Peter Gulia

Without considering whatever might or might not be required by law, I've never heard of an EBSA Investigator attempting to deny anyone an opportunity to get the advice of his or her lawyer. In my experience, an EBSA Investigator who has been informed that an interviewee is advised by a lawyer usually is cooperative about scheduling to meet the lawyer's reasonable availability. About the former trustee you describe, you and your lawyer might consider the possibilities that such an interviewee might choose the plan's regular counsel (if that lawyer is available and willing to so serve), or might choose a different lawyer. Because of possibilities for differing interests among the plan, all or some of the current trustees, and all or some of the former trustees, using a separate lawyer is something that a smart interviewee might at least consider, or even insist on.

It seems at least possible for a governmental employer to maintain a SEP with contributions other than salary-reduction contributions. If you need or want the details, check with the top expert, Gary Lesser, or buy his SIMPLE, SEP, and SARSEP Answer Book (which also advertises in BenefitsLink). And in thinking about rules against pay-to-play, don't limit your vision to the Federal Investment Advisers Act rule. The IAA does not supersede or preempt State and local laws that regulate lobbying and political activity (rather than conduct as an investment adviser). Almost all States, many municipalities, and some retirement plans have State and local laws that impose consequences on political contributions that, directly or indirectly, could benefit those who could influence a retirement plan's selection of a service provider.

At least under the 1974 law, the EBSA staff people - even in unofficial Q&A sessions - decline to say much about how an employer would find whether an employee is literate in another language but not in English. Although an employer might (or might not) be aware that its employee speaks another language, it much less often knows that an employee reads another language and does not read English. At least unofficially a staff person has suggested that, if plan assets would bear either expense, an employer might consider whether volunteering some foreign language assistance is less expensive than finding out who is literate in a foreign language but not in English. See Q&A 20 http://www.americanbar.org/content/dam/aba...uthcheckdam.pdf

Because BenefitsLink is a publisher, it's smart to be respectful of other publishers' property and rights. On posting (rather than linking to) an article or other publication, perhaps BenefitsLink should limit that to a short excerpt that is within fair use under U.S. copyright law. http://www.copyright.gov/fls/fl102.html Another use that BenefitsLink might permit is if the poster is the author and still owns the rights.

Even if the plan's purchase of the real property might not be a prohibited transaction, the plan's later sale to the trustee's wife (whether directly or indirectly through a strawman) would be. (For a plan not governed by ERISA, the citation is Internal Revenue Code 4975.) But if the trustee wants to buy and later sell this property, it's a straightforward matter to get an individual prohibited transaction exemption. An exemption would require, among other conditions, using an independent appraiser or valuation expert so that the plan sells at the correct fair market value price.

JBones, could it be as simple as asking the plan's sponsor to amend the plan, with retroactive effect, so that all documents are internally consistent?

Nassau, you didn’t quite say whether the person who might be an agent for someone was the participant/decedent’s agent or is the named beneficiary’s agent. If the participant named an agent, the agency ended with the principal’s death. If the agent is the beneficiary’s agent, what might the agent hope to do with whatever power the retirement plan might recognize? Has anyone filed a claim? Or is there perhaps nothing that now needs the administrator’s decision?

Leaving aside any question about what the payroll service did or failed to do .... Before considering any potential correction, the plan's administrator and the employer (are those the same corporation?) might prefer to evaluate whether there was or remains an error. For a participant who expressed his or her elective-deferral amount as x% of compensation, what (if anything) did the salary-reduction agreement say about what measure of compensation the x% is applied to? If the form said nothing on that point, should the salary-reduction agreement be read in context with the plan? Among the plan's several definitions of compensation, how does the plan define accrual compensation? And does the plan's provision for elective-deferral contributions (or limits on them) say anything about whether they're counted in relation to accrual compensation? Even if the x% should have been measured on compensation before the contributions for health (includling dental) insurance, did the employer and an affected participant, by conduct, change the salary-reduction election? Although a plan, summary plan description, and sra form might describe a method for changing an elective-deferral election, did the documents restrict changes to only the method described? If not, did a participant - by his or her conduct of accepting more pay without complaint (and perhaps adopting plan account statements that reported the lower contributions) - adopt or ratify a change of his or her elective-deferral election? (That view might be stronger if there are several writings, including pay confirmations, that show the revised amounts.) Although a State's wage-payment law (if not preempted by ERISA) might preclude a wage deduction that is more than what the employee authorized under the kind of writing required by the wage-payment law, the State law might not preclude a wage deduction that is less than what that writing authorized. When a situation of this kind is discovered in January or February, some practitioners suggest that a plan's administrator and employer wait for the employee's reaction to his or her W-2. If there is a complaint, respond to it. If an employee does not complain, that might be some further evidence that he or she assented to the contributions that were made. Of course, these are only practitioner-to-practitioner ideas (not advice), and each person should get the advice of his, her, or its lawer.

Last year I handled an EBSA investigation that, after my first letter (which set up my role as the target's attorney), was conducted entirely by e-mail. However, for beginning a response to an investigation, it's good practice to confirm, with the right supervisor or director and independently of the investigator who presents himself or herself, that the chain-of-command has authorized the investigation or inquiry. And you want to find out whether it's a P-53, 43, 47, 48, 52, or some other track. For a Benefit Advisor's easy Benefit Assistance inquiry, one might use less formality (but not for anything that poses a security or privacy risk).

The concerns about keeping clear of prohibited transactions and of disclosing that the plan trustees must not allow obligations to bondholders to impair their undivided loyalty to the plan seem much smaller than wondering who would invest in the bonds of an issuer that lacks sufficient power to increase the issuer's revenues.

Even if a debtor's retirement plan benefit is not excluded (as not property of his or her bankruptcy estate), a benefit can be exempt if it is "[r]etirement funds [sic] to the extent that those funds [sic] are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986." 11 U.S.C. 522(d)(12) [attached]. USCODE_2009_title11_chap5_subchapII_sec522.pdf

ERISAatty, if you'd like my help in thinking through your situation, please feel free to call me. I'm reluctant to discuss my observations on this practitioenrs' bulletin board because EBSA staff lawyers are among the readers.

For plan years that begin on or after November 1, 2011, the administrator and other fiduciaries of an individual-account retirement plan that provides participant-directed investment must see to it that participants (and those beneficiaries and alternate payees who are directing persons) are furnished sufficient information for them to make informed decisions. This disclosure is required (under an interpretation of fiduciary duties under ERISA 404(a)) even if none of the fiduciaries wants the protection of ERISA 404©. What are the essential differences (if any) in the disclosures required under these two rules? Is there ary disclosure required for protection under the 404© rule that is not required under the 404(a) rule?

Thanks for the help. And it is interesting that the promoters of the "Fiduciary Warranty" are some of the same insurance companies that also are deffendants in the undisclosed revenue-sharing and hidden-fees complaints.

ERISAatty, if your inquiry is about an existing deferred compensation plan or agreement, look at what that contract language says, and if it's not there consider what the relevant law of contracts is. When I advise an executive who is negotiating her deferred compensation, I sometimes advise that she insist on a clause affirmatively stating that her counterparty cannot assign any right and cannot delegate any performance. Rather, the contracting parties may change a right or obligation only under a complete novation. Admittedly, asking for a nondelegation provision isn't exactly necessary, because a delegating party remains liable for the performance delegated. See Restatement (Second) of Contracts section 318 (1981). But sometimes it helps to put the text in the contract: if the employer might imagine anything of the kind you've described, an express provision might remind the employer about the obligations before the executive would have to "go to law" to enforce the promises due her. If you advise the employer, consider that a delegation, even if not precluded, does not end the delegating party's obligation of performance (that is, the obligation to pay the promised deferred compensation).

More than a few insurance companies provide as a part of the package of investments and services for a retirement plan a "Fiduciary Warranty" that a plan's investment alternatives (within the provider's platform) will meet some specified ERISA conditions, and the insurer will indemnify the plan against its losses that resulted because, and bear the attorneys' fees of defending against a claim that, the plan's investment alternatives did not meet the specified conditions. The salespeople continue to tout these indemnities as a real value. Here's my question for practitioners: has any employer tendered a claim under one of these Fiduciary Warranty promises? If so, was it a good or bad experience for the employer? Did the insurer promptly start paying the employer's attorneys' fees? Did the insurer allow the employer to choose the law firm; or did the insurer try to push the employer to the insurer's preferred law firms? Or is a "Fiduciary Warranty" all sizzle and no steak?

3.14159265358979323..... and so on, consider that you might not get much expert opinion on this public website. Although some practitioners who read and write in BenefitsLink might be capable of giving advice about the situation you've described, practitioners are governed by professional, ethical, and practical rules. In my experience, a lawyer or an expert witness is unlikely to say much beyond generalizations until he or she has had some conversation with the inquirer and has ruled out conflicts of interests.

Christine, I haven’t looked State-by-State, but I happen to know Minnesota’s announcement. Minnesota’s Department of Revenue announced that, at least for wages paid before January 4, 2011, the Department won’t enforce Minnesota law that requires income tax withholding from wages to the extent of the portion of an employee’s wages that results from providing health coverage regarding a child who is not the employee’s dependent and is excluded from income for Federal income tax purposes. The period of this non-enforcement is ambiguous because the Department announced that it will not require this withholding “until the Minnesota legislature has had the opportunity to fully [sic] address adoption of the provisions contained in the [Federal law].” The announcement does not state what facts would lead the Department of Revenue to find that the legislature had a sufficient “opportunity”. Minnesota’s Department of Revenue did not announce a non-enforcement policy for reporting (rather than withholding from) wages. But the announcement suggests that the Department might have assumed such a policy: Since employees will be required to include those federally exempt benefits as income on their 2010 Minnesota income tax returns unless Minnesota law is changed, the Department of Revenue encourages employers to share this information with affected employees so the employees can decide whether to elect additional withholding if they are concerned about being sufficiently withheld. Employees can elect additional Minnesota withholding by completing Form W-4MN, Minnesota Employee Withholding Allowances/Exemption Certificate. The non-enforcement policy permits an employer to count Minnesota income tax withholding by applying Minnesota tax rates to Federal income tax wages. But because this is not required, a careful employer should explain to its employees what method the employer uses. In counting the Federal income tax wages of an employee whose child was covered under a health plan, the coverage of the child might be partly included and partly excluded. For example, if a child was not a dependent at any time in 2010 but was covered throughout 2010, an employer might treat 75% (9/12) of the year’s value of the child’s coverage as excluded from the employee’s Federal income tax wages, and might treat 25% (the portion of the year before the IRC § 105(b) exclusion began on March 30, 2010) as included. Or counting days might treat 75.89% (277/365) as excluded. If some of a child’s coverage is included in the employee’s income, that is measured by the “fair market value” of the coverage for the included period. The fact that the presence or absence of the child from the employee’s family coverage happens not to change the contribution required of the employee doesn’t by itself change the “fair market value” of the coverage.

Thanks everyone for your help. Kevin C, thank you for my confirming my hope that, although more years' errors would mean a walk into IRS-chaperoned correction, it doesn't necessarily narrow the range of corrections. K2retire, would a concern about not doing a cutback to an accrued benefit be removed if the plan defined each HCE's benefit as the largest amount that, after knowing that every NHCE's allocation is 3%, passes cross-testing? Tom Poje, your observation might in some ways be the flip side of K2retire's observation. One can imagine that the plan document might specify each NHCE's share of the profit-sharing contribution as a percentage of his or her compensation, and then could specify an HCE's share as an amount that results from the math of the cross-testing rules. Or one can imagine the converse: that each HCE's allocation is specified, and the NHCEs' allocations are the solve-for. Perhaps the simplest and most straightforward correction is to restore all allocations to what the plan document provided.

Sieve, thanks for your help.

Our hypothetical employer just discovered that the 2009 allocation of its profit-sharing contribution (intended to follow cross-testing rules) was incorrect because it provided only 3% for each NHCE, and this was less than one-third of the allocation rate of the HCE with the highest allocation rate. In a self-correction, must the employer reallocate the profit-sharing contribution it made, or may the employer pay another contribution and allocate it so that each NHCE gets one-third of the top HCE's allocation rate? Does our range of acceptable corrections change if the employer discovers that six years' allocations are affected by the same error?

ERISA § 4212© [29 U.S.C. § 1392©] provides as follows: If a principal purpose of any transaction is to evade or avoid liability under this part [the withdrawal-liability rules], this part [Part 1 of Subtitle E of Title IV of ERISA] shall be applied (and liability shall be determined and collected) without regard to such transaction. The statute doesn’t define “evade”, “avoid”, “transaction”, “principal”, or “purpose”. Likewise, the statute doesn’t define the phrase “a principal purpose”. The statute doesn’t refer to “the principal purpose” of a transaction, but rather to “a principal purpose”. A court should construe a statute to make meaningful each word that Congress used. Further, some courts reason that Congress is presumed to know the differences between otherwise similar phrases that it has used in different statutes. Many Federal statutes (35 that I found on a quick look) include anti-avoidance rules that refer to “the principal purpose” or “a principal purpose”. Each of the Pension Benefit Guaranty Corporation and the Labor department has not made a rule to interpret ERISA § 4212©. None of the PBGC’s opinion letters has analyzed whether a particular set of facts shows that a principal purpose of a completed transaction was, or of a proposed transaction would be, to evade or avoid withdrawal liability. There are hundreds of arbitration and court decisions about this evade-or-avoid rule – some officially published, more commercially published, and many that are available only from practice experience. Beyond Supervalu, here’s a quick look at a few decisions: In Santa Fe Pacific Corp., the Court of Appeals for the Seventh Circuit held that “[the] statutory criterion is not whether the transaction is a sham …. It is whether the avoidance of withdrawal liability … is one of the principal purposes of the transaction.” Santa Fe Pacific Corp. v. Central States, Southeast & Southwest Areas Pension Fund, 22 F.3d 725, 729-730, 18 Employee Benefits Cas. (BNA) 1010 (7th Cir. 1994) (emphasis added), rehearing en banc denied, 1994 U.S. App. LEXIS 14476 (7th Cir. 1994), cert. denied, 513 U.S. 987, 18 Employee Benefits Cas. (BNA) 2536 (1994). In Cuyamaca Meats, the employer had offered to continue contributions to the multiemployer pension plan, but only through August 1983. The Court of Appeals for the Ninth Circuit found that the employer’s “unilateral” implementation, after a bargaining impasse, of the employer’s rejected final offer (with its resulting withdrawal on September 1, 1983, rather than the day after the expiration of the preceding collective-bargaining agreement) was not an ERISA § 4212© evasion. Cuyamaca Meats, Inc. v. Butchers’ and Food Employers’ Pension Trust Fund, 827 F.2d 491, 8 Employee Benefits Cas. (BNA) 2310-2319, 126 Labor Relations Rptr. (BNA) 2193, 107 Labor Cases (CCH) ¶ 10168 (9th Cir. 1987), cert. denied, 485 U.S. 1008, 9 Employee Benefits Cas. (BNA) 1968, 152 Labor Relations Rptr. (BNA) 2640 (1988). The court explicitly found that the after-expiration and after-impasse contributions were lawful. The court’s reasoning concerning why implementing the employer’s final offer was not an evasion is confusing. One interpretation of the court’s reasoning is that the court implicitly found that reducing withdrawal liability was not “a principal purpose” of implementing the employer’s rejected final offer. Rather, the court suggested that the employer’s purpose was to act in a way consistent with its duties under the National Labor Relations Act [NLRA § 8, 29 U.S.C. § 158]. Alternatively, the court implicitly found that there was no “transaction”, perhaps because the bargaining parties never reached an agreement. Cuyamaca Meats, supra, 8 Employee Benefits Cas. (BNA) at 2317 (“Even assuming that this aim [to reduce withdrawal liability] was a principal purpose of the Employers’ last offer to the union, the legislative history [of MPPAA] suggests that [the] offer was not a transaction covered by 29 U.S.C. § 1392©.”). In Sherwin-Williams, an arbitrator found that avoiding withdrawal liability was a principal purpose of a sale of a business, and rejected the seller’s argument that it didn’t have such a purpose because the business was so obviously unprofitable that it would have sold the business even if there were no possibility of withdrawal liability. In re Sherwin-Williams Co. and N.Y. State Teamsters Conf. Pension and Retirement Fund, 17 Employee Benefits Cas. (BNA) 2725 (1994) (Gertner, Arb.). In his reasoning, the arbitrator expressly found that a transaction can have two or more principal purposes. The Federal district court affirmed the arbitrator’s decision. Sherwin-Williams Co. v. N.Y. State Teamsters Conf. Pension Fund, 21 Employee Benefits Cas. (BNA) 1307 (N.D. Ohio 1997), affirmed, 158 F.3d 387 (6th Cir. 1998), cert. denied 526 U.S. 1017. In Banner Industries, a company that had a withdrawal-liability exposure established a retirement plan and transferred the majority of the company’s shares to that retirement plan’s trust. The transactions made the company’s former parent a minority owner. The former parent argued that withdrawal liability could not be imposed on it because when the liability became triggered the former parent no longer was a part of the same employer as its former subsidiary. The former parent argued that the transactions – establishing the ESOP retirement plan and contributing shares to that plan’s trust – were not an evasion because the transactions had business purposes other than making the parent no longer responsible for its subsidiary’s withdrawal liability and had economic substance. The arbitrator rejected those arguments, and specifically found that whether a transaction had economic substance is irrelevant. In the Matter of Arbitration Between Banner Industries, Inc. and Central States, Southeast and Southwest Areas Pension Fund, AAA Case No. 51-621-0014-87-V (Jan. 22, 1989), 11 Employee Benefits Cas. (BNA) 1149, 1167 (1989) (Graham, Arb.), vacated and opinion withdrawn on other grounds, 12 Employee Benefits Cas. (BNA) 1992 (1990). The arbitrator interpreted the phrase “a principal purpose” to mean that if any motivation for a transaction was to avoid withdrawal liability, other motivations or purposes should not be considered. As always, none of this bulletin-board discussion among practitioners is advice, and you’ll want the advice of your lawyer. Perhaps you’d like to describe the hypothetical situation you’re thinking of so that BenefitsLink readers could discuss it with you?

Belgarath, it might be unnecessary for you to sort out whether testing is or isn't needed. Here's a few suggestions for you to get your lawyer's advice on: If the bankruptcy trustee ended your service contract, there might be nothing left to do. If your service contract is in effect, rely on its provisions that say you perform services only as the plan's administrator instructs. Ask the bankruptcy trustee (who has become the plan's administrator) whether the plan does or doesn't want testing. And if the trustee/administrator requests any service, collect the plan's payment before you begin work. If the bankruptcy trustee asks you to advise him or her about whether the plan needs testing, point out your contract's warnings that you don't render tax or legal advice. The trustee/administrator might feel frustrated by that response, but it's not your problem. Remember that the fact of an employer's bankruptcy doesn't undo the plan's ability to pay for the advice and services that the plan needs for its administration. In my experience, few bankruptcy trustees use that power. But why should any of us employee-benefits practitioners work for free?

David, maybe; but it's not clear what question, if any, remains in the thread.

Yes, although the restoration-payment rule is not necessarily the only means by which an employer may put money into a plan without it being a contribution. To meet the cited restoration rule’s conditions, there must be a reasonable risk of liability. One way to begin that analysis is to imagine each claim that an informed plaintiff could assert and then consider whether at least one claim might survive a motion to dismiss – applying recent interpretations that require a statement of a claim (with all facts alleged hypothetically assumed to be true) to be plausible. If helpful to allow money that the employer seems ready to provide, a practitioner might consider that selecting the contract that included the exit charge could have breached one or more duties, or that exiting a contract when doing so would impose an unanticipated (and perhaps undisclosed) charge on participants might be a breach.