Peter Gulia

David Rigby, GMK, and Kevin C, thanks for your good help. For these and all BenefitsLink mavens, a related question: If an applicant asked for an ERISA Advisory Opinion that a no-paper rule as described above doesn't cause the plan to fail to provide "a reasonable opportunity to give investment instructions", would EBSA give that opinion? Or would EBSA say that what is or isn't reasonable is "inherently factual" and decline to give any opinion?

An ERISA-governed 401(k) retirement plan provides participant-directed investment, and is meant to meet the conditions for ERISA 404© relief. The plan's sponsor and administrator would prefer to provide in the plan and its written investment-direction procedures (and describe in the summary plan description) that a participant, beneficiary, or alternate payee may give his or her investment direction only by computer or telephone, and not by paper. Allowed? Is a rule against paper consistent with the ERISA 404© condition that a participant must have an opportunity to give his or her investment instruction? Does anything else in ERISA make this no-paper rule impossible or impractical? (For clarity, the plan administrator understands that disclosures to a participant must allow a paper option, but is asking rather about whether plan procedures may restrict the form in which a participant renders his or her investment direction to the plan.)

To pay for reasonable services that the plan needs for its administration, consider also at least two more possibilities: A retirement plan could pay from the plan's (not the employer's) assets. A bankruptcy trustee might choose to assume its debtor's service agreement with a TPA, with the retirement plan or the bankruptcy estate (to the extent that an expense is necessary but not chargeable to the retirement plan) paying the TPA's fees.

Beyond a question about whether a plan could or couldn’t fit into a prototype, a church should prefer to use “custom” documents (if the church prefers that its plan be one that has not elected to be governed by ERISA and that maintains all conditions for church plan treatment). As someone who has written documents for several church plans, it’s no small project to say everything that a church plan should say and, more importantly, make sure not to say anything that the church plan should not say. In addition to getting documents, a plan sponsor should care about what assurance stands behind this. Even if an insurer or custodian furnishes church plan documents, how confident is the plan sponsor that it would succeed in making that business legally responsible for a defect in a document?

It's possible for an owner's interest to be worth less because of how decisions might be made by others. But it's also possible for an undivided interest that's not subject to others' management or control to be worth less because of a difficulty in assembling that interest with others' interests. These and many other considerations about how different kinds of ownership rights can affect value are a part of a fiduciary's evaluation.

Whether to continue or end a retirement plan is the plan sponsor’s creator or “settlor” decision. How to implement the plan termination that was so decided is the plan fiduciary’s decisions. And even if the plan isn’t terminated, a discretionary decision about what to do to make it feasible for the plan to pay or deliver distributions that are due is a fiduciary decision. If the plan’s circumstances focus attention on the plan’s lack of assets easily redeemable for money, an important step for a fiduciary might be to carefully consider whether he or she must or should recuse himself or herself from decisions about the land and other plan investments. A fiduciary who participated in the original decision to buy the land, one who didn’t act in response to under-diversification, or one who continued the plan’s investment decisions in recent years might have a conflict of interests. A fiduciary should not allow a situation in which his or her duty now to do what’s in the exclusive best interests of the plan and its participants could be compromised or influenced by his or her personal interest in diminishing his or her personal liability, or even by concern about mistaken perceptions. A better course might be to appoint an independent fiduciary to decide what the plan should do with its land and other assets needed to maintain and manage the land. John Simmons and others also are right to suggest that, whether it’s interests in land or interests in a trust or limited-liability company that owns land, a plan fiduciary should consider carefully all relationships, including governance and management of all organizations and entities involved. In particular, a fiduciary must consider whether a change in a form of ownership or legal rights advantages or disadvantages each stakeholder, and whether some might be affected differently than others. Beyond finding an absence of a prohibited transaction, a plan fiduciary must do these reviews as a part of his or her evaluation of whether a proposed transaction is or isn’t in the plan’s and its participants’ best interests, and if (as seems likely) there are conflicts among those interests, that the course of action is fair across those different interests. Some people might wonder whether it’s smart for the plan to incur an expense for an independent plan fiduciary’s services. But if the land really is worth about $2 million or more, paying something to conserve and protect the plan’s assets should be worthwhile. Moreover, such an expense for an orderly wind-up of the plan might be less than the expense of continuing the plan’s administration.

Before considering nondiscrimination under IRC 403(b), a governmental employer should consider what restraints apply under State laws. Some States' laws could be interpreted to preclude plan provisions of the kind described. Also, if an insurer's or custodian's annuity contract or custodial-account agreement is not among a plan's recognized investment alternatives, what agreement or document would impose the plan provisions on the insurer or custodian, and how confident are you that it would be legally enforceable against the insurer or custodian?

Does this difficulty in communications between the plan's fiduciaries and their service provider suggest that the fiduciary responsible for service-provider selections must consider a reevaluation and the possibility of inviting proposals from a range of candidates?

Do you mean paying LESS than the single-sum (not amortized) amount and nonetheless getting a satisfaction and release of the withdrawal liability? If so, I've had success in persuading a multiemployer plan's trustees that ERISA's fidicuary duties at least permit them (and could require them) to compromise their withdrawal-liability claim. A part of that persuasion involved citing relevant court decisions and a PBGC opinion letter. I'd like to help; but I'd want to do so after checking that your client's interest is congruent with my clients' interests. If you're interested, please call me.

A good way to help clients avoid this kind of mistake is to use Gary Lesser's software, which can do some of the internal math about how retirement contributions for oneself and his or her employees affects self-employment income. And it's always good to support a BenefitsLink advertiser: http://benefitslink.com/GSL/QPSEP_profile.html

Beyond caring about Federal income tax treatment, a business owner establishing his or her retirement plan might have other reasons to be careful about the plan's trust. Defending an exclusion, exemption, or other protection under bankruptcy law or other law about protection from one's creditors might turn on whether the plan and its trust meet all tax-qualification requirements or whether the plan's and trust's anti-alienation or spendthrift provisions are valid. Whether the plan's trust is valid under the non-tax law that governs the trust can matter for those protections.

There might be many reasons for a lawyer to give the advice or suggestion that he or she talks about; and to those of us who weren’t in a conversation the reasoning might not be discernible. All of the posters mention a practical observation: that the IRS (and EBSA, if a plan is ERISA-governed) might exercise some discretion not to challenge a way of managing a retirement plan that’s common and sometimes practically necessary. But beyond this, there might be some legal reasoning for why a “one-man show” doesn’t result in an invalid trust. The doctrine about a merger of legal and equitable interests might undo a trust if the would-be trustee owns ALL of the would-be trust’s beneficial interests. Restatement (Third) of Trusts §§ 2, 6, 25, 69; Uniform Trust Code § 402(a)(5). A comment to the Uniform Law Commission’s Uniform Trust Code makes clear the ULC’s view that “[t]he doctrine of merger is properly applicable only if all beneficial interests, both life interests and remainders, are vested in the same person[.]” The above-cited Restatement, which states the American Law Institute’s view of the common law of trusts, recognizes that a provision for a remainder beneficiary (other than the one person’s estate) makes a trust one in which not all beneficial interests belong to the same person. Further, a comment in another Restatement suggests ALI’s view that a settlor’s power to revoke a trust (and thus undo a remainder beneficiary’s expectancy) does not by itself result in a trust-defeating merger of legal and equitable titles. Restatement (Third) of Property: Wills and Other Donative Transfers § 7.1, comment b (2003). Of course, these sources are general, and a lawyer should consider the statutes and court decisions of each relevant State. This caution matters because, as the ULC comment observed, “[t]he doctrine of merger has been inappropriately applied by the courts in some jurisdictions to invalidate self-declarations of trust in which the settlor is the sole life beneficiary but other persons are designated as beneficiaries of the remainder.” Although the Uniform Law Commissioners might have found that some courts’ decisions were wrong, such a decision might be a relevant persuasive authority, or even a controlling precedent, for the law of a particular State. If merely naming a remainder beneficiary is good enough to sustain a revocable trust, it ought to be enough for the kind of irrevocable trust needed to support a § 401(a) retirement plan. A plan and trust creator who wants to be sure should get a lawyer’s written advice.

A tax rule gives us a way to think about how much assurance a receiving plan should ask for. The rule tells us that a receiving plan’s administrator must “reasonably conclude” that a proposed contribution is a valid rollover contribution. The rule includes four examples in which the information presented could allow an administrator to “conclude” that it’s “reasonable” to believe that the proposed contribution is a valid rollover contribution. 26 C.F.R. § 1.401(a)(31)-1, Q&A-14. (Please understand that I’m no defender of the rule. But even if the rule makes little sense, it’s the rule we have.) A plan’s administrator may depart from the procedures described by the examples. But such an administrator should be ready to prove that its departure from that norm was carefully considered and prudent. For example, a pension professional might render written advice that a plan’s different procedures are such that the administrator following them would have a “reasonable” belief that a proposed contribution is a valid rollover contribution. In the absence of such advice, it’s unclear what evidence a plan’s administrator could use to show that its procedure was prudent. Here’s why both employers and recordkeepers should want written procedures. A plan’s administrator should consider that it can’t be prudent to delegate a discretionary decision to a non-fiduciary. But it might be okay to allow a service provider to perform a task if the steps for doing it are sufficiently defined and non-discretionary. Likewise, a recordkeeper or TPA that prefers to be a non-fiduciary service provider should consider that exercising discretion, even if one doesn’t have authority to do so, can make one a fiduciary. That can mean liability to restore losses and expenses caused by one’s breach, and co-fiduciary liabilities for others’ failings. Another way to think about the risks of receiving a “rollover” that wasn’t is that those that benefit from accepting a contribution ought to bear the risks of accepting it. For example, an employer might negotiate with its plan’s service provider indemnities against the consequences of accepting a contribution that wasn’t a valid rollover contribution. Except for a contribution that the plan’s administrator instructed a directed trustee to accept, an indemnity seems fair.

JavaJitterz, without commenting on the particular fact situation you described, here’s two thoughts that you might include in your suggestions to your client. 1) In deciding whether a continuee’s employment did or didn’t end as an involuntary termination, an ERISA-governed plan’s administrator must act as a prudent person familiar with administering employee-benefit plans would act in meeting the administrator’s duties, including the duty to administer the plan in a way that’s consistent with applicable law and the duty to administer the plan for the exclusive benefit of the plan’s participants and beneficiaries (except as otherwise required by law). If an administrator is in doubt about whether a particular employment’s end was or wasn’t an involuntary termination within the meaning of ARRA § 3001(a)(3)© and IRC § 6432(e)(1), it must get expert advice (if a prudent person that acts according to ERISA’s standard would do so). Even in the absence of guidance from the Labor and Treasury departments, many good lawyers are ready to render that advice. It’s tempting to give a continuee “the benefit of the doubt” and find an involuntary termination to allow him or her the Government subsidy. But doing so can harm other participants and beneficiaries. Getting the subsidy might cause someone who otherwise might not have elected continuation coverage to take it. That coverage could affect the experience of the plan, and could lead to cost increases. A cost increase could make coverage less affordable for participants and beneficiaries. In a worst case, a cost increase could move a plan sponsor to end its plan, resulting in a loss of coverage for everyone. Although it seems a cruel choice to worry about whether allowing social subsidies for some could damage a health coverage opportunity of others, meeting fiduciary duties might at least permit (and some might say should require) an employer and plan administrator to consider these potential consequences. 2) If a claimant requests but is denied treatment as an assistance-eligible individual, he or she may choose a review by the Secretary of Labor. If the Labor department follows Congress’s Act, it would decide the review by 15 business days after it received the application for review. See ARRA § 3001(a)(5).

If an employer (or an executive of the employer) serves as a retirement plan's trustee, the typical plan and trust documents don't even try to exclude a duty (and power) to pursue collection from the employer. (Trying to allocate away a collection duty is among the favored provisions of a trust agreement designed for a directed trust company.) Rather, the employer trustee has the authority, but too often neglects to use that authority. This is another good illustration about why Congress should require that every ERISA-governed retirement plan have at least one fiduciary that is independent of the employer.

John, I can help you negotiate this in a way that the insurer or custodian should accept, and that avoids a task for the employer. (I've done the negotiation from both sides.) My legal analysis about how to approach the problem is one that I don't feel comfortable posting on a public website. Please feel free to call me.

Someone might argue that ERISA doesn't preempt a State law to the extent that the law regulates insurance. ERISA 514(b)(2)(A). An employer that obligates itself under a group health insurance contract has some obligations under that contract. Along with this, a continuation provision might be an express or implied provision of the contract. Following this, some might argue that an employer could be included in "any person" that ERISA doesn't "exempt or relieve" from a State law that regulates insurance. On the other hand, I wouldn't mind seeing an employer refuse to collect continuation premiums. I'd like to see how the litigation turns out.

John, I don't know your client's situation, but in my experience few governmental or tax-exempt employers are ready to pay a lawyer or any professional for the time it takes to read a plan; and fewer still will pay a professional to think about the plan's provisions. Depending on your client's circumstances, a method that sometimes helps a little is to focus the limited effort that the client will pay for on negotiating the service agreement so that the recordkeeper will be stuck with fixing defects without any incremental fee and at the recordkeeper's expense. If the employer maintains a nongovernmental 457(b) plan, there are some opportunities to use others' desire to protect against personal liability as a way to get more professional attention on a plan.

Here's an explanation of one of New Jersey's continuation provisions. http://www.state.nj.us/dobi/division_insur...sehblt07_02.pdf

Another ambiguity to unravel: How does a multiemployer health plan get reimbursement of the portion of a continuation premium not paid by the continuee? A multiemployer plan might have few employees (or none at all) to take a credit against payroll taxes. And there might be no law or agreement that requires the continuee's former employer to have any involvement in collecting continuation premiums. Concerning union-represented employees, some employers don't provide any facility for handling welfare-benefits contributions, even for active employees. The statute does say that if the premium assistance due is more than the credit against payroll taxes aborbs, the Secretary of the Treasury treats it as an overpayment of payroll taxes. But the mechanics might be difficult, especially concerning a multiemployer plan that happens to have no employee. The statute also says that its provisions for the person entitled to reimbursement, and the method of reimbursement, are "except as otherwise provided by the Secretary".

If one wants ERISA 404© protection concerning participant-directed investment in employer securities, passing through voting rights isn't permissive, but rather necessary. 29 C.F.R. 2550.404c-1(d)(2)(ii)(E)(4)(vi). Also, the plan must have procedures that are designed and implemented to prevent the employer and its affiliates from knowing how participants voted, or even whether a participant invested or didn't in employer securities. See 29 C.F.R. 2550.404c-1(d)(2)(ii)(E)(4)(vii)-(ix). Further, if the fiduciary responsible for the confidentiality procedures finds that there is a potential for the employer to influence participants, it must appoint an independent fiduciary for those situations. 29 C.F.R. 2550.404c-1(d)(2)(ii)(E)(4)(ix). The only logically sound solution is to use an independent fiduciary for all stages concerning employer securities.

George Chimento, thank you for asking insurers about what they expect to do. Is anyone aware of a State's "mini-COBRA" law that doesn't require the employer or group contract holder to collect continuation premiums?

An employer considering whether to allow the arrangement that Benny Guy describes might want its lawyer's advice about: whether a purported life insurance policy really is a contract enforceable against the insurance company; whether the IRC 79 exclusion from income might not apply because the arrangement might not be group-term life insurance carried by the employer; whether the employer must tax-report as its employee's wages the fair-market value of the life insurance protection (if any) provided; whether the employer must withhold FICA taxes and Federal and State income taxes from those wages; whether the arrangement is an ERISA-governed plan; what fiduciary and other responsibilities the employer has under ERISA or other law.

Some plan administrators inform the payee that the portion not rolled over, including the mistaken-payment portion not rolled over because it wasn't eligible for rollover, is subject to income taxes AND, if contributed to an IRA, an additional excise tax on excess contributions. If the payee purportedly made a "rollover" into another employer's plan, the mistakenly-paying plan administrator demands that the other plan return the amount that was mistakenly paid to it.

Just an observation: I don't think that a recordkeeper has no choice but to implement the administrator/trustee's instruction; rather, it's that ordinarily a non-fiduciary recordkeeper has no duty or obligation to question an instruction. Nonetheless, there are some recordkeepers that prefer to question, and even refuse, troublesome instructions. That too is a business choice.