Peter Gulia

A recent BenefitsLink discussion points out a potential difficulty when a retirement plan’s named fiduciary is the plan sponsor’s sole proprietor and her death leaves doubt about who has power to administer the plan. (The inquirer described an investment custodian’s unwillingness to accept, absent a court order, instructions from a person many would treat as the sole proprietor’s successor.) https://benefitslink.com/boards/index.php?/topic/69560-orphan-plan-how-to-appoint-a-new-trustee/#comment-324850 Imagine another business similarly controlled and managed by its only owner. It is organized as a corporation or limited-liability company, but no one beyond the sole shareholder or sole member had been named as a director or officer, or as a manager. Is a difficulty about who has authority to administer the retirement plan avoided if the employer/administrator is a corporation or a limited-liability company? Does State law—whether about a corporation or company, or for decedents’ estates—provide enough authority for someone to manage the corporation or company, and its retirement plan? What are your experiences about whether investment custodians and recordkeepers will accept instructions from someone who shows some reasonable explanation about the source of her authority? What evidence or information is enough to persuade a custodian or recordkeeper to take instructions?

And if there is no obligation or promise to be met, why would the employer make the contribution?

If Trisports’ client were not seeking to satisfy Morgan Stanley, it might be feasible for the decedent/fiduciary’s personal representative to act without getting a distinct appointment. But obtaining a court’s appointment might be less expensive than trying to persuade Morgan Stanley that the appointment is unnecessary. Whether the plan is ERISA-governed or governed by State law, at least one court will have equity powers to appoint a successor fiduciary. If the plan is governed by State law, the court with jurisdiction to appoint a successor fiduciary for the retirement plan might be the same court that appointed or recognized the executor of the decedent’s estate.

Here’s the statute: ERISA § 413 [unofficial compilation 29 U.S.C § 1113] Limitation of actions No action may be commenced under this title [I] with respect to a fiduciary’s breach of any responsibility, duty, or obligation under this part [4], or with respect to a violation of this part [ERISA §§ 401-414], after the earlier of— (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation{;} except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation. http://uscode.house.gov/view.xhtml?req=(title:29%20section:1113%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1113)&f=treesort&edition=prelim&num=0&jumpTo=true For subsection (1)’s statute of repose, an action based on a fiduciary’s decision initially made more than six years ago is not completely barred if a fiduciary breached a duty to review earlier decisions. For subsection (2)’s statute of limitations, court decisions split on whether “actual knowledge” is just actual knowledge of the facts that constitute a breach, or actual knowledge that the facts constitute a breach. For either interpretation, the Supreme Court held “actual knowledge” means the plaintiff actually knew the information. Section 413’s last phrase refers to “fraud or concealment”. At least one appeals court opinion interprets “concealment” not to require evidence of a fraudulent intent. That opinion did so by looking to the common law of equitable remedies. Further, the idea of preferring an interpretation that doesn’t treat any word of a text as meaningless or irrelevant supports such an interpretation. Also, the Secretary of Labor’s ERISA § 504 investigation powers are not limited by ERISA § 413. First, one would not know when a statute-of-limitations period ends until one had completed the investigation of the facts. Further, even if the facts found do not support a timely action grounded on a fiduciary’s breach of its responsibility to the plan, there are several other kinds of legal and equitable relief the Secretary might pursue that would not be constrained by the six-year statute of repose.

If the decedent always was the only participant and he was not the employer’s employee (rather than a deemed employee), the plan might not be ERISA-governed and the Labor department might lack enforcement powers. If the decedent’s daughter has been appointed as the decedent’s estate’s personal representative, one imagines the daughter has at least one lawyer available. The daughter’s lawyer might ask Morgan Stanley what court order would satisfy them, and could petition an appropriate court for such an order.

The Labor department’s nonrule Interpretative Bulletin (cited above) arguably tolerates a contribution of property made with no obligation: “For example, where a profit sharing or stock bonus plan, by its terms, is funded solely at the discretion of the sponsoring employer, and the employer is not otherwise obligated to make a contribution measured in terms of cash amounts, a contribution of unencumbered real property would not be a prohibited sale or exchange between the plan and the employer. If, however, the same employer had made an enforceable promise to make a contribution [even a profit-sharing contribution] measured in terms of cash amounts to the plan, a subsequent contribution of unencumbered real property made to offset such an obligation would be a prohibited sale or exchange.” Under that view, a contribution of property other than money might not be a prohibited transaction if treated as a discretionary nonelective contribution about which no written or oral promise had been made. I express no view about whether that Interpretive Bulletin is a correct, or even permissible, interpretation of the statute. A contribution of property other than money that purports to meet a funding obligation to a pension or money-purchase plan, or an obligation (however made) to a profit-sharing plan, is a prohibited transaction (and so does not satisfy the obligation).

In Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993), the Supreme Court construed ERISA title II’s parallel text, Internal Revenue Code § 4975(f)(3), as extending, but not limiting, the reach of § 4975(c)(1)(A) [ERISA § 406(a)(1)(A)] to include as such a prohibited sale or exchange a contribution of encumbered property, even if that contribution is not used to meet a funding obligation. The Court held a contribution of property—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—is a prohibited transaction. See also Interpretive Bulletin [94-3] Relating to In-kind Contributions to Employee Benefit Plans, 59 Fed. Reg. 66,736 (Dec. 28, 1994) https://archives.federalregister.gov/issue_slice/1994/12/28/66734-66737.pdf#page=3, reprinted in 29 C.F.R. § 2509.94-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.94-3. Also, an inquirer likely has mistaken assumptions about why one might want to contribute securities or other property that is anything other than money.

Following ESOP Guy’s good help, a rule states: “[T]he required minimum distribution amount will never exceed the [participant’s] entire account balance on the date of the distribution.” 26 C.F.R. § 1.401(a)(9)-5/Q&A-1(a) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-5 If a plan’s administrator fears a distributee’s § 401(a)(9) RMD amount determined on the preceding calendar year’s last valuation date would consume too much of a pooled account, the administrator might use its discretion to declare a special valuation date (which it also might do to support the plan termination’s final distribution). Using that valuation, the administrator would apply the rule quoted above so an otherwise required minimum would not invade other individuals’ accounts.

Among the many differences of working with governmental plans: A State’s law (from multiple sources) might be ambiguous about whether a State or local government is required, or permitted, to follow the State’s abandoned-property regime. If a State follows the State’s internal law about abandoned property, it might not follow another State’s law. A State might find that the State (including its agency, instrumentality, or political subdivision) cannot be compelled, and might not volunteer, to follow the law of another State.

About the defined-benefit pension plan, a prudent fiduciary might put the benefit-waiving participant’s distribution last. Even if the plan’s fiduciary assumes all other participants’ pensions are knowns, the amounts needed to satisfy them might not be. And even if those amounts are certain, the expenses of the plan’s administration might not be completely known. Ending a plan often results in unexpected investment expenses and charges, and generates accounting, actuarial, and legal issues beyond those that are usual for a continuing plan. For an individual-account (defined-contribution) plan with pooled investment, your method of not paying any final distribution until all will be determined on the same valuation (perhaps a special valuation) seems wise. For an individual-account (defined-contribution) plan with participant-directed investment, it sometimes can work to pay claims for final distributions as the plan’s administrator receives them—if, among other conditions, all professionals and other service providers have been paid in advance (or the plan’s fiduciary prudently finds that a plan-expenses reserve is enough to meet all expenses). Further, a professional or other service provider might protect itself by being unwilling to provide services unless those of the participants who are fiduciaries assent to take their distributions last.

Thank you for inviting me to explain my point. I do not mean to refer to courts’ and the Labor department’s distinction between a settlor expense and a plan-administration expense. Rather, my point is about cost-benefit tradeoffs in a fiduciary’s decision-making. If a nonsettlor expense otherwise could be proper but a fiduciary’s prudent cost-benefit analysis finds the expense unreasonable, we recognize that a fiduciary must not cause the plan to incur that expense. Yet, recognizing that the plan must not bear an expense does not always mean the employer (or some other person) must bear the expense. Courts’ and the Labor department’s interpretations of ERISA § 404(a)(1) recognize that a fiduciary need not spend $300 of the plan’s money to pursue the plan’s $30 claim (or even a $249 claim). (This illustration is simplified.) If ERISA allows a fiduciary to abandon the plan’s claim because the fiduciary prudently estimates that pursuing it likely would not be cost-effective, why should an employer (absent an obligation) be required—or even expected—to pay a plan-administration expense the plan would not bear? In my view, an individual-account retirement plan’s fiduciary does not breach its ERISA § 404(a) responsibility because it did not require an unobligated employer to pay a nonsettlor expense the fiduciary found would be imprudent for the plan to pay. I recognize it’s my view, and that there might be no court decision on point. I would have a different view if the plan’s need to pursue a claim or correction arose because the employer/administrator breached its responsibility to the plan.

For anything on which the plan would incur an expense, a fiduciary must incur no more than prudently incurred “reasonable expenses of administering the plan[.]” ERISA § 404(a)(1)(A)(ii), 404(a)(1)(B). Further, for situations in which an employer volunteers (but has no obligation) to pay the plan’s plan-administration expenses, the employer ought not to be required to incur an expense if it would be imprudent for the plan to incur the expense.

With so many practitioners observing that Congress's command is useless or worse than useless, it's good to see you found a silver lining.

For your first question, many BenefitsLink mavens would say Read The Fabulous Document. But you, as one of a very few national experts on governmental plans, know that a governmental pension plan might not be tidily stated by one document, or even one consolidated or compiled set of statutes. You do what you can to discern and interpret the plan’s provisions. Or sometimes one must invent a provision. If a participant has permanently left government employment and reached an age such that a distribution, perhaps an involuntary distribution, must begin, the plan’s normal form might be a life-contingent annuity, with or without a survivor provision, and with or without a years-certain provision. If that is the plan’s provision and the State or local government is considering amending the plan to allow some election after the annuity commenced, one would consult actuaries to design a provision unlikely to result in increased cost. For example, an after-commencement election might be limited to a specified period after the annuity commencement date, and the amount available as a nonannuity sum might be something less than the commuted value of the plan’s annuity obligation released. Those and other points might help protect the plan against adverse selection. About payments not collected, consider that the pension plan might be required or permitted to follow the abandoned-property law of the State of which the plan’s participating employers are agencies, instrumentalities, or political subdivisions.

RatherBeGolfing, thank you for helping me with information about kinds of plans I have almost no experience with. I am glad to learn about the business challenges TPAs face.

I don’t advise anyone here. Some fiduciaries might include in one’s reasoning: If the plan’s administrator can do so without incurring an incremental expense, the administrator might send a demand letter asking the distributee to restore to the plan the overpaid amount. If the plan’s trust collects a restored amount, the plan’s administrator might evaluate whether the employer had paid an amount to the plan under a mistake of fact and, if so, whether an amount (adjusted regarding loss or income) must or may be returned to the employer. See ERISA § 403(c)(2)(A)(i) and the governing documents’ provision. Assuming customary provisions in the plan’s governing documents, a fiduciary might evaluate that it need not sue the distributee for a restoration of the overpaid amount if the fiduciary prudently finds that the value of the claim—discounted by the probability of getting the court’s judgment, and further discounted by the probability of collecting a judgment—is less than the court’s filing fee and the fees and expenses for the plan’s attorneys and their assistants. Whatever is or isn’t done to correct this error, one hopes a plan’s independent qualified public accountant would see that the error is not material, and not even significant, in the plan’s financial statements.

Bill Presson, thank you. Does anyone have a different setting in which the TPA does not furnish any individual’s account statement so furnishing a lifetime-income illustration would be an added service?

Bill Presson and Bri, thank you. Are there enough plans with accounts not getting a lifetime-income illustration from another provider that a TPA should build a service (with an incremental fee) for this?

I count at least six fields of law—agency, contracts, employment, healthcare, tax, and ERISA. (Some involve combinations of Federal laws and State laws.) Seeking an integrated solution that considers the wideness of the issues is why a physician might want her lawyers’ advice and negotiation.

In recent months, some BenefitsLink discussions have remarked on ERISA § 105’s command for lifetime-income illustrations. These discussions assume recordkeepers provide a service to generate the illustrations. Some discussions observe that an illustration is not routinely furnished for a self-directed brokerage account. I guess those mentions refer to a situation in which there is a securities broker-dealer’s account AND there is not an arrangement that results in a computer feed of the SDBA’s balance (not the details) to the recordkeeper’s system. BenefitsLink neighbors, how much does this happen? How many ERISA-governed plans have this situation?

An efficient way to do this is for the healthcare lawyer handling the physician’s negotiation of his service agreement with the hospital to bring in her employee-benefits partner or, if the firm lacks an employee-benefits practice, to bring in another firm to add that knowledge.

Chaz, that Internal Revenue Code of 1986 § 223 alone might not preclude a contribution by or for a non-U.S. person might not fully answer an employer’s (or its employee’s) questions. A Health Savings Account might not be entirely controlled by an ERISA-governed employee-benefit plan for which an employer or a plan administrator decides almost everything. A custodian might make its independent business decisions. Someone might want to find a custodian that will accept the contributions. Also, an individual might consider not only U.S. Federal, State, and local tax laws but also income and other taxes under the laws of each nation of which the individual is a citizen, has her domicile, is a resident, or otherwise has a connection that could impose a tax. That might include considering treaties between or among nations.

The “short plan year rule” text on the Instructions’ page 8 is not, for as much as it explains, incorrect; it is incomplete. (Perhaps deliberately so.) Form 5500’s Schedule H at line 3d includes a checkbox for: “The opinion of an independent qualified public accountant is not attached because: (2) ÿ It will be attached to the next Form 5500 pursuant to 29 CFR 2520.104-50.” If that point is marked, I hope a Form 5500 report that omits an IQPA report should get through EFAST2’s check for internal logical consistency. Returning to bzorc’s query, we might learn something if bzorc can share with us whether it was EBSA’s software or a provider’s software that flagged a seeming error.

Here’s the rule: 29 CFR 2520.104-50 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-D/section-2520.104-50#p-2520.104-50(a) The rule’s definition of “short plan year” states such an accounting period could result because “[a] plan is terminated[.]” 29 C.F.R. § 2520.104-50(a)(3). The rule’s general relief, subject to conditions, states: “A plan administrator is not required to include the report of an independent qualified public accountant in the annual report for the first of two consecutive plan years, one of which is a short plan year[.]” 29 C.F.R. § 2520.104-50(b). The Labor department’s explanation of the rule, including the Secretary’s consideration of comments on the proposed rule, includes this example: “The operation of the regulation in a situation where a plan is terminating may be illustrated by the following example. A plan which has a calendar year plan year will be terminating on May 31,1981. Pursuant to § 2520.104-50(a)(3), the period from January 1, 1981, through May 31, 1981, constitutes a short plan year. The plan year from January 1,1980, through December 31,1980, is the first of two consecutive plan years, one of which is a short plan year. Under the regulation, the plan administrator is not required to provide audited financial statements in the annual report for the plan year from January 1,1980, through December 31, 1980[.]” Regulation Relating to Reporting and Disclosure for Short Plan Years [final rule], 46 Fed. Reg. 1265 (Jan. 6, 1981), https://archives.federalregister.gov/issue_slice/1981/1/6/1261-1266.pdf#page=5.

Perhaps John Doe might consider a choice of some different ways: 1) John pays BadgerDon or another capable service provider to generate the illustrations. 2) John, without a service provider, generates the yearly illustrations. 3) John disobeys ERISA’s command, estimating that John’s expense for the civil penalties and other consequences, discounted for the probabilities of detection and enforcement, and with adjustments for time values of money, is less than the expense of #1 or cost of #2 4) John spins off from the ERISA-governed plan the assets and obligations allocable to John’s account into a new plan designed to exclude employees (other than John, or another deemed employee). John would evaluate whether the extra burden or expense of administering this second plan—including coverage and other testing to be combined with the first plan, and Form 5500 reports on the second plan—might exceed the expense of #1 or cost of #2. Further, John’s expense or cost even for evaluating these choices might exceed the expense of #1 or cost of #2.