Peter Gulia

The 404a-5 rule distinguishes plan-related information [paragraph (c)] and investment-related information [paragraph (d)]. If a plan has no designated investment alternative, that might make unnecessary much of the investment-related information. “The term ‘designated investment alternative’ shall not include ‘brokerage windows,’ ‘self-directed brokerage accounts,’ or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan.” 29 C.F.R. § 2550.404a-5(h)(4). Yet, a 404a-5 disclosure would include: “[a] description of any ‘brokerage windows,’ ‘self-directed brokerage accounts,’ or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan.” 29 C.F.R. 2550.404a-5(c)(1)(i)(F). “fees for brokerage windows[.]” 29 C.F.R. 2550.404a-5(c)(3)(i)(A). 29 C.F.R. § 2550.404a-5 https://www.ecfr.gov/current/title-29/section-2550.404a-5 Consider whether the plan’s administrator might engage its third-party administrator to provide services to assemble a 404a-5 disclosure that comprises mostly plan-related information. This is not advice to anyone.

Think carefully about how to write the releases.

A sensible way to interpret § 1563(e)(3)’s reference to a trust might be to recognize that an IRA custodial account is a trust substitute. Internal Revenue Code § 401(f) treats a bank’s or trust company’s custodial account as a qualified trust if “the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under [§ 401][.]” Likewise, § 408(h) treats a bank’s or trust company’s IRA custodial account as an IRA trust. http://uscode.house.gov/view.xhtml?req=(title:26%20section:408%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section408)&f=treesort&edition=prelim&num=0&jumpTo=true

Without doing the whole analysis for your questions: Subparagraph 1563(e)(3)(C) excuses from paragraph 1563(e)(3) only “stock owned by any employees’ trust described in section 401(a) which is exempt from tax under section 501(a).” If one looks only at that tiny bit of the Internal Revenue Code, might one infer that stock owned by something that is not a § 401(a) plan’s trust does not get § 1563(e)(3)(C)’s excuse, leaving § 1563(e)(3)(A)-(B) to apply as they otherwise might apply? http://uscode.house.gov/view.xhtml?req=(title:26%20section:1563%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section1563)&f=treesort&edition=prelim&num=0&jumpTo=true

About the point fmsinc mentions, here’s a Q&A from one of my Wolters Kluwer treatises: Must a beneficiary designation express beneficiaries’ shares in whole percentages? Yes, a beneficiary designation must express beneficiaries’ shares in whole percentages if the plan or a plan-administration procedure, which might include a beneficiary-designation form, so provides. Example. The plan’s beneficiary-designation form’s instructions stated: “The Allocation % must be whole percentages.” After her divorce, the participant, seeking to specify new beneficiaries, submitted a form that named her three siblings and specified “33 1/3%” for each. The plan’s administrator rejected that form and treated it as having no effect. After the participant’s death, the plan paid almost $600,000 to the previously designated beneficiary, the participant’s former spouse. Gelschus v. Hogen, 47 F.4th 679 (8th Cir. 2022). Even if a plan’s administrator has discretion to accept a not-in-good-order designation, rejecting a participant’s attempted designation might be no breach because a fiduciary administers a plan according to the plan’s documents. Further, that a plan’s whole-percentages provision frustrates a participant’s clear intent does not undo or relax the provision. See Gelschus v. Hogen, 47 F.4th 679 (8th Cir. 2022) (applying the plan-documents rule regarding a plan governed by part 4 of subtitle B of title I of ERISA). Likewise, some plans treat as having no effect an attempted beneficiary designation with shares that do not sum to 100 percent. Practice Pointer. Some plans’ documents expressly provide ordering rules, or expressly grant an administrator discretion, to adjust a beneficiary designation not expressed in whole percentages or that does not sum to 100 percent. But nothing requires a plan to provide this, and a court might defer to a plan’s provisions or a plan administrator’s procedure. (As the publication warns, no one may rely on this.)

For some courts’ decisions about whether a health plan’s participant lacks Article III constitutional standing to pursue a claim on a fiduciary’s breach of its responsibility to the plan, see, for example: Cox v. Blue Cross Blue Shield of Mich., 216 F. Supp. 3d 820, 62 Empl. Benefits Cas. (BL) 2465, 2016 BL 360306 at *4-5 (E.D. Mich. Oct. 28, 2016) (“Here, the fourth amended complaint does not clearly allege facts that Plaintiffs suffered any particularized and concrete injuries as a result of BCBSM’s alleged charging of hidden fees, such that they were affected ‘in a personal and individual way.’ For instance, there are no allegations that the amount of Plaintiffs’ contributions to their plans were affected in any way by the hidden fees, that Plaintiffs themselves paid the fees to BCBSM, that Plaintiffs were denied or received fewer benefits because of the fees, or that the plans passed on to Plaintiffs any increase in the fees. . . . . At most, it is Plaintiffs’ healthcare plans that suffered concrete and particularized injuries when they paid BCBSM the hidden fees. This is not concrete or particularized harm to Plaintiffs. And even if returning funds to the plans might, in some unspecified way, benefit Plaintiffs, that would not establish that Plaintiffs had been harmed by BCBSM—any more than a windfall establishes a preceding injury, even though the windfall would surely benefit the recipient.”). Kauffman v. General Elec. Co., No. 14-CV-1358, 2017 BL 204157 (E.D. Wis. June 15, 2017) (finding that plaintiffs had not enough alleged enough facts to show how a fiduciary’s supposedly inaccurate or misleading communications—about an intent to continue a health benefit—harmed the plaintiffs for “concrete injury” Article III standing) (“[P]laintiffs argue that GE deprived them of wages or other compensation that they may have sought or received if they’d understood that the benefits they expected to receive under the plans were not as secure as GE said they were, but plaintiffs have not submitted adequate evidence of any such injury to themselves or anyone else.”). Scott v. UnitedHealth Group, Inc., No. 20‐CV‐1570 (PJS/BRT) (D. Minn. May 20, 2021) (applying Thole, and finding no Article III standing; the plaintiffs had alleged injury to the plan, not to themselves). Winsor v. Sequoia Benefits & Ins. Servs., LLC, 62 F.4th 517, 524, 528 (9th Cir. Mar 8, 2023) (“Plaintiffs have not alleged that RingCentral has changed or would change employee contribution rates based on Sequoia’s alleged breaches of fiduciary duty, or that employee contribution rates are tied to overall premiums.”) (“Here, plaintiffs have not established that they have some equitable interest in plan funds {the self-insured health plan is unfunded} that the Thole plaintiffs lacked, or that the comparison to trust law can have purchase here when it did not in Thole.”). Knudsen v. MetLife Group, Inc., No. 2:23-cv-00426 (WJM), 2023 U.S. Dist. LEXIS 123293, 2023 WL 4580406 (D.N.J. July 18, 2023) (complaint dismissed because the plaintiffs lack Article III constitutional standing) (“Plaintiffs do not contend that they did not receive their promised benefits, Instead, Plaintiffs allege that they paid excessive out-of-pocket costs, which in the context of this kind of defined[-]benefit-type {health and welfare benefits} Plan, is not an individual injury.”), affirmed, No. 23-2420, --- F.4th --- (3d Cir. Sept. 25, 2024) (“Given the standing theory that Plaintiffs advance, their Complaint must include nonspeculative allegations, that if proven, would establish that they have or will pay more in premiums, or other out-of-pocket costs, as a result of MetLife not applying the $65 million in rebates to the Plan. . . . . To do so, Plaintiffs’ ‘pleadings must be something more than an ingenious academic exercise in the conceivable.’”). In my view, some of these cases likely were wrongly decided. But judges and lawyers might read them as consistent with a Supreme Court opinion: Thole v. U.S. Bank N.A., 590 U.S. 538 (June 1, 2020) (A defined-benefit pension plan’s retiree who does not show a palpable risk that the plan will become unable to pay her promised benefit lacks constitutional standing to sue in courts of the United States.).

If it is obvious that all steps are about the employer dealing with the employer’s money with no risk of loss or harm to the employee-benefit plan, someone acting for a self-funded (that is, unfunded) health plan’s administrator might approve the settlements without independence from the plan’s other fiduciaries who might have breached. Perhaps the plan’s release of its rights to reimbursement from the participant might not meaningfully release much of anything if the employer has paid in and satisfied the amount the plan would have obtained from the participant. The employer might pay the amount into the plan’s bank account before the plan or its fiduciary signs the agreement that releases the plan’s right to reimbursement. Likewise, there might be less need for a lawyer advising the plan to be independent of the fiduciaries and the employer if the plan’s legal and equitable rights and remedies have been satisfied. (A lawyer might consider whether each of the plan and the employer waives a professional-conduct conflict of the lawyer advising, and maybe acting for, both the employer and the plan. But again, there might be no real economic consequence the plan bears.) There would still be a need for some lawyering because the employer that indemnifies the plan’s administrator and other fiduciaries wants good releases of the participant’s claims, including a claim grounded on the administrator’s failure to furnish documents. And while a lawyer (who might be inside counsel) is on task, she might write the memo to explain that the plan’s release of reimbursement from the participant was not a giveaway because the employer satisfied the participant’s obligation. This is not advice to anyone.

If this § 403(b) retirement plan is an individual-account (defined-contribution) plan, why would a participant’s or beneficiary’s account be less than 100% funded?

Without reading the health plan (including its provisions for the plan’s or the employer’s equitable liens and other recovery rights), the employer/administrator’s contract with its third-party administrator, and the stop-loss insurance contract (if any), it’s hard to know what set of compromises, satisfactions, and releases might make sense. If anyone would release or compromise a claim that belongs to the plan: Consider whether the analysis and decision-making must or should be done by a fiduciary who is independent of those who breached a duty to furnish documents and those who might have breached a duty to oversee or monitor other fiduciaries. Consider whether advice must or should be from a lawyer who advises only the plan and is sufficiently independent of the possibly breaching fiduciaries. Consider whether a settlement needs prohibited-transaction relief, whether under PTE 2003-39 or in some other way. If the plan might have claims against the possibly breaching fiduciaries, the employer with its counsel might evaluate whether the conduct was within or beyond the standard (usually, in or not opposed to the employer’s interests) for the employer’s indemnification provided to its executive and employees asked to serve as the plan’s fiduciaries. Yet, consider too whether the employer’s obligation to fund the self-funded health plan washes the plan’s loss that otherwise might be a subject of the plan’s claim against a breaching fiduciary. These points might seem odd if the employer provides most of the plan’s funding. But it’s useful to analyze all the roles and relations, including recognizing the health plan as a distinct person, even if that results in finding that the employer exclusively or primarily is dealing with the employer’s money. It’s much better to have a written analysis showing the plan suffers no loss or harm because the employer is obligated (and has financial capacity) to meet everything that could have been recovered from the participant. This is not advice to anyone. Class Exemption to release claims 2010-14381.pdf

Mercer’s recent writeup of the anticipated indexing (helpfully furnished by BenefitsLink’s Bakers) includes an explanation that the $11,250 amount assumes Congress’s technical correction or an Internal Revenue Service interpretation.

I didn’t suggest that an ERISA-governed plan’s administrator has a duty or obligation to consider a State’s law (other than a court’s domestic-relations order submitted to the plan’s administrator). Rather: “ERISA’s supersedure of States’ laws makes it unnecessary for an employee-benefit plan’s administrator to know, or even consider, any State’s law.” And “Section 514(b)(7)’s limited exception regarding a qualified domestic relations order or qualified medical child support order might call a plan’s administrator to read an order’s text, but one need not know the State’s or Tribe’s law underlying the order.”

Here’s a hyperlink to the Treasury’s rule: 26 C.F.R. § 1.401(a)(9)-8(d)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-8#p-1.401(a)(9)-8(d)(2). The rule was published on July 19, 2024. This is not advice to anyone.

Except for provisions like protecting a surviving spouse’s rights or meeting tax-law conditions about a minimum distribution, a plan’s sponsor has a wide range for setting an individual-account retirement plan’s provisions for whether a participant may make a beneficiary designation, which terms a participant may or cannot specify, how a participant may divide beneficiaries’ shares, and in what form a participant must make a beneficiary designation the administrator would follow. The starting point is RTFD—Read The Fabulous Document. Many IRS-preapproved documents don’t state the details. Some refer to a “form satisfactory to the Administrator.” Some call the plan’s administrator to set a procedure.

About your description of the facts: You mention that the corporation’s president and secretary are trust beneficiaries. But are they the only trust beneficiaries? Are the two beneficiaries spouses? Are the two beneficiaries otherwise related? Is either of the two beneficiaries also a creator or grantor of the trust? Are both? Is the trust irrevocable or revocable? What rights (if any) does the trust’s creator or grantor have? Is the trust a grantor trust for Federal income tax purposes? Does a beneficiary have a withdrawal right? Does a beneficiary have a right to a current distribution from any portion of the trust’s income? Does a beneficiary have a right to a current distribution from any portion of the trust’s principal? Does a trustee have a discretionary power to distribute any income, or any principal, to a beneficiary? Do any of the trustee’s powers differ regarding the S corporation shares and the trust’s other investments? Do any of a beneficiary’s rights or beneficial interests differ regarding the S corporation shares and the trust’s other investments? Those and other facts might matter in how one translates trust powers and beneficial interests into deemed ownership of the corporation the trust holds. Consider 26 C.F.R. § 1.1563-3(b)(3)(i) https://www.ecfr.gov/current/title-26/part-1/section-1.1563-3#p-1.1563-3(b)(3)(i). This is not advice to anyone.

Whether a plan’s administrator would follow such a beneficiary designation might turn on the plan’s governing documents and the administrator’s application or interpretation of the plan’s governing documents. Some plans state that a beneficiary designation must specify shares of beneficiaries only by percentages. Other plans might let a participant specify her beneficiaries’ shares by a formula, if it can be applied using only simple arithmetic and without using information beyond the plan’s records. Many plans’ documents are ambiguous about what is allowed or precluded. Some plans’ document call for the plan’s administrator to set a procedure. If your client is the plan’s sponsor or administrator, discuss with it what it prefers to allow or preclude. Further, if the plan’s administration makes and keeps beneficiary-designation records in a service provider’s system, consider that the software might constrain an entry to a percentage. If your client is the participant who would make the beneficiary designation, consider suggesting that the participant ask the administrator whether it would follow the beneficiary designation. If an employment-based plan doesn’t support what the individual wants, consider a rollover to an Individual Retirement Account trust (not a custodial account) with a trust company that regularly works with estate-planning and other not-simple beneficiary designations. This is not advice to anyone.

Evaluate the trust’s governing documents and relevant law to discern each individual’s beneficial interests (and creator’s rights, if any) under the trust. Assume the trustee and each other fiduciary would exercise its discretion in the beneficiary’s favor. Consider whether the trust is a grantor trust. Consider at least Internal Revenue Code sections 671-678, 1563, and 2031, and the Treasury’s rules and the IRS’s guidance interpreting those sections. Consider rules for a trust that can be an eligible shareholder of subchapter S corporation. Consider how the trust’s income tax returns have described and will describe each beneficiary’s proportionate share of the trust’s income. This is not advice to anyone.

The small-business exception provides: “[Internal Revenue Code § 414A](a) shall not apply to any qualified cash or deferred arrangement . . . earlier than the date that is 1 year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.” I.R.C. (26 U.S.C.) § 414A(c)(4)(B). Some might interpret that sentence’s use of the word “employee” to include nonemployees classified as statutory employees if those workers are not excluded from a § 410(b) count of which employees, leased employees, and self-employed individuals are treated as employees. Yet, there is a further element about whether an employer (or a service recipient treated as an employer) “normally employed” those workers. That phrase might be imprecise or ambiguous. This is not advice to anyone. BenefitsLink neighbors, has the IRS published guidance on this?

Does this mean the 2025 elective-deferral limit for a participant age 60 to 63 is $34,750?

So, if a TPA mostly doesn’t charge for responding to an executive agency’s processing errors, that cost is borne commonly by the TPA’s clients. Perhaps that’s somewhat fair if most clients don’t much differ in the probability of being a victim of such an error the client didn’t cause. If anyone is wondering, some lawyers similarly use judgment in not billing work needed to respond to an executive agency’s wrong application of law. Those situations often demand big blocks of time, and often for work that cannot be delegated, instead requiring the personal attention and wasted time of the most experienced lawyer. That expense gets subsidized by all the lawyer’s paying clients, including those that bring little or no risk of being a victim of an executive agency’s errors.

Thanks. If a TPA doesn’t charge distinctly for responding to an executive agency’s processing errors, is some estimate for those errors figured into the costs on which the TPA sets its regular fees?

I’m curious: When responding to these problems, does a TPA bill the time? At a professional’s rate? At an assistant’s rate? At each worker’s rate for her time worked?

I’ve seen some business practices that vary with surrounding circumstances: If a TPA got its client with a referral from an insurance intermediary, the TPA might refer the plan’s fiduciary to that insurance intermediary. If a TPA is an affiliate of an insurance intermediary or an insurer, the TPA might refer the plan’s fiduciary to the TPA’s sister (unless the TPA knows about its client’s relationship with another insurance intermediary). If a TPA is not licensed to solicit casualty insurance (and it has no affiliate so licensed), a TPA might nonetheless maintain a relationship or awareness with an insurer so a client that lacks an insurance intermediary might apply directly. A TPA might put a yes-or-no checkoff for buying fidelity-bond insurance in one’s service-agreement onboarding forms. A TPA’s service agreement might provide that the TPA has no obligation to provide any service until the TPA has received proof that fidelity-bond insurance covers the plan. A TPA might push clients to get fidelity-bond insurance. If a plan is uncovered, that can increase the TPA’s expenses. No matter how carefully a TPA has designed and operated its business to support fact-finding that the TPA is not a plan’s fiduciary, defeating or dismissing claims that the TPA ought to have done something to prevent the theft might incur attorneys’ fees and related expenses, which one might not recover from the victimized participants nor from the (perhaps insolvent) client. This is not advice to anyone.

RatherBeGolfing, thank you for correcting my lack of information. For other early-out distributions, the statute conditions the reliance only on an absence of knowledge to the contrary. For example, I.R.C. (26 U.S.C.) § 401(k)(14)(C). For a qualified disaster recovery distribution, the IRS guidance conditions the reliance not only on an absence of knowledge to the contrary but also on some finding that the participant’s representations are “reasonable.” That leaves ambiguities about the circumstances in which a claim’s statement might be reasonable or unreasonable. And about how a plan’s administrator or its service provider discerns what is or isn’t reasonable. For example, must one at least consider whether a claim’s statement that the participant’s “principal place of abode at any time during the incident period of [the] qualified disaster is [or was] located in the qualified disaster area” seems supported by the plan’s records of the participant’s address (whether at the time of processing the claim, and back to the onset of the incident period)? If so, one needs answers to RBG’s opening questions about defining and determining a qualified disaster and a qualified disaster area. And if a plan’s administrator finds it unnecessary to ask anything about the “principal place of abode” element, what else does one check for whether the participant’s claim seems reasonable? Or is a claim reasonable with no more finding than that the plan’s administrator lacks “actual knowledge to the contrary”?

I’ll keep a good thought for those in the hurricanes’ paths. On RatherBeGolfing’s practical query, and Craig Hoffman’s pointer, about discerning whether a disaster qualifies: Consider that getting the details right might matter because for a qualified disaster recovery distribution a plan’s administrator gets no special reliance on a claimant’s self-certification.

Many employers like a self-certification regime when the consequence of a false statement is only that a participant uses one’s own resources. But an employer might dislike a self-certification regime when the consequence of a false statement is that a worker gets the employer’s money. And for employers that prefer a matching contribution over a nonelective contribution, letting a worker get a matching contribution without meeting its conditions might partly defeat one or more purposes about why the employer prefers a matching contribution. That might be why some employers are considering using intermediaries or software to get some comfort that a worker likely made student-loan payments.