Peter Gulia

Omitting a 404a-5 disclosure presumes that a defined-benefit plan does not provide participant-directed investment.

As always, the plan’s fiduciary decides what to do (except for asking an actuary to do a report contrary to her profession’s standards). If the fiduciary (which I imagine is the employer) pays this retiree a benefit greater than the plan provides (and this participant is none of an owner, key employee, or highly-compensated), it seems unlikely that the IRS should pursue tax-disqualifying the plan. And although it is a fiduciary’s breach to administer a plan contrary to the plan’s governing documents, the Labor department is unlikely to pursue such a breach (unless the facts suggest that other participants are or might be harmed by the overpayment). An overpaid participant might lack standing to sue the fiduciary. About using the correct facts to determine the correct benefit, why does anyone fear a problem might result from doing so? Does the fiduciary fear that the retiree might assert reliance on a previously furnished accrued-benefit statement? The plan’s fiduciary should get its lawyer’s advice, not your lawyer’s advice.

An employer spins off from its 401(k) plan a portion of that plan’s assets and liabilities into an unrelated 401(k) plan. Neither the transferor plan nor the transferee plan has any defined-benefit or other pension obligation. On receiving the transferor’s Form 5310A, what does the IRS do with it. How likely is it that the IRS will ask the transferor a follow-up question?

Nate S., thank you. The labor-relations lawyer (I am her counsel) tells me she has done the bargaining. Her client assents to a 3% nonelective contribution and an up-to-3% matching contribution. Also, her client assents to the spinoff transfer, unless I advise that the employer is exposed to some horrible ERISA liability. (I’ve taught the labor-relations law firm to fear withdrawal liabilities, not only for pension plans but also for health and other welfare plans, and other participating-employer liabilities.) The Teamsters 401(k) plan is big; its purchasing power makes the plan more favorably priced than anything this small-business employer could get. Only 17 of about 400 participants (and only a small percentage of plan assets) would leave the employer’s 401(k) plan. Thank you for helping me issue-spot.

Sorry for my too-hasty description. Each of the transferor plan and the transferee plan is an individual-account (defined-contribution) plan, and neither plan has any defined-benefit obligation.

A labor union wants an employer to transfer assets and liabilities of the employer’s individual-account retirement plan, for the collectively-bargained employees, to the labor union’s multiemployer individual-account retirement plan. Would this involve risks to the employer?

Many (but not all) restatements are simple and inexpensive, and involve little change beyond what’s needed to tax-qualify. Likewise, many are done with the plan sponsor engaging no professional beyond the recordkeeper or TPA. But what if the expenses for a restatement were $500 for the recordkeeper’s processing fee, and $3,500 for the plan sponsor’s lawyers to review and edit the adoption agreement and its attachments? And what if about half the lawyers’ work was about helping the employer thoughtfully reconsider plan-design points? (Some plan sponsors use a restatement as an efficient time to state or consider changes. One might prefer to focus attention once, rather than wait. And a plan sponsor might prefer to get more done within one processing fee.) In those circumstances, would charging the whole $4,000 against the plan’s assets meet a fiduciary’s responsibility to act “for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying [no more than] reasonable expenses of administering the plan”? I see that often it’s not easy to distinguish which work is beyond what’s needed to tax-qualify and administer the plan. And in many situations the whole expense is so small that a fiduciary might put little or even no effort in trying to sort out or estimate a portion that’s not for administering the plan. But I think it’s wise for a fiduciary to be mindful of the general principle.

There is no Labor department rule. In ERISA Advisory Opinions, PWBA (now EBSA) has suggested some distinctions between an amendment for a provision a plan sponsor adds or changes as an element of one’s plan design, and an amendment made to state provisions needed to meet conditions for Internal Revenue Code § 401(a) or § 403(b) treatment. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2001-01a https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/settlor-expense-guidance An ERISA Advisory Opinion may be relied on only by the particular requester, and only to the extent of the facts the requester specified. Some fiduciaries endeavor to estimate the portion of a restatement fee one treats as attributable to plan administration (which so might be paid or reimbursed from plan assets). If the only expense is a recordkeeper’s or TPA’s fixed fee that does not vary with the user’s choices for the plan’s provisions, a fiduciary likely must estimate the relative portions between settlor expense and plan-administration expense. Or if a plan sponsor asks for nothing new and merely adopts a restatement solely as needed to maintain tax-qualified treatment, a fiduciary might reason that a whole fee, if reasonable and prudently incurred, is plan-administration expense. Further, consider that some service providers by contract set restrictions on what expenses may be paid from a plan-expenses account the service provider controls or processes. Some do not allow a payment or reimbursement of a plan-documents fee from a plan-expenses account. As always, a plan fiduciary should get its lawyer’s advice.

David Rigby reminds us that a disclaimer might have no practical effect if the disclaimant has no benefit to disclaim. ERISA § 205(f) permits a plan to omit a qualified joint and survivor annuity or a qualified preretirement survivor annuity if the participant and the spouse had not been married (or treated as married) throughout the one-year period ending on the participant’s annuity starting date or death. I read § 205(f)’s variation as mattering only if the plan otherwise would provide a QJSA or QPSA. But many individual-account plans lack a survivor annuity, and instead provide a surviving spouse the whole of the participant’s nonforfeitable accrued benefit. See ERISA § 205(b)(1)(C)(i). The discussion above considers what consequences might result if a surviving spouse has a benefit but disclaims it in a disclaimer the plan’s administrator accepts.

Yes, a TPA (if it does not add what retirement-services people call a § 3(16) service) typically has service arrangements designed to keep the TPA a non-fiduciary contractor. But PamR’s originating post states: “We are signed on as a Fiduciary on the Investment Advisory side[.]”

EBP, thank you for this wonderfully helpful information.

Thank you for your quick help. And thank you for mentioning some other points. It seems Martha, still a 20-something, might need to maintain distinct retirement-savings accumulations under two or more separate plans (XYZ has commonly controlled organizations in several nations) for about three decades or more.

XYZ US and XYZ UK are commonly controlled business organizations. XYZ US maintains a 401(k) plan. XYZ UK is not a participating employer under that plan. Martha ends her employment with XYZ US on June 30, and becomes XYZ UK’s employee on July 1. If employment by a business organization commonly controlled with the 401(k) plan’s sponsor otherwise would mean a change is not a severance-from-employment, is there anything that varies such a rule if the next employing organization is outside the USA?

While plans vary (and many are ambiguous), a plan’s administrator (using its powers to construe and interpret the plan) might treat a surviving spouse’s disclaimer as removing the spouse from those of the plan’s provisions that require treating a spouse as a participant’s beneficiary. If so, and especially for a beneficiary designation made before its maker had a spouse, the effect might be to recognize the participant’s designation of a (non-spouse) beneficiary. Depending on what beneficiary designation a participant made and which persons might become direct or ultimate takers under a plan’s provision for a default beneficiary, the disclaimer reasoning and the default reasoning might result in the same or different takers.

Ed Snyder, thanks.

Bri, thanks. Anyone with a different outlook? Because everything in a preapproved document states provisions that were already in effect years ago, I'm not seeing a reason for or against any imaginable fill-in for the restatement date. Or is there some point about how to use these documents that I'm too dense to understand?

Just to be clear, I did not suggest a course of action, in either (or any) direction. My only suggestion was a way to think about the problem PamR described, so one might have some background to prepare to seek a lawyer’s advice. I’m widely published for the idea that an investment adviser, if it is an ERISA plan’s fiduciary, should be mindful of its co-fiduciary responsibilities.

An IRS-preapproved plan’s adoption agreement has a fill-in for the effective date of the cycle 3 restatement. (But that date does not apply to a provision for which the basic plan document, the adoption agreement, an “addendum”, or something else in the IRS-preapproved documents specifies a special effective date.) Imagine the user’s plan has for decades used the calendar year for the plan year, limitation year, and other provisions. If in July 2022 a user specifies a date on the fill-in for the general restatement date, what would you choose: July 31, 2022? July 1, 2022? January 1, 2022? Something else? What is your reasoning for the restatement date you choose?

Does any provision of the State court’s domestic-relations order make the former spouse a deemed spouse for the plan’s survivor-annuity provisions?

With its lawyer’s advice, a plan’s administrator might consider: Do the plan’s governing documents recognize a disclaimer? Do the documents preclude a disclaimer? Are the documents silent on whether a disclaimer is recognized or precluded? If the documents are silent and the administrator has discretionary powers to interpret the plan, the administrator would prudently consider the plan’s purposes and circumstances to discern whether to recognize a disclaimer. If the administrator decides to recognize a disclaimer, it might require a disclaimer that (at least) meets the conditions of Internal Revenue Code § 2518. See IRS Gen. Couns. Mem. 39,858 (Sept. 9, 1991); Ltr. Ruls. 92-26-058, 90-37-048, 89-22-036. If a beneficiary makes a valid disclaimer that the retirement plan’s administrator accepts, the plan benefit’s 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). See generally Unif. Disclaimer of Property Interests Act (1999, amended 2006), 8A U.L.A. 281–331 (2014) & Supp. (2021); Unif. Disclaimer of Property Interests Act (1978), 8A U.L.A. 333–349 (2014). Also, if a beneficiary makes and delivers, within nine months of the participant’s death, a qualified disclaimer the retirement plan accepts, the disclaimant is treated as not a beneficiary for tax-law minimum-distribution conditions. Prop. Treas. Reg. § 1.401(a)(9)-4(c)(2)(ii). An administrator should read carefully the plan’s governing documents and the particular beneficiary designation to discern the effects of them and whether the surviving spouse’s disclaimer “revives” a beneficiary designation that otherwise might have been precluded by the plan’s provision for a surviving spouse.

In my recent experiences, people in retirement-services providers have become so accustomed to so many things that call for 30 days’ notice that some of those workers reflexively presume any change calls for some notice. Usually, they back off if the sponsor/administrator points out the absence of a statute or rule that requires notice. But a service provider’s agreement might not obligate the service provider to process something as quickly as relevant law allows and the sponsor/administrator might prefer.

Does the plan include a provision that allows a joint-and-survivor annuity with someone who is not the participant’s spouse? If the participant had no spouse (and no QDRO requires the plan to treat a former spouse as a surviving spouse), a qualified joint and survivor annuity is “a single annuity for the life of the participant.” What periodic amounts would the plan have paid the participant had the plan’s administrator known there was no spouse?

Without stating any conclusion or point of view, here’s another mode for analysis: Even if you consider the possibility that the plan’s administrator furnished proper notices to everyone eligible and not one did not opt out, the facts you describe suggest circumstances in which a prudent fiduciary might not close its eyes to the obvious, and, absent the other fiduciary’s written assurance of facts that would show no breach, might further investigate the facts. The investment adviser should want its lawyer’s advice about how to evaluate the situation to consider what to do next. With your lawyer’s advice, consider: Of the TPA and the investment adviser, is one of those companies or operations a fiduciary? If the services are provided by one company, would the law treat one operation’s knowledge as the company’s knowledge? Or if the services are provided by companies that are commonly controlled (and perhaps have some workers or executives in common), might the law impute one company’s knowledge to another? Even if the governing documents and their ERISA §§ 402-405 allocations make clear that a fiduciary has no direct responsibility for collecting contributions, every fiduciary has co-fiduciary responsibility. Even if a fiduciary does nothing to enable another fiduciary’s breach, knowledge imposes a responsibility: ERISA § 405 [29 U.S.C. § 1105] Liability for breach of co-fiduciary (a) Circumstances giving rise to liability In addition to any liability which he may have under any other provisions of this part {ERISA §§ 401-414}, a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan in the following circumstances: (3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach. Mere resignation is, at least in the Labor department’s view, not enough effort to remedy another fiduciary’s breach. Further, a fiduciary’s resignation (without other steps) might be imprudent, especially if the resignation would increase a breaching fiduciary’s control or make it likelier that no one calls attention to the breach. One unpublished trial-court decision included a finding of fact, without analysis, that a fiduciary made reasonable efforts to remedy another fiduciary’s breach by promptly filing a Federal court proceeding against the breaching fiduciaries. In the range between those points, there is no published Federal court decision that interprets in meaningful detail what steps are enough to prove an observing fiduciary used “reasonable efforts” to remedy another fiduciary’s breach. Is informing the Labor department enough? (If there is a co-fiduciary responsibility, doing nothing is not enough.) If there was a theft and it becomes detected, a plaintiff might pursue everyone that has collectible assets. Yet, many service providers dislike blowing the whistle on a client or customer. So, even if there is a co-fiduciary responsibility, the TPA and investment adviser might want their lawyer’s evaluation of the size of potential liability exposure and how probable or improbable it is that the adviser will become liable.

This guy who began work with the Retirement Equity Act of 1984 remembers the pilot episode of television series L.A. Law. Norman Chaney, one of the firm’s founding partners—the one who did tax, dies at his desk, with his hand in a ring binder. That episode aired about five weeks before the enactment of the Tax Reform Act of 1986, Congress’s Act that rewrote and renamed the Internal Revenue Code. Later, CCH made several before-1986 publications. I still use my CCH Pension Plan Guide bound volumes for “Pre-1986 IRS Revenue Rulings” and “Pre-1986 IRS Tax Releases Other Than Revenue Rulings”.

A business owner, with his or her lawyer’s advice, might consider: Did the bank present a negligent communication? If so, did the communication induce a purported signature on a writing the purported maker did not intend to adopt? Absent a plan document, did the ostensible plan never exist? If the plan never existed, the ostensible trust had no purpose. The trustee would return all amounts. If the plan and trust never existed, the employer or service recipient and the employee or self-employed individual would file or amend all tax returns and tax-information reports to report the correct facts.