Peter Gulia

If you were wondering why a recordkeeper is willing to accept responsibility for discretionary decisions on unforeseeable-emergency claims under a governmental plan when the same recordkeeper usually is unwilling to make similar discretionary decisions under an ERISA-governed plan, here's why. Although ERISA allows fiduciaries to allocate responsibilities, a fiduciary can't get rid of the ERISA 405(a)(3) co-fiduciary duties that result from having knowledge of another fiduciary's breach. Because a typical plan's named fiduciary is the employer and the recordkeeper's customer, it can be unpleasant to have duties to take steps to remedy one's customer's wrong decision. By contrast, a State's law of trusts and fiduciary relationships often allows more flexible opportunities to negotiate or manage co-fiduciary duties.

A small business is ready to begin a new 401(k) retirement plan. The business is the manager of an SEC-registered publicly available mutual fund. The business wants to include this fund as a plan investment alternative. (In addition to the specified fund, the plan fiduciary will select prudently at least one fund in every recognized general investment category, other than the category of the settlor-named fund.) Instead of a typical discretion that allows a plan fiduciary to select the investment menu, the business will create the retirement plan only if the plan specifies the "inhouse" fund as a settlor act. 1) Does any documents provider offer a prototype or volume-submitter plan that allows a user to specify a plan investment alternative by name? 2) Would such a plan have language (whether in the base plan or an adoption agreement) that precludes every fiduciary from removing the settlor-named investment alternative? 3) Would such a plan have language that precludes the plan sponsor from amending the plan to remove the creation-named investment alternative? Or would a lawyer be right to tell this business that implementing its purpose means paying for a custom plan document?

Knowing that using the website forms is a processing no-no, I had used the IRS ordering system to get paper forms. The system presented no choice about which year's forms to order. Sieve and Bird, thanks for your kind help.

An employer that maintains a one-participant retirement plan will file its Form 5500EZ reports for calendar plan years 2008 (on extension), 2007 (a slight amendment of a timely filed report), and 2006 (seeking delinquent-filer relief). For the 2007 and 2006 reports, is it okay to use the current forms? These will be handwritten, not electronic.

rcline46 gives the helpful suggestion that a TPA might prefer to be no less professional than an actuary, lawyer, or nonattest certified public accountant might be. Some practitioners in those professions do state engagement provisions for a retaining lien in a document (paper or electronic) that includes the practitioner’s work that hasn’t been fully paid for. Making a careful provision involves attention to: • States’ laws (including law concerning contracts and property), • relevant professional-conduct law and rules, and • rules for practice before the Internal Revenue Service [Circular 230]. As Bird mentions, some practitioners consider it reasonable to charge for an extra copy of a previously delivered document. Some also won’t deliver an extra copy until a retaining lien is satisfied by payment of outstanding fees. In some circumstances, it might be possible to rely on background law or common sense. But it’s often stronger to have a written agreement that states the client’s assent to the practitioner’s protections and provisions.

ERISA 504(a) [29 U.S.C. 1134(a)] provides the Secretary of Labor broad investigation powers, including powers regarding service providers. To narrow the scope of the inquiry, use a lawyer who has experience managing EBSA investigations of service providers. (Most of the people who have that experience are in-house at recordkeepers and investment complexes; but a handful are in outside law practice.) To pursue available confidentiality and privacy protections, use a lawyer who has experience with ERISA and the Freedom of Information Act.

Investigations of service providers has been PWBA/EBSA official policy since at least 1990, and was reaffirmed in 2000. The idea is that finding a problem at a service provider might lead to improvements for many plans. Also, although the preceding Administration's proposed rule to interpret ERISA 408(b)(2) is not adopted, some practitioners have observed that EBSA has required similar disclosures and protections as conditions in a settlement of an investigation. 2000008504.pdf

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?