Peter Gulia

Your query doesn’t say whether the covered employee resides in Massachusetts. In Foster v. Group Health Inc. (and Empire Blue Cross Blue Shield), 444 Mass. 668, 830 N.E.2d 1061, 2005 Mass. LEXIS 378 (July 15, 2005), Massachusetts’ Supreme Judicial Court interpreted Mass. Gen. Laws chapter 175 section 110I(a) to not provide its continuation coverage to a former spouse because the employee resided in New York. Further, even if the employee resides in Massachusetts, it’s unclear whether this Massachusetts statute applies to an insurance contract if the contract is governed by New York law and was issued by an insurer that had and has no contact with Massachusetts other than the residence of the contract holder’s Massachusetts-residing participants. In those circumstances, an intelligent lawyer could present a range of constitutional-law and choice-of-law arguments for or against the application of the Massachusetts statute. Who’s your client; the employee or the former spouse? If your client has real money at stake, he or she might invest in some lawyering. If your client is the employer, does it have a reason to care what the insurer decides?

While I don't presume to give you advice, here's a few business suggestions for you to consider as you seek advice: (1) If you haven't already, retain a lawyer to help you deal with bankruptcy and insolvency situations. (2) Without necessarily changing the recordkeeper's entitlement to its fee, consider that it matters which person pays the fee. A recordkeeper's fee paid from the plan's assets leaves more value in the bankruptcy estate for the bankruptcy allocation among all of the debtor's creditors. For example, in Enron's bankruptcy, the court refused to grant Enron permission to pay the fees of the retirement plans' service providers; rather, each plan paid. (3) If the request for a return of fees is merely a request (and not a court order or otherwise required by law), ask for your lawyer's advice about whether to suggest that you'll pay a return the next business day after you've collected that amount as a payment from the plan's assets. (4) Ask your lawyer for advice about whether you should file one or more proofs of claim in the bankruptcy proceedings. (5) Consider that the recordkeeper might hold a negotiating chip: if you're not satisfied, you might end your agreement and deliver the records to the appropriate plan fiduciary. A credible threat that you might do so might persuade the plan fiduciaries that it makes sense to pay you. (6) Get your lawyer's advice about whether the portion of your fees paid by the insurance company must or should be treated differently than the other portions of your fees. It seems doubtful that the debtor should get a "return" of something that it didn't pay.

Bird, before you evaluate (or as a part in evaluating) whether the method you describe is not-too-wrong for ERISA purposes, you might ask the law firm (if it is your client) to evaluate whether State law and rules permit the lawyers to use their trust account to receive and pay over an amount that, even if related to a fiduciary relationship, concerns a relationship that does not arise from a lawyer-client relationship. State law might make such a use improper. But if State law doesn't preclude using the lawyers' trust account, using it might (in some circumstances) be consistent with a plan's fiduciary handling and accounting for the settlement proceeds as belonging to the plan.

An employer that prefers to stay "hands off" might include in its written 403(b) plan a clear statement that it will not decide anything beyond whether to accept or reject its employee's salary-reduction agreement. This might accomplish a goal of avoiding any discretion concerning a loan or distribution while also declining to decide whether a loan or distribution is allowed. This kind of written plan might also provide that the employer does not recognize a contract as one to which the employer will remit contributions unless the employer is satisfied that (1) nothing in the contract imposes, or purports to impose, any obligation on the employer; (2) the contract's provisions meet 403(b), and impose on the insurer or custodian obligations to administer those provisions. Please understand that I don't advocate this idea, but merely describe it as plan provisions that might be possible.

After some laughs .... AbbyP, does geography matter to the client you're thinking of? If the work is about advice-giving rather than a court appearance, a lawyer who is admitted in the State in which he or she is physically located usually may give advice to a client that happens to reside, or have some physical presence, in a different State. A few clients prefer a lawyer's physical presence in the room, but many clients are content with a telephone conversation (and some prefer it). And for many businesspeople, exchanging writings by e-mail is common (and often preferred). So maybe Blinky could be available after all?

M Norton, call Joe Cucchiaro, the operations chief at ExpertPlan; he's the real thing.

M Norton, call Joe Cucchiaro, the operations chief at ExpertPlan; he's the real thing.

The originating question also offers a glimpse into one of many reasons why it sometimes matters to consider exactly which person is the plan's administrator. If an employer is not the plan's administrator and in no other way is a plan fiduciary, ERISA might not always impose on the employer (rather than the plan's administrator) a duty to follow the plan. And it is unclear what contract obligation an employer might have to follow the plan. Moreover, even if it's clear that an employer breached a plan contract obligation, it's not obvious what remedy should be had by the participant who requested the act that is the breach. Alternatively, an employer that is also the plan's administrator and prefers to refuse the participant's request to stop the wage-deduction payments ought to have good grounds if the State wage-payment law is preempted. Further, as long as the plan's administrator has taken its position loyally and prudently (after getting its lawyer's advice), the expenses of defending the employer and plan administrator against a State labor regulator's proceeding ought to be a proper plan administration expense.

With the typical theft (and yes, these happen regularly), it is often the bank that paid or credited an amount to the thief that takes the loss. If the fraud is detected, the plan trust's payor bank simply dishonors the negotiation of the check. This means that the plan trust isn't missing the money because the check it drew never was collected. Or if a fraud was processed, the payor bank for its customer claims re-crediting. See, for example, UCC 4-111 (three years limitations period to get re-crediting based on an unauthorized indorsement). In Wachter, the court's sentencing documents named the victims owed restitution. The retirement plan, the plan's fiduciaries, and the recordkeeper were not among them. Even recognizing how some of the simpler thefts are socialized, any fiduciary should make the plan buy fiduciary liability insurance. If the employer doesn't pay all of the premiums, a would-be fiduciary should refuse to serve unless the employer pays the premium allocable to the non-recourse provision.

Counts one and three alleged in the indictment (to which the accused pleaded guilty) suggest that Danna E. Wachter submitted to a retirement plan’s administrator or its agent what purported to be the claim of another Harrah’s employee, using identifying information of that person. The indictment doesn’t say or suggest that any of the plan’s administrator, recordkeeper, or trustee did anything wrong. Rather, EBSA’s press release says that the thief “used her co-worker’s social security and personal identification numbers to [claim] an $18,000 distribution from her co-worker’s 401(k) account.” Sadly, the thief’s sentence is a concurrent imprisonment of only one year, with a fine of $0. About who bears the loss: It seems unlikely that fidelity-bond insurance should respond to the loss because there is no assertion that a bonded employee of the administrator, trustee, or recordkeeper committed a dishonest act. Fiduciary liability insurance might provide restoration to a plan for a loss alleged to have been caused by a fiduciary’s alleged breach. However, even with some related expenses, a small theft loss often is within an insurance contract’s retention or “deductible”. Much more likely is that the plan trustee and its bank dishonored the negotiation of a check not endorsed or deposited by the payee. This sticks an identity-theft loss with a bank that paid or credited an amount to a person other than the check’s payee. Because banks simply count these routine losses in expenses, all of us share the costs of these crimes. Although the court’s orders on Wachter’s sentencing include PNC Bank and Bank of America among the restitution payees, they together get only 26% of whatever payments the felon makes. Interest does not accrue on the unpaid restitution amounts. Even if the felon makes payments on the schedule set by the court (and what employer is eager to hire a felon?), she would be about 80 when she makes the last payment on the principal debt (without interest).

As jpod suggests, arguments could be made for and against many possible constructions or interpretations. If a plan's documents do provide the QJSA/QPSA regime (without any "profit-sharing" variation), there is nothing for the plan's administrator to decide; it simply follows the documents. If a plan's documents don't provide the QJSA/QPSA regime but the plan's administrator is concerned that it might have a duty under ERISA 404(a)(1)(D) not to follow the documents because ERISA 205 might require the QJSA/QPSA provisions, an administrator might consider further prudence steps. Among these, an administrator might seek its lawyer's advice about whether it may or must follow the plan's documents, or instead must ignore an ostensible provision (or absence of a provision) to the extent that it is inconsistent with ERISA 205. If a plan's sponsor is considering whether to create or amend a plan to provide an absence of the QJSA provision, it might want its lawyer's advice about whether the plan's administrator should follow or ignore such a written plan. Although some plan sponsors and some plan fiduciaries are reluctant to incur even a modest expense for a lawyer's advice, the fact that a group of experienced practitioners are uncertain about what is or isn't required suggests that careful attention to the questions of law could be worthwhile.

Some practitioners feel comfortable assuming that an individual-account plan is not a money-purchase plan (as mentioned in ERISA 301(a)(8)) if all plan documents (including all SPDs) consistently and affirmatively state that the plan is not a money-purchase plan, and the plan sponsor and all employers have not written or said anything that suggests a set obligation for a contribution beyond participant contributions.

Even after John Simmons' good outline, for those who would like to read the source itself (it's a little more than two pages), here's an attachment. Whether one advises participants or plan fiduciaries, another way to look at the panel opinion (with its addition) is to consider it in choosing what facts to allege, or what facts to design away so that a plaintiff couldn't allege them. Many of the possible facts that this panel said or suggested might move a complaint past the pleading standards might be facts that Mr. Hecker could have truthfully alleged from what he could have known (without court-sanctioned discovery) in 2006. If your client's name isn't yet on either side of a litigation caption, there's an opportunity to learn how to design a complaint, or a motion to dismiss it, using someone else's story as your lesson plan. order_denying_rehearing_in_Deere.pdf

snappy, thank you for your observation! It mostly confirms what I've suspected: An adviser that could most benefit from the new statutory exemption is one that can't exempt its intended service under pre-2006 law. But such an adviser isn't eager to develop a service until the law changes or enjoys an interpretation that's no longer controversial.

Before writing the text of the notice, it might be prudent for a plan fiduciary to consider whether to furnish the notice. If the employer's plan is an ERISA-governed plan, ERISA might preempt those provisions of a State statute that otherwise would require a plan fiduciary to administer the plan other than according to the plan's terms together with Federal law (and unpreempted State law, if any is relevant). To some, it might be tempting to volunteer the State's notice because one guesses that adding yet another notice might be less expensive than asking for a lawyer's advice about whether the employer must furnish the State's notice. (That a benefits analyst is thinking about how to write a notice suggests that it might not be so inexpensive after all.) But an ERISA-governed plan's fiduciary should consider whether furnishing the State's notice could be harmful to the plan's current or future ability to provide health benefits to the plan's participants and their beneficiaries.

Although the risk of litigation or even a claim might be remote, keep in mind that an EBSA Field Assistance Bulletin is not a rule (in the sense that the Administrative Procedure Act uses that word). A court need not defer (and need not even consider) a FAB in the court's interpretation of a statute. If a court considers a FAB, the court might not be persuaded by EBSA's reasoning. Some Federal judges are unimpressed by EBSA's use of non-rule guidance. Their view is not necessarily a criticism of people serving in EBSA, but rather is an observation about how the United States ought to decide law. That said, a FAB sometimes includes a generally useful overview, especially if a decision-maker has already decided that the stakes of a plan-administration question are so small that it would be imprudent for the plan to pay for any legal advice.

Using the summary plan description as the only writing that states the plan is the method that I've used. An employer that bears the financial consequences of a mistake or ambiguity in the written plan might consider that using a "prototype" provider leaves it with no one to share the consequences of inexactness.

In the words of the dull teacher in the Ferris Bueller movie: anyone? anyone?

If one wants the "PPA" statutory prohibited-transactions exemption for an eligible investment advice arrangement, ERISA 408(g)(5) requires an annual compliance audit on whether the arrangement meets the conditions of ERISA 408(g), and requires that the independent compliance auditor's written report be issued to the independent fiduciary who approved the plan's use of the arrangement. Has anyone seen such a report? Is anyone in America doing this?

Sieve is right to suggest that a plan's claim procedure or decision, especially concerning provisions that allow a pre-retirement distribution, could attract some risks of claims from a non-participant harmed by an administrator's weakness in detecting a participant's false claim. Deciding how much protection a plan's administrator wants against those and other risks is one of many factors about which an administrator should get its employee-benefits lawyer's advice when designing a claims procedure. A claims procedure usually involves tradeoffs among risk, control, expense, burdens, and even affecting the benefit itself. That's why an administrator must act as a prudent-expert fiduciary to the extent that a claims procedure isn't already specified by ERISA and the plan's governing documents. (A few times, I've directed administrators' and recordkeepers' cost accountings comparing expenses attributable to claims following approvals of hardship claims to expenses attributable to reviews of denials of hardship claims. If these expenses would not be absorbed by the employer and instead would be properly paid from plan assets, considering how these expenses affect benefits could be legitimate in a fiduciary's evaluation of a claims procedure.)

I wrote one last summer. An important step is to be extra careful in how the summary plan description states the benefit. Assume that a court would find that a participant may rely on the SPD. And assume that a court might construe every ambiguity in a way that finds a benefit. Focus on building a solid and clear claims procedure, and do it understanding that the employer has conflicting interests between deciding benefits and preserving its money.

Sieve’s interesting observation – that one doesn’t omit a diligence procedure merely because it’s possible that what the procedure asks for could be faked – leads to another discussion question: has anyone had an experience with an IRS examiner who asserted that the plan’s procedure wasn’t enough?

To show whether a person is the participant’s dependent, what evidence beyond the participant’s statement could “prove” this fact? I have heard (but not seen) that some administrators ask for a copy of a recent Form 1040 in which the participant names the dependent on line 6c. But for a participant who wants to make a false statement, taking only a few minutes to change an entry or two and reprint what appears to be a tax return seems like a low barrier to fraud. (A plan’s administrator has no way to check what tax return was filed with the IRS.) And because a tax return is its maker’s statement, how is asking for a tax return different from relying on the participant’s statement on the claim form? Further, looking to a tax return might not be too practical because it’s possible for someone to be the participant’s dependent under the hardship rule yet not be the taxpayer’s dependent for Federal income tax purposes. See, for example, 26 C.F.R. § 1.401(k)-1(d)(3)(iii)(B)(3)&(5) (referring to 26 U.S.C. § 152, but with some exceptions). Also, it’s possible that a person became a participant’s dependent after the taxpayer’s most recent year for which a tax return was required. Likewise, if the plan Sandy Smith asks about provides the deemed-need rule, whether expenses for medical care could meet the rule turns in part on whether the patient was the participant’s dependent when the medical services were provided OR when the participant paid the expense. See 26 C.F.R. § 1.401(k)-1(d)(3)(iii)(B)(1) (referring to 26 U.S.C. § 213(d)). What are people doing? Is there any useful evidence beyond the participant’s statement?

The so-called “red-flags” rule MIGHT require a retirement plan that has “covered accounts” for which there is a reasonably foreseeable risk of identity theft to use an identity-theft-prevention program. (So far, I haven’t yet had a retirement plan client ask for my opinion about whether the rule applies.) Among other provisions, a program must identify relevant patterns, practices, and specific forms of activity that are “red flags” that signal possible identity theft. The “red-flags” idea presumes that one is capable of identifying some set of facts that, if it occurs, suggests a more-than-normal probability that an actor might not be the person that a business expects to deal with. But that idea assumes that the business has a compare-to source to check whether a person who presents identifying information is an impostor. If a retirement plan’s recordkeeper receives an instruction that was delivered through a computer using a personal identification number and password that the plan had assigned to a participant, how would a recordkeeper know that the faceless user of the identifying information isn’t the participant? If a retirement plan’s recordkeeper receives a telephone call from someone who presented the identifying information that the plan requires, how would a recordkeeper know that the caller isn’t the participant? (Let’s assume that the impostor is smart enough not to use a male voice when impersonating a female participant.) In typical operations of an individual-account retirement plan, a recordkeeper doesn’t see the participant’s physical appearance, often doesn’t hear his or her voice, and often has no source to compare a currently presented document to other documents believed to have been made by the participant. Some recordkeepers put a delay on paying a distribution soon after an address change (and send a confirmation of the change to the participant’s previous address and to the plan’s administrator. But they do this regarding all address changes, because there’s no way to know whether a change is real. Is the typical “hold” on a distribution after an address change good enough? Is an identity-theft-prevention program just another written procedure? Or are there real things that recordkeepers are doing, or could be doing, to detect identity theft? I recognize that my query veers a little from the ‘does-it-apply-or-not’ question in Dune’s originating post. But some of the answers to my query might help Dune and others evaluate whether there is a “reasonably foreseeable risk of identity theft” for the purposes of the FTC rule. If there isn’t such a risk, a plan’s administrator might decide that a separate identity-theft-prevention program isn’t an essential. Or if there is a significant risk, a plan’s administrator might decide to use a program even if the FTC rule doesn’t require it. I’d appreciate information and suggestions from BenefitsLink’s many smart people.

It's an interesting observation that many working people (including those GBurns describes, and many kinds more) might not be in a position to make a personal telephone call until a meal break or after hours. If one assumes that a plan's investment-direction procedure closes a day's investment directions at 4:00 p.m. New York time, a wait to make the telephone call often might mean one business day's lag in implementing an investment direction. But perhaps a paper investment direction is similarly burdened. The worker must have time available to put it in the mail. And the mailing time might result in an implementation delay that's at least as long as what results from waiting to do an after-hours telephone call. Further thoughts from the BenefitsLink team?