Peter Gulia

ERISA section 3(14)© states: "The term 'party in interest' means, as to an employee benefit plan - an employer any of whose [sic] employees are covered by [the] plan[.]"

Phil, if you're a service provider to the plan, think through your own interests before you put the Labor department on the situation. Often, EBSA investigates an abandoned-plan situation by asking a service provider to produce lots of records (often including information about investments and account balances) about the plan. The requests can get burdensome, and the DoL doesn't pay anything for your work and expense in collecting and copying records and responding to the written requests for information. Given your laudable desire to help the participants, you might be "okay with that", but it's better to make an informed choice to do charitable service.

Oops. ... or to claim a treaty benefit.

A plan’s administrator might reconsider whether it really needs a taxpayer identification number as an element of naming a beneficiary. Some administrators request a TIN as part of a beneficiary designation - because doing so helps collect a record that might be needed later, and using the record might help support a way to reduce the probability of identity fraud. But a TIN isn’t strictly necessary until it’s time to pay or deliver a distribution. If a plan’s administrator requires a number, the would-be beneficiary may use Form W-7 to apply for an individual taxpayer identification number or “ITIN”. An alien who’s about to receive a retirement plan’s distribution almost always can claim that he or she needs an ITIN to file a U.S. tax return or to claim. [see http://www.irs.gov/pub/irs-pdf/p1915.pdf]

There is an argument that an agreement might be so simple and so lacking a need for “administration” that it might not be a “plan” within the meaning of ERISA’s use of that word. Some court opinions support the idea that an agreement with only one person can be a plan. These include: Cvelvar v. CBI Illinois, Inc., 106 F.3d 1368 (7th Cir. 1997), cert. denied, 522 U.S. 812 (1997). Williams v. Wright, 927 F.2d 1540, 13 Employee Benefits Cases (BNA) 2137 (11th Cir. 1991). Healy v. Rich Products Corp., 13 Employee Benefits Cases (BNA) 2083 (W.D.N.Y. 1991). Some court decisions that support a no-plan view include: Fraver v. North Carolina Farm Bureau Mutual Insurance Co., 801 F.2d 675 (4th Cir. 1986), cert. denied, 480 U.S. 919 (1987). Darden v. Nationwide Mutual Insurance Co., 922 F.2d 203 (4th Cir.), cert. denied on this issue, 112 S. Ct. 295 (1991), reversed and remanded on other grounds, 112 S. Ct. 1344 (1992) Lackey v. Whitehall Co., 704 F. Supp. 201 (D. Kan. 1988), amended by 1989 U.S. Dist. LEXIS 2344 (D. Kan. Feb. 23, 1989). McQueen v. Salida Coca-Cola Bottling Company, 652 F. Supp. 1471 (D. Colo. 1987). Jervis v. Eldering, 504 F. Supp. 606 (C.D. Cal. 1980). Of course, you’ll want to Shepard’s®-ize these citations and extend your research. Although an employer’s agreement with only one person might be a helpful fact, the courts’ reasoning has considered the simplicity or complexity of the agreement’s terms. Also, something that otherwise might be a plan isn’t unless it’s a pension plan or a welfare plan. An agreement under which the executive becomes entitled to the deferred wage without retirement or severance from employment might be argued as not a pension plan. That the executive becomes entitled to the deferred wage when he or she is young enough that another executive would not retire might help support such an argument. Whether a deferred-wages agreement might be a welfare plan turns on the agreement’s provisions. Coupled with some kinds of provisions, the employer’s use (if any) of a life (including annuity) or health (including disability) insurance contract could bolster an argument that the overall arrangement is a welfare plan. Whether I try to leave room for an argument that a deferred-wages agreement isn’t a plan (or try to set up reasons why an agreement must be an ERISA-governed plan) turns on whether I represent the executive or the employer, where my client is and which courts might be involved, and other surrounding circumstances.

Before even getting to a dispute, the Internal Revenue Service might use its discretion not to apply a “tougher” interpretation, perhaps especially if the Labor department’s rule hadn’t said that it interprets the tax statute. In a dispute between a taxpayer and the IRS over how IRC § 4975(d)(2) applies to the taxpayer’s situation, a Federal court must apply the statute. If that statute is unambiguous, the court doesn’t need to consider the agency’s rule. If a court looks to a rule, the court decides whether it should defer to the agency’s interpretation and, if it need not, whether the court is persuaded by the agency’s interpretation. In doing so, a court might consider how carefully a rule-making followed the Administrative Procedure Act and other law, and how carefully the agency gave notice of what it was doing. Again, if the Labor department intends its rule as an interpretation of IRC § 4975(d)(2), it should say so expressly (and carve out IRAs, Archer MSAs, Health Savings Accounts, and Coverdell Education Savings Accounts). Although the recent Federal Register publications leave some room for a range of arguments, some aspects of these documents suggest that the Labor department’s proposed rule would be also an interpretation of IRC § 4975(d)(2) concerning plans qualified (or previously qualified) under IRC § 401. The Labor department’s explanation of its reasons for the proposed rule describes some “Consequences of Failure To Satisfy the Proposed Regulation”. After explaining that a service provider failure to furnish a necessary disclosure could make a service arrangement not “reasonable”, it states: The resulting prohibited transaction would have consequences for both the responsible plan fiduciary and the service provider. …. The service provider, as a “disqualified person” under the Internal Revenue Code’s (Code) prohibited[-]transaction rules, will be subject to the excise taxes that result from the service provider’s participation in a prohibited transaction under Code section 4975. [] The Internal Revenue Code (Code) also provides statutory relief for transactions between a plan and a service provider that otherwise would be prohibited. Any excise taxes imposed by Code section 4975(a) and (b) for failure to satisfy the statutory exemption are paid by the disqualified person who participates in the prohibited transaction, in this case the service provider, not the plan fiduciary. The Department believes that this significant result will provide incentives for all parties to service contracts or arrangements to cooperate in exchanging the disclosures required by the proposed regulation. This explanation shows that the Labor department believes that its interpretation about what is or isn’t a reasonable-services arranagement might have some relevance in interpreting IRC § 4975(d)(2). In the proposed rule’s preamble, the Labor department’s explanation of its reasons for the proposed class exemption includes the following: The failure to make the [proposed rule’s] required disclosures also would result in a prohibited transaction by the service provider under section 4975©(1)© of the Internal Revenue Code. In the proposed class exemptions’s preamble, the Labor department’s explanation of its reasons includes the following: A failure to comply with the [Labor department’s] regulation would also result in a prohibited transaction under section 4975©(1)© of the Internal Revenue Code (the Code) because the transaction would not satisfy the Code’s parallel statutory exemption for services at 26 U.S.C. Sec. 4975(d)(2). A prohibited transaction under section 4975 of the Code subjects the service provider as a “disqualified person” to excise taxes as described in section 4975(a) and (b) of the Code. On a service provider’s failure to meet its obligation or duty to furnish required disclosures, the proposed class exemption would provide relief not to the service provider but only to the contracting fiduciary, and then only from ERISA (not tax) consequences. This seems consistent with IRC § 4975(a)&(b): “The tax imposed by this subsection shall be paid by any disqualified person who participates [participated] in the prohibited transaction (other than a fiduciary acting only as such).” I am not alone in assuming at least the possibility that the Labor department’s proposed rule also would interpret IRC § 4975(d)(2); some of the comment letters on the proposed rule {http://www.dol.gov/ebsa/regs/cmt-408(b)(2).html} and the proposed class exemption {http://www.dol.gov/ebsa/regs/cmt-408(b)(2)exemption.html} took seriously a presumption that a Labor department rule would impose new disclosure requirements as conditions to getting the IRC § 4975(d)(2) exemption.

That an employer needs to ask a smart lawyer like Christine Roberts what benefit to provide and exactly what form it should take reveals why ERISA must preempt this ordinance. If a client follows the Ordinance (until it’s preempted or repealed): Based on the Ordinance and its Regulations, I could make a good-faith argument for either of the views suggested. But if a small or medium employer (as SF-HCSO defines them) asks this question, a lawyer’s fee to write up the reasoning for why providing the right coverage limit (rather than claims paid) meets the requirement might be more than the margin of difference in what the employer would spend under the differing interpretations.

The Treasury department adopted its reasonable-services exemption in 1977 before the effective date of Reorganization Plan No. 4 of 1978, and even before President Jimmy Carter signed that Plan on August 10, 1978. The Reorganization Plan { http://www.access.gpo.gov/uscode/title5a/5a_4_103_1_.html} transfers to the Labor department “regulations, rulings, opinions, and exemptions under section 4975 of the [internal Revenue] Code, EXCEPT for (i) subsections 4975(a), (b), ©(3), (d)(3), (e)(1), and (e)(7) of the Code; (ii) to the extent necessary for the continued enforcement of subsections 4975(a) and (b) by the Secretary of the Treasury, subsections 4975(f)(1), (f)(2), (f)(4), (f)(5) and (f)(6) of the Code; and (iii) exemptions with respect to transactions that are exempt by subsection 404© of ERISA from the provisions of Part 4 of Subtitle B of Title I of ERISA[.]” The tax-Code reasonable-services exemption is IRC § 4975(d)(2), which isn’t one of the subsections or paragraphs excepted from the transfer to the Labor department (if one ignores the Plan’s reference errors). But it might be better if the Labor department revises its proposed rule to state expressly that the rule is an interpretation of IRC § 4975(d)(2) to the extent that Reorganization Plan No. 4 of 1978 transfers authority to the Labor department.

Thank you to Becky Miller for pointing out this risk. Even if a Form 5500 does not state a liability for a tax, information about the reported-on plan might be reflected in a tax return of an employer or a participant. If that information is a “substantial portion” of the information user’s tax return, a preparer of a Form 5500 is a preparer of that other tax return. Page 25 of the attached IRS Notice lists Form 5500 as an “information return” that could result in this characterization. But it’s simple to avoid the preparer penalty on an unsupported position. A nonsigning tax return preparer may explain the difference between the penalty standards of a preparer and a taxpayer. There is perhaps a logic gap in the IRS’s thinking: what if a nonsigning tax return preparer delivers a good disclosure concerning a Form 5500 to his or her client (that report’s maker - the plan’s administrator), but the employer or other ultimate taxpayer is a person unaffiliated with the plan’s administrator? Who is responsible to inform the taxpayer about the differences in penalty standards? tax_return_preparer_n_08_13.pdf

As Gary Lesser says …. A person shouldn’t buy an IRA if the transactions would result in providing compensation of any kind to herself, or to someone who’s a relative of the would-be IRA owner. A nonexempt prohibited transaction tax-disqualifies the account from IRA tax treatment, which ordinarily would make the “IRA” unsuitable for the investor. For this purpose, a relative includes a spouse, ancestor (for example, a parent or grandparent), lineal descendant (for example, a child or grandchild), or a spouse of a lineal descendant. IRC § 4975(e)(2)(F), 4975(e)(6). Even if not related, there might be a PT if a set of transactions does indirectly what the fiduciary or disqualified person must not do directly, or if the compensation recipient is a person in whom the IRA buyer has an interest that could affect his or her best judgment in making IRA decisions. IRC § 4975©(D)-(F). Further restrictions might apply under banking, insurance, or securities law. One solution is to find a “product” that has all sales margins stripped out. Another, as Gary Lesser suggests, is that many funds allow a registered representative of a broker-dealer that has a sales agreement with the fund’s underwriter to buy A shares at net asset value – that is, without the sales load. (Often, this privilege extends to the rep and his or her spouse and children.) About CJA’s inquiry, an insurance company and its agents sometimes have a similar arrangement by which a licensed producer may buy a different “version” of an annuity contract. For example, a contract issued to a producer might have no “surrender” or contingent deferred sales charge and a reduced mortality-and-expense charge. Again, this works only if there is no compensation. In my view, this precludes not only money compensation but also production credit and counting toward a “recognition event” (such as, the leading producers’ trip to Hawaii). For more background, you should buy Gary Lesser’s books:  Quick Reference to IRAs  Roth IRA Answer Book  SIMPLE, SEP, and SARSEP Answer Book. http://benefitslink.com/GSL/index.html

Concerning several organizations, I've handled problems of the kind you describe. It happens with many health systems and some other charities. Depending on the facts, there is a solution that has been successful (most often, with zero tax or sanction cost). Because it's not published by the IRS and has at least two aspects that are a little fact-sensitive, I prefer to discuss it directly. Please feel free to call me.

To Bird, david rigby, Everett Moreland, and jpod, thank you so much for your helpful pointers. Whether through these BenefitsLink boards or by telephone or e-mail, please let me return the professional courtesy when I can help you think through a situation.

In 1968, an employer established a money-purchase plan. The plan always has had only one participant, who also is the employer’s sole shareholder and sole director and is the plan’s administrator and trustee. The plan and trust documents are individually-designed. The employer now wants to terminate the plan, and the participant would instruct that her final distribution be paid as a direct rollover into an IRA. The participant’s vested accrued benefit is more than $1 million. A practitioner who preceded me seems to have furnished a regular course of plan amendments through 2003, and all of these are signed. If I accept, I’d be engaged to draw a plan amendment for recent years’ tax-law changes, if any (the plan already has a choice of 100%, 75%, and 50% survivor annuities), and the termination. There is NO IRS determination – ever. For terminating a plan, ordinarily one uses Form 5310 to get an IRS determination that the plan remains tax-qualified in form. Given the facts described above, is a Form 5310 application sensible? Would the IRS reviewer seek to retrace the entire 40-year history of plan documents and amendments? (The Instructions state that, in the absence of a preceding IRS determination, the applicant must submit the initial plan and all amendments.) If so, how worried should one be that the IRS would uncover some decades-ago document defect that disqualifies the plan? (If it matters, it would be difficult to find an operational defect because all that’s happened so far is that the employer contributed each year 25% of its employee’s compensation.) Assuming that the amendment I draw would be correct, is it “safe” to file a Form 5310 (without any preceding determination)? Or should I tell my prospective client that it’s wise not to open this door (and, without any IRS review of the plan, simply to believe it to have been tax-qualified)? I’d appreciate your views, especially about why it would be wise or unwise to use an IRS determination procedure.

Without commenting on any of the choices that Confused in WV faces: Some courts have interpreted the Contracts Clause of the U.S Constitution or a similar or related provision of a State constitution or statute to protect State and local government employees' rights under governmental pension plans. That protection might be less than, similar to, or more than what ERISA provides for those nongovernmental pension plans governed by ERISA. For example, New York law restrains not only a cutback of accrued benefits but also a cutback of an employee's right to obtain future benefit accruals. If understanding this law is important to a participant's decision-making, he or she might want his or her expert lawyer's advice.

The DoL has published some views on other aspects of its rule [29 C.F.R. § 2510.3-2(f)] of safe-harbor conditions under which a made-available 403(b) program is not a plan “established or maintained” by an employer. But on questions about how much choice of “funding media or products” or “contractors” is enough to be “reasonable” in the sense provided by the rule, it hasn’t published guidance beyond the rule itself and the 1977 and 1979 preambles to the interim and final rules. An ERISA Advisory Opinion is unlikely. The 1979 preamble to the final rule stated that “such decisions can be made properly only on a case by case basis” and noted ERISA Procedure 76-1, § 5.01 (“inherently factual”) to signal employers that the DoL didn’t want to “referee” these questions.

Darren, page 8 of Field Assistance Bulletin 2006-1 [http://www.dol.gov/ebsa/pdf/fab2006-1.pdf] includes a suggestion that might be useful in the circumstances you described. Reading that background might help the plan administrator prepare to ask for its lawyer's and other experts' advice. (Please understand that I express no view about whether the Bulletin is a correct explanation or application of relevant law.)

At the outset of this post, I’ll mention my personal view: anyone – whether a lawyer, accountant, actuary, or none of those – ought to be permitted to render legal advice. Along with this, a person should be responsible (as provided or limited by contracts, negligence, and other law) for his, her, or its legal advice. But until we change today’s law, John Simmons has a good idea that we need clearer communication about what that law is. Although it might be nice to have a playbook, it’s doubtful that a nongovernmental association could publish anything that would state enough “bright-line” conclusions to be much help. While I’m reluctant to serve as a messenger of unhappy tidings, here’s one reason why. From 1937 to 1978, lawyers’ associations and associations of persons in other professions and occupations negotiated “peace treaties” that tried to state agreed-on views about what expressions of information are or aren’t legal advice. (And some of the businesses then wanted a “law” or rule to support not answering a question.) Also, some bar associations published advisory opinions. Among these, the New York State Bar Association in 1975 and the American Bar Association in 1977 published opinions on what they thought ought to be allowable or “out-of-bounds” for a nonlawyer’s services concerning employee-benefit plans. The United States Government challenged some of the “treaty” efforts as contrary to antitrust law. See, for example, United States v. New York County Lawyers’ Ass’n, 1981-2 Trade Cases (CCH) ¶ 64,371, 1981 U.S. Dist. LEXIS 16250 (S.D.N.Y. Oct. 14, 1981) (consent decree enjoining lawyers’ association from “[a]dopting, promulgating, publishing or seeking adherence to any statement of principles, code of ethics[,] or other guide, rule or standard which [sic] restricts or governs, or delineates as proper or improper, practices or activities of corporate fiduciaries[.]”). Bar associations withdrew many of the “treaties”. See, for example, 105 Reports of the American Bar Association 291, 382, 637, 789 (1979). A few years ago, an ABA task force tried a project that would publish a model definition of the practice of law. In the face of many negative comments, including a letter from the U.S. Department of Justice and Federal Trade Commission, the ABA abandoned that project. That said, the antitrust concerns don’t preclude employee-benefits professionals (acting personally, rather than for trade associations) from communicating about what makes sense for a practitioner or service provider to answer and how.

I am not aware of a particular authority. A standard in considering the reasonableness of a plan's expense asks whether "the service is appropriate and helpful to the plan ... in carrying out the purposes for which the plan is ... maintained." 29 C.F.R. 2550.408b-2(b). Ordinarily, a fiduciary incurring expenses to be paid from the fiduciary entity must use prudence and diligence to avoid duplicative or otherwise excessive expenses. But considering differences in the circumstances of those who serve as trustees of a multiemployer pension plan's trust, it's perhaps understandable that those trustees might need to consult two or more law firms to assure that each trustee gets advice from a lawyer he or she trusts. Courts often interpret ERISA in ways similar to the common law of fiduciary relationships. However, 29 U.S.C. 186 and other Federal labor law, to the extent that it requires or prefers that a multiemployer plan be administered by trustees from "union" and "employer" classes, might vary somewhat the contours of a fiduciary's duty to cooperate with his or her co-fiduciaries.

mjb, thank you for the very helpful information.

A trustee can’t ever allow trust assets to be outside of its possession or control. For a plan that’s governed by ERISA’s Part 4, a fiduciary (including a plan’s trustee or investment manager) must not maintain the indicia of ownership of any plan asset outside the jurisdiction of the United States’ courts. ERISA § 404(b). There are some variations with some financial-responsibility conditions. 29 C.F.R. § 2550.404b-1. A recent ERISA Advisory Opinion describes a system of sub-custodianships under which every sub-custodian is a branch, subsidiary, or agent of a U.S.-domiciled bank. http://www.dol.gov/ebsa/pdf/ao2008-04a.pdf

While mjb is correct in what he or she wrote, some further background might be helpful to some readers. There are two different analyses: (1) whether a retirement plan should accept a disclaimer and, if the plan accepts it, (2) what tax effect it might or might not have. Nontax law (usually ERISA) Even if a disclaimer could qualify for some or all Federal tax purposes, it might not accomplish much if the retirement plan doesn’t accept it. A plan administrator decides whether the plan permits or precludes a beneficiary’s disclaimer, and a plan might specify (or a plan administrator in its discretion might decide) what conditions a disclaimer must meet for the retirement plan to accept it. If a plan isn’t governed by ERISA, it’s likely that at least one State’s law will be relevant in the plan administrator’s evaluation on whether to accept the disclaimer. If a plan is ERISA-governed, a plan administrator might assume that ERISA’s preemption of “State laws insofar as they may … relate to” the plan allows the plan administrator to ignore State laws. Under that view, a disclaimer complies with applicable State law because the State law that might not be met isn’t applicable. Some documents of some ERISA-governed plans recognize a disclaimer only if it complies with a relevant State’s law. And if a plan is silent on what conditions make a disclaimer, the plan might permit or require its administrator to interpret what the word disclaimer means. Federal tax 26 C.F.R. § 25.2518-1©(1)(i) states that “[a] disclaimer of an interest CREATED IN A TAXABLE TRANSFER BEFORE 1982 which [sic] otherwise meets the requirements of a qualified disclaimer under section 2518 and the corresponding regulations but which [sic], by itself, is not effective under applicable local law to divest ownership of the disclaimed property from the disclaimant and vest it in another, is nevertheless treated as a qualified disclaimer under section 2518 IF, under applicable local law, the disclaimed interest in property is transferred, as a result of attempting the disclaimer, to another person without any direction on the part of the disclaimant.” There is no similar rule stated for a disclaimer of an interest created after 1981. A possible (but not my) interpretation 26 C.F.R. § 25.2518-2 is that a disclaimer need not be effective under nontax law if its effect meets all of the conditions required by the tax regulations. In practice, it’s rare to find a disclaimer that’s ineffective under nontax law but nevertheless qualifies for IRC § 2518 tax treatment. Often, an ineffective disclaimer can’t meet the tax condition that the benefit must pass without any direction by the disclaimant. (If a disclaimer isn’t effective and thus the beneficiary/disclaimant isn’t deemed to have predeceased, what makes it proper for the retirement plan not to provide the benefit to the named beneficiary?) Likewise, it’s not clear that a disclaimer is irrevocable if the disclaimer is, under nontax law, void or ineffective. And even for Federal tax purposes, treatment as a qualified disclaimer under IRC § 2518 isn’t the whole ballgame. Although following IRC § 2518 provides some relief for some other Federal tax purposes, it doesn’t directly provide relief for Federal income tax purposes. If a disclaimer isn’t effective under nontax law (whether State law or ERISA) one might worry about what arguments the IRS could assert concerning why the beneficiary isn’t really rid of the income. mjb is right to explain that a disclaimer of a specified portion of a benefit can be permitted. Receiving the first minimum-distribution payment but promptly disclaiming all else is one frequent use of the partial-disclaimer opportunity.

Here’s an overview of a few of the wider points. A disclaimer (also called a renunciation in some States) is a writing in which a beneficiary states that he or she doesn’t want to receive a benefit. To be valid and, if desired, to achieve tax purposes, the disclaimer must carefully state specified conditions. Is a disclaimer permitted under a retirement plan? A retirement plan won’t permit a participant to disclaim his or her benefit because a retirement plan provides that a participant cannot forfeit or transfer any right he or she has under the contract. But a retirement plan might permit a beneficiary to disclaim a benefit. See IRS General Counsel Memo 39858 (Sept. 9, 1991); IRS Letter Rulings 9226058, 9037048, 8922036. If permitted (or at least not precluded) by the retirement plan, a plan administrator may accept a beneficiary’s disclaimer. If a beneficiary makes a valid disclaimer that the plan administrator accepts, the retirement plan benefit will be distributed (or distributable) as if the beneficiary/disclaimant had died before the participant’s death or before the creation of the benefit disclaimed. Tax consequences: If a beneficiary makes a valid disclaimer that also meets all requirements of IRC § 2518 (see below), the disclaimed benefit won’t belong to the disclaimant for Federal estate, gift, and generation-skipping-transfer tax purposes. IRC § 2518; 26 C.F.R. § 25.2518-1(b). Many States have a similar rule for State death tax purposes. See, for example, 72 Pa. Consol. Stat. § 9116©. The Internal Revenue Code’s qualified-disclaimer provision doesn’t refer to Federal income tax and doesn’t say that the disclaimed benefit isn’t income. But for tax years that began or begin after 1981, IRC § 402 taxes “any amount actually distributed” from a § 401(a) plan. Requirements: To be effective for Federal tax purposes, a disclaimer must meet all of the following requirements: • The disclaimer must be made before the beneficiary accepts or uses any benefit. • The disclaimant must not have received any consideration for the disclaimer. • The writing must state an irrevocable and unqualified refusal to accept the benefit. • The benefit must pass without any direction by the disclaimant. • The disclaimer must be in writing and must be signed by the disclaimant. • The writing must be delivered to the plan administrator. • The writing must be so delivered no later than nine months after the date of the participant’s death, or the date the beneficiary attains age 21, whichever is later. • The disclaimer must meet all requirements of applicable State law. IRC § 2518; 26 C.F.R. § 25.2518-2; GCM 39858, 1991 WL 776304 (Sept. 9, 1991); see generally, UNIFORM DISCLAIMER OF PROPERTY INTERESTS ACT. State law may provide further requirements. For example, in some States a disclaimer must state the disclaimant’s belief that he or she has no creditor that could be disadvantaged by the disclaimer. Even without a requirement for such a statement, some State laws apply fraudulent-transfer doctrines to a disclaimer that, if given effect, would disadvantage a disclaimant’s creditor. In some situations, especially when the beneficiary is a minor or an incapacitated person, a disclaimer may require court approval. Even when court approval isn’t required, State law may require that a disclaimer isn’t valid unless it is filed in the appropriate probate court. In addition to State law and tax-law requirements, a retirement plan may impose further requirements. Of course, this is discussion among practitioners, and not advice to anyone.

Without questioning the logic of the ordering rule that JanetM describes, it illustrates another reason for stating the ordering rule in each plan’s documents. As a plan’s creator or “settlor”, an employer may provide an employee-benefit plan on the provisions that it chooses (except a provision that’s void because it violates ERISA). But when a plan doesn’t specify what to do and the plan’s administrator makes a rule, that might be a use of discretion. It’s okay to have discretion, but a plan's fiduciary must use its discretion “for the exclusive purpose of providing [the plan's] benefits to participants and their beneficiaries” and “with the care, skill, prudence, and diligence” of a prudent-expert fiduciary. That care and the statutory duty of ERISA § 406 preclude a plan fiduciary from using its discretion to benefit itself, or to benefit a person other than the participant. It wouldn’t take much creativity for a person disappointed by smaller retirement savings (including the participant or his or her beneficiary or alternate payee) to argue that a plan administrator’s discretionary decision to favor a payment to itself over a payment to a participant’s retirement plan account is a self-dealing prohibited transaction. (The analysis might be different if the lender/employer had a legal right of setoff such that the loan repayment never became the participant’s wages.) And when a plan’s auditor asks for a “management representation” confirming the absence of a prohibited transaction, the plan’s administrator couldn’t responsibly furnish an unqualified representation. Please don’t misunderstand: I don’t say that the ordering rule that JanetM describes is inappropriate. Rather, I suggest that an employer specify the plans’ ordering rule so that each plan’s administrator will restrict its act to applying the plan without resort to interpretation.

Even if the agreements have clear "get-out" provisions, that might not be useful by itself. If the custodian is a directed trustee or otherwise has similar fiduciary duties, it can't deliver the assets until it knows that it is delivering the assets to (or as properly instructed by) a duly appointed trustee who or that is competent to serve and not known to be untrustworthy. Often, that rules out most or all of the employer's executives and their subordinates. The facts that motivate a recordkeeper or tpa to get rid of a customer often also could be used to show that a directed trustee or custodian knew (or in the exercise of proper care would have known) that the employer and its people are untrustworthy. In some circumstances, a fiduciary might use other procedures in an effort to protect plan assets.

A further question: If we accept the idea that a typical worker needs a welfare benefit with more immediacy than he or she needs a retirement benefit, what's the right priority among welfare benefits? For example (assuming all health and welfare benefits are not insured and instead "self-funded" with the employer), should a worker prefer to lapse first his or her child-care "FSA" coverage, or health coverage? One is tempted to argue that maintaining health coverage ought to be more important than saving money to become able to pay a child-care provider. But some might argue that in the absence of child-care services the parent might become unable to keep his or her job and, even with an opportunity to pay COBRA premiums, the absence of a paycheck could result in an absence of health coverage and further losses to the family. These choices aren't easy, and principled arguments might be made for a range of different ordering rules.