Peter Gulia

The plan's administrator would be glad to pay the beneficiary's guardian or conservator. But the plan's administrator has been unable to find any such person. The reason for searching court dockets was a hope of finding a guardianship proceeding or, failing that, an estate proceeding that might mention a name of someone who might be proposed as a guardian. All the searches came up empty. Again, even if the administrator finds an address for the child, that does not necessarily mean that we'll find a guardian, and the circumstances suggest that it's likely that the beneficiary is in the care of someone who is not her guardian.

Here's a puzzler for BenefitsLink mavens: A participant died about five years ago. A regular report designed to catch accounts that need a minimum distribution flagged this deceased participant's account as one that should be in the upcoming batch of required distributions. The problem? The participant's beneficiary is her daughter, who recently turned eight (if the birthdate in the recordkeeping system is to be believed). Worse, the plan's administrator already has done some fact-digging and has found the following. The apartment that the participant gave as her address now has as its occupant a person who is unrelated to the participant or her daughter. A search has not found any address for the beneficiary. Searches of court dockets on both the participant's name, her daughter's name, and their common surname did not find any proceeding. Even if a further investigation finds an address for the beneficiary, is it prudent to make the plan's single-sum distribution check payable to a beneficiary that the plan's administrator believes to be an 8-year-old? If that's not prudent, do you think that the Internal Revenue Service (on examination) would accept your decision to disobey the plan's terms?

mal, thank you for the helpful explanation. It shows once again how difficult it is for every practitioner to imagine every concern. So that I might learn some more, what is it about the group health plan's administration that would cause a healthcare provider to learn the identity of a person other than the covered beneficiary?

Yes, I do suggest that a system: warn a participant that a beneficiary designation, even if it does not currently require a spouse's consent, won't be effective if later there is a spouse. remind a participant - when the data sees the presence of a spouse - that a beneficiary designation not consented-to by the current spouse is ineffective. Along with these and other warnings, I envision a system that gets data feeds from the employer's health plan and all other employee-benefit plans and employment-related records. (If not data feeds, the employer that serves as the retirement plan's administrator should update the data frequently and regularly.)

How about the following as another possibility? The plan's administrator accepts a computer-entered beneficiary designation only if it provides 100% of the death benefit to the participant's spouse OR the system confirms that the participant does not have a spouse. If a participant has a spouse and wants to name a beneficiary other than his or her spouse, the administrator requires the participant to put ink on paper and do so in the presence of a notary. GMK is right to remind us that explaining to a court how a system works involves some expense. But in some circumstances, a prudent plan administrator might find that efficiencies from computer-system beneficiary designations outweigh the risk and expense. And at least one Federal appeals court has recognized that acts done using the participant's identifying information and password bind the participant. Foster_v_PPG_Industries.pdf

What does the plan document say? If the participant's quasi-premium does not vary with the existence or non-existence of a beneficiary beyond the participant, is it possible that there is no election for the participant to make? If it's about amending the plan, why would the employer want to do that (assuming it had been satisfied with the plan's design)?

Is it also possible that this factor could cut the other way? Might a government agency consider the fact that a plan gets services from a provider that the agency recognizes as a quality service provider as a factor that reduces the plan's risk?

Do you think that it's a good thing, or a bad thing, that a 2012 Form 5500 permits reporting information about a preparer? http://www.dol.gov/ebsa/5500main.html How would showing preparer information help or hurt you?

Thanks. Just so that I learn something, am I right in guessing that the expense differential you mention results because the plan administrator has available in-house a printer that can only print single-sided, but would incur a greater expense to go outside to a printer that can print double-sided?

ERISA section 4(a)(1) states: "[T]his title shall apply to any employee[-]benefit plan if it is established OR maintained by an[] employer[.]" Even if the employer does not 'maintain' the plan, ERISA applies if the employer "established" the plan. How does a plan specify which employees are excluded from the plan without the employer 'establishing' the plan? Although a court should defer to 29 C.F.R. section 2510.3-2(f) to the extent that it is a plausible interpretation of an ambiguous statute, could a judge find that the employer's act of writing a document that involves a provision not required by the Internal Revenue Code (excluding people without a need to do so to get IRC 403(b) tax treatment) is a something that's not one of the six things recognized under the "sole involvement" interpretation? And could a judge find that deciding which class of employees are eligible to participate 'establishes' what the plan is?

For some employers' health plans, a practical method might be to e-mail the .pdf file. Although the administrator must furnish paper on a participant's request for it, in my experience almost no one requests it. For the one or two people who do request a delivery of paper, use a laser printer to print the eight pages double-sided on four sheets. This method works less efficiently (or even might be counterproductive) if the workforce includes some employees who are not required to use e-mail as a work condition. If the number of employees who are not required to use e-mail is significant, it might be less expensive to do an old-fashioned paper delivery.

austin3515, here's one way to illustrate that a vendor's statement isn't something that your client can rely on (even if the statement might happen to be correct). Suggest to your client that it ask: 'Vendor, if you're so confident that the employer is not responsible for your selection of investment alternatives, why don't you issue me an indemnity contract that commits you to pay the plan's losses that result from the employer's reliance on that statement?' (This kind of rhetorical question works especially well if the vendor is an insurance company, and it or its affiliate is licensed to do a liability insurance business.) Even the weak variation of asking the vendor to make the doubtful statement as a representation and warranty in a service agreement usually gets a simple No (once the question moves past the sales guys to an executive who has authority to commit the vendor's money).

Another circumstance to consider is whether the records were destroyed, and (if so) whether they were destroyed in compliance with or contrary to the plan administrator's and the recordkeeper's records-retention procedures.

I heard about Revenue Procedure 2012-6 from an opposite perspective - that the IRS no longer PERMITS a user to get a determination letter if the user has not changed anything from the "pre-approved plan". To work around that constraint, some practitioners find a provision to delete, change, or add (and even with the best of what's available from the document providers, there are some non-tax-oriented provisions that can bear an improvement) so that one can file Form 5307 or Form 5300 to get a determination letter.

Again, thanks for helping me. I told the inquirer no more reasoning than that I don't like the smell. The inquirer decided that it need not act as a fiduciary in doing the settlor act of deciding the plan's provisions. From my smell advice alone, the inquirer decided to provide QDRO distributions for ALL alternate payees without regard to the participant's severance or age. (So no worry about whether a dependent was deprived of something because of his or her lack of resources.) But here's the employer's next question: Is there any reason why it cannot or should not amend the plan to get rid of all forms of distribution other than a single sum?

Thank you all for your help. When I was asked about this (and I haven't yet answered the inquirer), my initial reaction was similar to what Belgarath describes. However, the inquirer (an employer that has the usual roles of sponsor and administrator) explained that the purpose is to get the set of QDRO provisions that results in the least plan-administration expenses. Moreover, the inquirer explained that this matters because the plan (not the employer) pays the plan's expenses; there are unusual volumes of not only QDROs but also failed QDRO attempts; and it is impractical to allocate all of the QDRO-administration expenses to the accounts of the participants and alternate payees involved, resulting in some expenses being charged against all individual accounts (including participants who generate no QDRO activity). While I worry that the provision doesn't seem even-handed, the inquirer's view is that ERISA section 206(d)(3)(E)(i)(I) {Internal Revenue Code section 414(p)(4)(B)} gives a plan settlor a choice between providing for a QDRO distribution before the participant's earliest retirement age or not so providing. And the inquirer doesn't see on the face of the statute anything that requires a plan settlor to make that choice the same way for all QDRO distributions. If the only reason I can give for not writing the provision is my nose test, I can go with that. But it would be nice to have a little more detail. Any further ideas from the BenefitsLink mavens?

May an individual-account retirement plan provide that a QDRO distribution to an alternate payee is permitted before the participant's earliest retirement age IF the QDRO provides its distribution to the participant's spouse or former spouse, BUT also provide that a QDRO distribution before the participant's severance from employment or age 50 is NOT permitted if the distribution would be payable to the participant's dependent (including the participant's spouse or former spouse as a fiduciary for a dependent)?

On draper1's hypothetical, consider the possibility that the decedent's obligation to serve as the plan's administrator might have become the obligation of his or her estate. If so, the estate's personal representative should administer the plan, or should appoint someone to administer it. Also, if it happens that such an estate's personal representative and the participant's beneficiary are the same person, he or she might choose between a termination and continuing to administer the plan until the beneficiary chooses or is required to take a distribution.

rcline46 is wise to remind us that those who enforce fair-competition laws (and others) might pick up on an Internet conversation. But consider that much of the information might be readily available. One might ask people among your family and friends to share with you the summary plan description, summary of material modifications, 404a-5 information, and other disclosure documents they received from other retirement plans. You might want to study how different sets of lawyers and businesspeople solved the same exercises. Along the way, you'd see some descriptions about how plan-administration expenses are allocated to an individual's account.

If the employer does not volunteer to pay the plan's administration expenses and the plan's administrator has adopted a written procedure for charging the expenses of locator efforts to the account of the individual to be located, should it be prudent for such an administrator to omit using a locator service if the expense of it is more than (or equal to) the individual's account balance?

While MoJo describes an additional reason why a plan's administrator might decline to reinstate a participant's account, it seems to me that the court's opinion squarely supports a view that - even in the absence of any conspiracy or collusion - neither the plan nor its administrator is responsible if the administrator designed and operated prudent identity and security procedures. As a part of an explanation that its efforts to seek a return of the plan's money are enough to be prudent in the circumstances, an administrator might support its decisions with its finding that the plan might encounter difficulty proving the theft. In the absence of the thief's admission, some circumstances might involve inconclusive evidence that the human who caused a few sets of digits to be received by the plan's computer was anyone other than the participant. Moreover, even with solid proof of what happened, a plan's administrator, trustee, or other fiduciary might decide that prudence calls for not spending other participants' accounts to pay for a still uncertain opportunity to obtain an uncertain recovery. I think that the court's reasoning would support similar findings that the plan's administrator is not responsible in other situations, including Mojo’s moving-out example (whether selling a house or ending a rental). Is it unfair to make a participant responsible for controlling his or her address and changing his or her password?

The attached court decision found no responsibility to reinstate a 401(k) account that an ex-wife stole from her former husband. The participant neglected to change his address in the plan's records when he moved from the marital residence. The ex-wife used a plan mailing with information about identity-control procedures to change the participant's password. Comments? Foster_v_PPG_Industries.pdf

This is a good illustration of why ERISA ought to require that all fiduciaries, including a plan's administrator, ought to be independent of the plan-sponsor employer.

If your client’s only purpose is to satisfy an IRS reviewer, consider simply deleting the plan’s definition for spouse. In the absence of a special definition, the word means what it means in context. For a provision that’s in the plan because a tax-qualification rule requires it, a use of spouse means what it means according to the relevant statute. To the extent that 1 U.S.C. § 7 applies, it affects every Federal statute’s use of spouse.

Read Revenue Rulings 68-123, 77-290, 83-126, and 83-127. Based on this and anything else that you and your lawyer find, consider whether the compensation is or is not the nun's income for Federal income tax purposes. If it is not (and there is no other compensation), ask for your lawyer's advice on whether it might be a good-faith interpretation to not count the nun in either part of the fraction or ratio.