David and MoJo, thank you for the helpful perspectives. This business owner really does want to do the right stuff. The problem I’m seeking to solve isn’t about the business owner’s readiness to trust a TPA. It’s that he’s so busy that we don’t want to leave an action step to depend on expecting him to read a letter or even an e-mail. He needs to hear a human’s voice telling him what to do. Better still would be someone who stays on the telephone with him until the task is completed. I thought about whether I could provide the reminder-and-nag service. Although my fee is not as big as BG5150’s quote, I’d rather help a small business find a more efficient service. Although the problem I describe happens often and everywhere, the most recent particular situation is in Central New Jersey.

WDIK and MoJo, thank you for the help. Will a third-party administrator run its service so that everything is proactive? Will a TPA tell the employer what to sign and how to sign it? So that the message isn't buried in a letter or e-mail that the employer won't read, will a TPA do the proactive steps by telephone?

Here's today's problem on which I ask for your help. An employer has a 401(k) plan that the employer established without help from anyone beyond the salesman who sold the recordkeeper's packaged service. The recordkeeper's service is unsuitable for this employer because everything depends on the employer knowing that it needs to do something. For example, the employer never filed any Form 5500 report. The recordkeeper's letter said all the right things, but the business owner never read that letter (or any of the few dozen other things that the recordkeeper mailed). The employer has only three people: The owner is the designer of the business' products, the sole salesman, and the corporation's president, secretary, treasurer, safety officer, and everything else that's supposed to be done. A craftsman and a laborer do all the manufacturing. While I don't condone the employer's conduct, I'd like to pursue practical suggestions. Although I'm aware that it's almost impossible to get a service business to act as a retirement plan's named administrator, is it possible to find a service provider that would have a service rep (someone who's smarter than just reading from canned scripts) make telephone calls affirmatively to tell the business owner what he needs to do and why it's important? (It's okay if such a service is more expensive; the business has money to spend.) I understand that this would be a reminder service or an I'm-too-busy-to-read service; but is it possible to buy something like this? If so, what does a micro business pay for this?

Chaz, thank you for the helpful news. Let's hope your client required no more than a penalties-of-perjury statement.

Thank you all for the good help.

Thanks to all. John Feldt, for the big employer's plan, what did you do when an employee did not furnish a marriage certificate?

Thanks. Others' experiences?

When taking health plan enrollments, do employers ask for marriage certificates? I hope that BenefitsLink’s many helpful readers and writers can help expand my knowledge of current benefits-administration practices. My questions are about whether an employer tries to confirm an employee’s statement that he or she is married. (My questions are not about same-sex marriage, but rather about what (if anything) an employer does to check that an opposite-sex marriage exists.) In a decades-ago era, a new employee when invited to enroll in his or her employer’s health plan, would fill-out a form that asked whether the employee is married and next to that yes-or-no question had a line for writing-in the spouse’s name. If an employee completed the form, the employer enrolled the employee and spouse in the health coverage. No one asked for proof. More recently, some employers understand that differences between employment-based health coverage and other health insurance can lead some employees to present as a spouse someone who is not the employee’s spouse. Leaving aside after-the-fact dependent eligibility audits, what do employers now do at enrollment? Do some employers ask for a marriage certificate? Do they ask for anything else? What does an employer do if the employee does not furnish a marriage certificate or other evidence? On the question of whether the employee is married to the spouse claimed, does an employer decide this “bureaucratically” and rigidly, or does an employer use discretion? If there is some discretion allowed, who has authority to make the discretionary decisions? Do the answers vary significantly between health plans that use health insurance as the means of providing the benefits and those plans that are “self-funded”?

GMK, along with others' suggestions about carefully describing limits on information that a plan's administrator furnishes, here's a question for you to consider (I don't pretend to know the relevant law). Could the notice say?: The employer-offered coverage is minimum essential coverage to the extent that a participant or beneficiary uses or would use services that are within the plan's service area; the employer-offered coverage might not be minimum essential coverage within the meaning of Internal Revenue Code 5000A(f) to the extent that a participant or beneficiary uses or would use services that are not within the plan's service area. For more information about how the plan's provisions might affect a person's opportunity to get a premium tax credit under Internal Revenue Code 36B, ask your lawyer.

Although Kevin C. mentions ERISA's provision for co-fiduciary responsibilities, one doubts that it applies. If a plan sponsor's amendment of, or failure to amend, a retirement plan is a settlor business decision, the plan sponsor's failure to establish or maintain a plan that in form is tax-qualified is not a fiduciary breach. Like other commenters, I'm searching for an argument about why the plan-document failure ought to be a fiduciary breach, but I haven't found it. Any more ideas?

masteff, thank you for pointing to Professor Kennedy’s LL.M. series book. I’m guessing that the case cited at that footnote 35 is Trenton v. Scott Paper Co., 832 F2d 806, 9 Employee Benefits Cases (BNA) 1075 (3d Cir. 1987). In that case, Judge Seitz’s opinion for a Third Circuit panel includes two holdings that relate to our discussion: An employer’s decision to create or amend a retirement plan is a non-fiduciary business decision. Even if the employer’s amendment of an existing retirement plan makes the plan top-heavy and tax-disqualified, ERISA provides a participant or beneficiary no remedy concerning that act or its consequence. Some other cases about the lack of an ERISA remedy concerning a plan that is not tax-qualified include: Cowan v. Keystone Employee Profit Sharing Fund, 586 F.2d 888, 1 EBC 1184, n.3 (1st Cir. 1978) (“This section [iRC § 401(a)] does not appear to create any substantive rights that a beneficiary of a qualified retirement trust can enforce”). Vermeulen v. Central States, Southeast and Southwest Areas Pension Fund, 490 F. Supp. 234, 237, n.6 (M.D.N.C. 1980) (“This court agrees with the First Circuit’s holding in Cowan v. Keystone Employee Profit Sharing Fund[.]”). Wiesner v. Romo Paper Products Corp., 514 F. Supp. 289, 291 n.2, 2 EBC 1361, 1363 n.2 (E.D.N.Y. 1981) (“There is no merit in plaintiff's repeated arguments that federal jurisdiction is available because the defendants’ conduct assertedly entails violations of Internal Revenue Code provisions governing pension plans. The sections relied on, 26 U.S.C. [internal Revenue Code] §§ 401, 404[,] and 503, do not create a substantive right that a beneficiary, participant or fiduciary could enforce”). Reklau v. Merchants Nat’l Corp., 808 F.2d 628, 8 EBC 1001, 1004 (7th Cir. 1986) (“There is no basis, under [ERISA § 3002©] or elsewhere in ERISA, to find that the provisions of IRC § 401 – which relate solely to the criteria for tax qualification under the Internal Revenue Code – are imposed on pension plans by the substantive terms of ERISA.”) Hollingshead v. Burford Equip. Co., 747 F. Supp. 1421, 1434, 13 EBC 1302, 1316-1318 (M.D. Ala. 1990) (The employer established a pension plan that was not tax-qualified. The court recognized that the plaintiffs were harmed by a nonqualified plan, but rejected the plaintiffs’ requested relief that the court order the employer to tax-qualify the plan or compensate the plaintiffs for their adverse tax consequences. The court found that the remedy is limited to providing the promised pension, without regard to adverse tax treatment.). Crawford v. Rome, 53 F.3d 750, 756 (6th Cir. 1995) (“[T]he favorable tax consequences of ERISA plans are not mandatory[,] and cannot be guaranteed by judicial intervention[.]”). A. Ronald Sirna, Jr., P.C. Profit Sharing Plan v. Prudential Securities, Inc., 95 Civ. 8422, 9016, and 4534, 20 EBC 2620, 2624 (S.D.N.Y. 1997) (“[N]umerous courts have rejected similar claims of an implied right of action under [internal Revenue Code] Section 401.”). Suozzo v. Bergreen, 00 Civ. 9649, 2002 U.S. Dist. LEXIS 25563 at *4 (S.D.N.Y. Feb. 5, 2003) (“[T]here is no private right of action for an alleged violation of [internal Revenue Code] Section 401, and thus the plaintiff has no claim based on the alleged failure of the Plan to comply with Section 401.”). Hall v. Nat’l R.R. Passenger Corp., 559 F. Supp. 2d 38, 54-55 (D.D.C. 2008) (“no private cause of action arises under I.R.C. § 401[.]”). Beiliang Loh v. Richardson-Browne, Civ. No. 10-0054, 2010 U.S. Dist. LEXIS 128016 at *9 (D.N.J. Dec. 2, 2010) (“Section 401 of the IRS Code does not grant Plaintiff a private cause of action[.]”). Perlman v. Fidelity Brokerage Services LLC, 2:11-cv-00326 (E.D.N.Y. 2013) (“To the extent plaintiff attempts to bring a claim under the IRC, that claim must fail, as plaintiff has no private right of action under the IRC.”).