Peter Gulia

The plan sponsor would amend the plan and other documents, and would apply for an IRS determination. Also, the plan would provide that an in-service distribution is payable only as a single sum.

Hypothetical: A profit-sharing retirement plan has never before allowed an in-service distribution. The plan sponsor might like to add an in-service distribution (including before age 59½ from amounts not attributable to 401(k) deferrals) but only if the participant’s claim includes his or her instruction to pay the distribution as a direct rollover into an eligible retirement plan (including an IRA). The plan sponsor cares about this because it wants to permit an in-service distribution only if the participant will use it to preserve retirement savings. (Yes, I’m aware that nothing precludes an IRA holder from taking a distribution from the IRA a day later.) Can a plan provide this without violating any relevant ERISA or Internal Revenue Code provision? If this can’t be done, why not? If the plan provision is possible, is there another reason why a plan sponsor shouldn’t want to do this?

Thanks for the help!

rcline46, thanks for your nice help. How about the last question; if the lawyer is the employer's representative to ask for an determination, does any IRS rule require the practitioner to disclose to the IRS that the plan wasn't qualified in operation?

Hypothetical: Although furnished by a recordkeeper, a retirement plan’s document isn’t a prototype or volume-submitter document; it’s an “individually-designed” document. The plan changes to a new recordkeeper, which is unwilling to restate the plan’s document. The employer engages a lawyer to restate the retirement plan. The lawyer discovers that the employer never operated the plan according to the plan’s terms, and never tried to do so. The failures were operating the plan according to unwritten provisions that could have been consistent with the Internal Revenue Code and ERISA had the provisions been stated by, or at least not contrary to, the plan’s document. The lawyer tells the employer about opportunities to correct the plan’s tax disqualification, but the employer tells the lawyer that it won’t pursue correction and won’t amend or disaffirm any of the many writings that describe the plan as a tax-qualified plan. Instead, the employer’s chief executive and 100% shareholder instructs the lawyer to do only the task she was engaged for: restate the plan for proper and accurate provisions for the future. Assuming that the lawyer will not submit an application for an IRS determination, is there any professional-conduct rule that would preclude the lawyer, with her client’s informed consent, from limiting the scope of the lawyer’s work to a drafting job that deliberately sets asides all other issues? In the absence of an application for an IRS determination, is the drafting job “practice before the Internal Revenue Service” within the meaning of Circular 230? How might our thinking about professional conduct change if the lawyer is the employer’s representative to present an application for a determination letter? If the Form 5300 truthfully answers every question, does the practitioner have any duty to tell the IRS that the plan wasn’t tax-qualified in the past?

In the American Bar Association's annual "ask the government guys (unofficially)" last May, Question 14 was designed to illustrate an abuse situation and give the EBSA staff a reasoning for looking through plans that were designed to evade the requirement to engage an independent qualified public accountant. Faced with the invitation, the DoL answer said that an administrator may treat plans as separate. 2009_EBSA_answers.pdf

The U.S. Labor department's non-rule interpretation is Field Assistance Bulletin 2003-3. http://www.dol.gov/ebsa/regs/fab_2003-3.html Among other points, the FAB includes some discussion on how a fiduciary might consider which expenses should be allocated by balances, and which by the number of participant, beneficiary, or alternate-payee accounts (without regard to a balance).

Carol Calhoun's explanantion in chapter 14 about whether a Native American Indian tribe might or might not be a State government employer within IRC 457(e)(1)(A) describes some uncertainties because the law that Congress made is ambiguous or uncertain. Carol is one of a very small handful of governmental-plans experts; so if there were a published ruling, she'd likely know about it and write about it. Perhaps your client is a candidate for seeking an IRS ruling?

The available information on this question is discussed in chapters 2 and 14 in 457 Answer Book (WoltersKluwer).

If your client says it prefers to make available a 403(b) plan that's somehow a non-plan for ERISA, consider the following not-too-hypothetical: A participant dies in 2039. Just before her death, she had taken complete distributions of all of her 403(b) balances (about $600,000). Not too long after the death, the participant's surviving spouse files an ERISA lawsuit in Federal court. He alleges that what the employer pretended was a non-plan was really a plan established or maintained by the employer, and that this plan was and is governed by ERISA. He asserts that, in the absence of his consent, the plan should not have paid the participant any distribution other than as a qualified joint and survivior annuity. The employer submits its motions to dismiss, saying that it never established a plan and never maintained a plan. The court finds that a complaint need do no more than allege facts that, if later proven, could support finding the complaint's claim for relief. The court decides that the litigants' disputes about whether a plan was established or was maintained is a fact issue of a kind that can't be decided on a motion to dismiss. After losing the motions to dismiss, each defendant answers the complaint. Because the defendants' answers deny the existence of an ERISA-governed plan, the court decides that facts that a litigant could use to prove or disprove the establishment or maintenance of a plan are relevant and discoverable. The plaintiff demands all of the employer's writings (including e-mails) concerning the 403(b) plan for all time after 2008. Conversely, there isn't much discovery for the defendants to get from the participant's surviving spouse. How confident can one be that the employer will win this lawsuit? And if the employer wins, wouldn't it really have a loss because its discovery expenses and lawyers' fees won't be recoverable from the losing plaintiff (and won't be reimbursed by the ERISA fiduciary liability insurance that the employer didn't buy)?

Does the person who proposes that he serve as trustee understand that accepting this responsibility means bearing personal liability? By contrast, the directed trustee's indemnity letter might have limited its obligation to the directing plan administrator, which might be a business organization rather than a natural person.

John, thank you for telling us about this decision! It confirms a risk that many of us have explained to clients, and it's nice to have a quotable decision. A follow-up question: Do we have any information on whether the practitioner's malpractice insurer paid (or committed to pay) the difference between the plan-promised benefits and the lower benefits that the employer says it intended?

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.