Peter Gulia

Thank you!

Last week, the Financial Accounting Standards Board announced FASB's approval of a new accounting standard (not quite finished) for a little disclosure that might help a careful reader begin its own analysis about the business' exposure to liabilities that relate to a multiemployer defined-benefit pension plan's weak funding. Nowadays, many observers of accounting compare a U.S. standard to an international standard to consider how similar or different they are. What does international accounting standards call for to explain a business' exposure to liabilities that would result if an employer withdrew from a pension plan?

Even if one could be confident that no report is required, a report might nonetheless be permitted. Shouldn't a plan fiduciary want to file something (even if the information reported does no more than identify the plan and show, by context, the reliance on the FAB relief) because a filing might trigger the running of a statute of limitations or a statute of repose, or might support an argument that the plan's administrator acted in good faith?

Shouldn't such a plan's administrator prefer to file an annual report (even with some zeros) to show that it met the ERISA requirement?

I hadn't fully focused on the idea that someone who was INcluded might ground on a claim on the harm that results from getting more choice. Thanks again for helping me think about this.

Thanks for the help. By plan design, this employer means that the provisions about who may or cannot chosse the "brokerage-window" account are "hard-wired" in the plan document. Although a plan's administrator must act with prudence, a fiduciary does so in the course of administering the plan that it is given. And usually an administrator must administer the plan according to its documents unless a provision is contrary to ERISA. Although I don't like what this employer wants to do, I'm unlikely to persuade them unless I can describe a real risk of monetary liability. If an HCE who was denied the opportunity to direct investment using a "brokerage-window" account sues, what is her theory about why the plan's administrator (or any plan fiduciary) had a duty to disobey the plan's written provisions?

One criticism of these studies is that our public-policy interest is not only about those who make elective deferrals but also about those who, in the absence of an implied-consent enrollment, would not make any elective deferral. But another way to consider this strand of research suggests that we experiment with setting the presumed "default" elective deferral at a considerably higher rate. Setting too high a rate might lead some people to opt-out to zero. But we could gradually increase the "default" contribution until we reach the one that causes too much drop-off, and then we'd set the rate one step back.

My client is considering the following plan design. A "brokerage-window" account is an available investment alternative for ALL non-highly-compensated employees, and for those highly-compensated employees who hold the CFA (Chartered Financial Analyst) designation. Although it seems strange to look for a knowledge indicator but not require it for non-highly-compensated employees, the employer believes that this is necessary to avoid non-discrimination problems. Leaving aside any questions about the wisdom of this plan design, am I right in guessing that it does not raise a 401(a)(4) nondiscrimination problem because the only persons discriminated against are highly-compensated employees? Do you agree with the employer's view that 401(a)(4) constrains it not to impose the CFA condition on non-highly-compensated employees? Assume that in this employer's workforce about 40% of NCEs hold the CFA designation, and about 60% of HCEs hold the CFA designation.

Nassau, guessing that your purpose is to help the plan’s administrator, you might suggest that the administrator include in its information-gathering asking its lawyer for advice about whether a separated spouse is a spouse for survivor-annuity or spouse’s-consent purposes. At least a few courts have found that no matter how long a separation continues, a marriage does not end until a court orders the divorce. Example: In 1984, Barbara and Alfred separated. In 1986, Alfred sued for divorce. In 1991, Alfred died. A divorce had not been ordered. Despite seven years’ separation, Barbara was Alfred’s wife until his death. Although the plan had previously paid distributions, she was entitled to the survivor portion of the QJSA that would have been paid in the absence of her consent. Davis v. College Suppliers Co., 813 F. Supp. 1234 (S.D. Miss. 1993). Example: Ben married Wessie in 1954, separated from her in 1957, and lived with Adelaide until his death in 1989. The woman who lived with Ben for about 32 years got nothing, and the legal wife of about 3 years got all death benefits. Hernandez v. Igloo Prods. Corp. Retirement Plan, 868 F. Supp. 200 (S.D. Tex. Houston Div. 1994). Even a finding of fact that the spouse abandoned the participant is irrelevant. In re Lefkowitz, 767 F. Supp. 501, 508 (S.D.N.Y. 1991), affirmed sub nom. Lefkowitz v. Arcadia Trading Co. Ltd. Defined Benefit Pension Plan, 996 F.2d 600, 16 Employee Benefits Cases (BNA) 2516, Pension Plan Guide (CCH) ¶  23880Z (2d Cir. 1993). Other cases that involve “who’s the spouse” questions include: Grabois v. Jones, 89 F.3d 97, 20 Employee Benefits Cases (BNA) 1505 (2nd Cir. 1996); Central States, S.E. & S.W. Areas Pension Fund v. Gray, 31 Employee Benefits Cases (BNA) 1748, 2003 U.S. LEXIS 18282 (N.D. Ill. Oct. 8, 2003); Croskey v. Ford Motor Co.-UAW, 2002 U.S. Dist. LEXIS 8824 (S.D.N.Y. May 2, 2002). If a plan’s administrator makes a discretionary decision on whether a participant did or did not have a spouse, the administrator should follow ERISA’s claims-procedure rules, obtain information necessary to evaluate the claims and other questions presented, obtain and consider its lawyer’s advice, compile a sound administrative record, explain its decisions, and further act with care so that a court may defer to the administrator’s decisions. See, e.g., Blessing v. Deere & Co., 985 F. Supp. 899–907 (S.D. Iowa 1997). Please understand that the information above is general and is not advice to anyone. Also, I haven’t checked it recently.

The rules for tax treatment as a qualified plan suppose that a participant's benefit or allocation must be determinable, and that a plan's administrator administers the plan according to the written plan. An implication of the IRS corrections described in the preceding posts suggests that a plan that was operated consistent with then-apllicable tax law but, at least on some points, contrary to its document can be made okay. And for a provision that isn't yet required to be stated in the form of a plan amendment or restatement but is put into effect "in operation", doesn't this way of doing things require a plan's administrator to ignore the written plan? If the IRS's playbook tells us that it's okay to ignore the written plan whenever the IRS finds that it is or was too inconvenient to have put the plan in writing, what is left of the idea that a plan's administrator administers the plan according to the written plan?

But, since President Carter's 1978 reorganization, the Treasury department lacks power to decide a prohibited-transaction exemption.

Gary, a quick look at EBSA's webpage on class exemptions does not show an update PTCE 93-1. http://www.dol.gov/ebsa/Regs/ClassExemptions/main.html Here's the more important question: Why does this broker-dealer think that, after it makes its profit margin of 20% or more, its excess compensation will still be enough that the b-d can afford to pay up $500 for opening an account?

Belgarath, thank you for suggesting the idea of a TPA or recordkeeper paid by the plan's sponsor, rather than directly or indirectly from the plan's assets. It's been so long since I've seen that arrangement that I had simply forgotten about it. On my hypo, an insurance agency might escape ©(1)(iii)(A)(1) if it is careful enough to avoid becoming a fiduciary, but might be covered under ©(1)(iii)© if its selling is treated as an insurance service. Neither that bit nor the lead-in says that a service is limited to a service provided to the plan or its fiduciary. Arguably, a service provided only to the insurance company might nonetheless be a covered service.

What about an insurance agency that provides no service other than persuading a retirement plan to buy a group variable annuity contract; covered or not?

Looking at the new "compensation disclosure" rule and considering its definitions that provide many ways that one can be treated as a covered service provider, I'm wondering whether much of anybody is not so covered. Thinking about the usual players that serve a 401(k)-style retirement plan, is there anyone that (leaving aside the possibility of compensation less than $1,000) is NOT a covered service provider?

As part of an effort to set domestic workers as not employees, sometimes a service recipient makes sure that the agency not only has full legal rights and obligations to control the workers' performance but also in fact visibly exercises those controls and sometimes rotates the worker assigned to a job. To return to ERISA13's query, it would be nice to learn whether any BenefitsLink reader has had any experience with implementing a qualified plan for a household employee.

Internal Revenue Code section 4972©(6) makes it possible. But I haven't seen it done because the people I know who use domestic help set up arrangements designed to support a position that the worker is not the service recipient's employee.

Chaz and David Rigby, thank you for helping me think this through. The national multiemployer health plan is "self-insured" - that is, the plan pays benefits from the plan's assets without regard to an insurance contract. My dim understanding of labor-relations law is that when bargaining parties do not agree enough to conclude a written collective-bargaining agreement they may nonetheless put into operation those terms (if any) that the parties agreed on and the employer's last offer. In the hypothetical circumstances, the employer believes that it was and is obligated to contribute to the LOCAL health plan at rates ageed in a written memorandum of understanding.

I’d like to know what BenefitsLink mavens think about the following hypothetical snafu: For decades, an employer’s collective-bargaining agreements provided for contributions to a multiemployer health plan tied to the union local. (Although in formal terms the plan has two slates of trustees – elected from employers and from the union, in practical operation the union local’s staff runs the plan; and the union local’s chief makes the plan’s coverage-buying and management decisions.) For decades, the employer has regularly paid contributions to the local health plan. In the most recent collective bargaining two years ago, the parties bargained to impasse. The employees have continued to work. The employer has continued to meet all obligations that it agreed to in the incomplete collective bargaining along with all obligations of the expired collective-bargaining agreement that were not displaced. Among these obligations, the employer has continued to pay its contributions to the local health plan. Several months AFTER the collective bargaining ended, without the employer’s consent or involvement, the local health plan arranged to get coverage from a national multiemployer health plan. The employer signed nothing. All enrollment forms were signed only by the employee, with nothing written by the employer. Although some employees pay contributions (if the “premium” for his or her coverage is more than the amount that the employer is obligated to pay), the employer has no involvement concerning those payments. The employer has never agreed to a dues check-off or wage deduction for any purpose. After the local health plan switched coverage, the union local’s agent requested a few times that the employer sign the national health plan’s participation agreement. The employer declined to do this. The employer believes that it never agreed to become a participating employer under the national health plan, and that it never agreed to do anything other than pay an amount of money to the local health plan. This absence of a participation agreement now seems to be at a boiling point. The national health plan has informed the local health plan that, if the desired participation agreement is not received by a due date that the letter specifies, the national health plan will end coverage for the employer’s employees (and their spouses and dependents). If it matters to our thinking, the documents of the national multiemployer health plan make clear that the plan is not insurance. (Although to participants the plan looks like mainstream PPO health insurance with big insurers, those insurance companies provide only administrative services.) The local multiemployer health plan’s most recent Form 5500 reported the plan’s arrangement with the national plan as though the arrangement were insurance. Its preceding year’s Form 5500 reported that the plan bought coverage from a health maintenance organization. If the national health plan ends its coverage, am I right in guessing that the national health plan does not provide COBRA continuation coverage because the loss of coverage would not have resulted from a termination of employment or reduction in hours? Assume that the employees continue to work at least full time and work all regularly scheduled shifts. If the local health plan ends its coverage, is it likewise so that the local health plan does not provide COBRA continuation coverage? The employer’s obligation to pay contributions to the local health plan was grounded on a natural understanding that the local health plan would provide coverage to the employer’s employees. If the employer knows that coverage is not provided, must the employer nonetheless continue to pay its contributions? Assuming that the national plan’s fiduciaries lacked express knowledge that a group of employees had been enrolled despite the absence of the employer’s participation agreement, do the fiduciaries have any responsibility for suddenly ending coverage after having allowed the situation to continue for a year and a half? If, because of these circumstances, an employee lacks any health coverage and has an expensive hospitalization, could the employer or the union local be liable for those uncovered expenses? Does the employer have any legal responsibility to help its employees get health coverage? The employer might feel a moral responsibility to help its employees get other health coverage if the employer can do so without violating any law. If the employer wants to help its employees get coverage through means other than multiemployer health plans, is there anything that the employer can do? Or does labor-relations law preclude the employer from communicating with the employees other than through their bargaining representative?

The plan's administrator might consider whether its duties include a duty to obey the plan's terms (to the extent that the plan's terms are not contrary to applicable law). Also, some plan administrators might correct an election if the participant shows that a failure to meet a due date resulted from the participant's physical or mental disability. In the absence of such a disability, a plan's administrator might evaluate carefully - especially if applicable law includes a fiduciary duty of impartiality - whether and why it should afford relief to a participant who failed to meet a due date that others were bound by (and met).

Does the West Virginia statute or other law really restrain the payment, or is it rather a restraint on the payee's deposit or negotiation of a payment? If the retirement plan is administered by a State or local government official, does West Virginia law permit the official to ask for the Attorney General's advice? On the idea you describe about paying for the services of a distributee's conservator, one wonders whether citizens might question such an expense as possibly an inappropriate use of the State's or its political subdivision's resources? Or if the plan might bear such an expense, one wonders whether the plan's participants might question the expense? Although a plan fiduciary might have some duty of obedience to administer a plan according to applicable law and the plan's terms (to the extent that the plan's terms are not inconsistent with applicable law), such a duty might have some room for recognizing duties to incur only those expenses that are no more than what is necessary and proper to administer the plan. Of course, this isn't advice, bur rather some partial suggestions about how one might prepare to seek advice.

Christine, as I read the Bulletin’s key condition, it is that the contract rights against the insurer are legally enforceable by a participant without involving the employer. I don’t read the key sentence as requiring that the insurer’s rights against the group holder (if there is one) or against a participant – or, differently stated, the group holder’s or a participant’s obligations – must be enforceable by the insurer without the employer’s involvement. To use one of your examples, that an employer might choose not to get involved in whether a participant takes a minimum distribution does not impair a participant’s right to take a distribution (if he or she otherwise is entitled to it). The second contract provision you quoted could be troublesome if a plausible interpretation of it (considering the whole contract) is that the insurer is not obligated to pay a benefit unless the plan administrator has confirmed to the insurer that the benefit is correct under the plan. If such an interpretation is correct, that would mean that a participant acting alone could not enforce his or her contract rights. However, some 403(b) insurers purport to “require” a plan administrator’s decision even in circumstances for which the “requirement” cannot be a correct reading of the annuity contract.

Nassau, your starting point might be to consider carefully which person is your client, and perhaps more importantly, who is not your client. For example, if your client is the plan administrator’s recordkeeper, it might have nothing to consider until an instruction is submitted to it. Or if your client is the plan’s administrator, it might have nothing to consider until it has received a claim to approve or deny. (Your description of the hypothetical facts suggests that the participant is not your client.) If a need develops, read carefully all of the plan’s documents. That the participant’s account balance is more than $5,000 does not, by itself, require a qualified election. An individual-account (defined-contribution) plan might provide a 100% death benefit to a surviving spouse, and following this might not require a qualified election for a retirement distribution if the participant cannot or does not elect that it be paid as a life annuity. See ERISA § 205(b)(1)©. If an ERISA-governed plan (as applied to the participant’s claim) ordinarily requires a spouse’s consent to complete the participant’s qualified election, only three possibilities would excuse the spouse’s consent: (1) there is no spouse, (2) the spouse cannot be located, or (3) the spouse’s consent cannot be obtained “because of such other circumstances as the Secretary of the Treasury may be regulations prescribe.” ERISA § 205©(2)(B). (That third category might apply only if the rule is not contrary to the United States Constitution and otherwise is valid law.) Concerning whether there is a spouse, at least one court found that even a finding of fact that the spouse had abandoned the participant would be irrelevant. In re Lefkowitz, 767 F. Supp. 501, 507-508 footnotes 11-12 (S.D.N.Y. 1991), aff’d sub nom. Lefkowitz v. Arcadia Trading Co. Ltd. Defined Benefit Pension Plan, 969 F.2d 600, 16 Employee Benefits Cas. (BNA) 2516, Pens. Plan Guide (CCH) ¶ 23880Z (2d Cir. 1993). On the idea that a participant’s spouse “cannot be located”, at least one court decision suggests that an administrator, to meet its fiduciary duties, must not simply accept the participant’s statement, but instead must do something independently to evaluate whether the spouse can be located. Lester v. Reagan Equipment Co. Profit Sharing Plan, 1992 WL 211611, 1992 U.S. Dist. LEXIS 12872 (E.D. La. Aug. 19, 1992). If the third class of possible excuse from requiring the spouse’s consent might apply, a possible excuse might be as follows: Q-27: Are there circumstances when spousal consent to a participant’s election to waive the QJSA or the QPSA is not required? A-27: Yes. .... Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. 26 C.F.R. § 1.401(a)-20 Q&A 27. A lawyer who advises a plan fiduciary might consider advising her client that – while it might be proper to furnish information that the participant needs to understand the plan’s provisions – it is unwise for the fiduciary to attempt to advise the participant. Along with several other reasons, an act, even one that is obviously sound and in the participant’s interests under the terms and related law of the employee-benefit plan, could disadvantage other rights and interests of the participant. The above suggestions are no more than a few incomplete ideas about how a lawyer might prepare to consider her client’s questions; and this is not advice to anyone.

If a designer seeks to allow different investments for a highly-compensated employee, what about this: A plan that includes non-highly-compensated employees and some highly-compensated-employees provides participant-directed investment. The separate plan for the differently-investing highly-comjpensated employee does not provide participant-directed investment. Can this work, or is it too clever? Could the IRS argue that the opportunity not to be burdened by a duty of participant-directed investment is a right or feature not available to the non-highly-compensated employees?

If EBSA's investigator suggests that the former trustee might benefit from a separate lawyer's advice, that's an idea that the former trustee should consider quite carefully. And everyone on the scene should consider the several possible implications of the investigator's suggestion. Without knowing the facts of the situation (and you're right not to describe them on a public bulletin board), I won't pretend to say what's at stake. But it's easy to imagine that there are stakes, and that there could be differing interests.