Peter Gulia

Does the plan's governing document include a definition for day of service? Does that definition count all days someone is an employee, or only days the employee worked? How do the plan's provisions apply to someone who works on only two days in each week? Would the plan's definitions and provisions always result in measurements like your examples? Even if the governing document's provisions are complete and clear, is it possible someone in the sponsor/employer imagines that "days of service" means something different than what the plan provides? Is it possible the sponsor prefers a term that relates to a record in the employer's human-resources-management or payroll systems?

Considering today’s information, my inferences are: Many non-ERISA plans involve only one owner. A participant who is the owner is unlikely to assert a fiduciary-breach claim against herself. A participant who is the owner’s spouse is unlikely to assert a fiduciary-breach claim against the owner/fiduciary (if the marriage remains content). Some non-ERISA plans involve several owners. Even if a participant/owner was not involved in the fiduciaries’ decision-making, such an owner is unlikely to assert a fiduciary-breach claim against her partner (unless there is another reason for discontent). At least non-tax fiduciary points are beyond a TPA’s usual work. Even if understanding differences between ERISA and non-ERISA fiduciary law might bear some academic interest, there’s not much here for practitioners. Thank you, friends, for your good help.

Consider asking your client this rhetorical question: If the employer declared a nonelective contribution, paid it into the plan’s trust, and some portion of that contribution were allocable to a participant who had delivered no investment direction (and worse, might persist in furnishing no direction), how would the plan’s administrator and trustee direct the custodian to invest the contribution’s portion allocated to that participant’s account? And how much responsibility would each fiduciary bear for that decision-making? Also, there might be a default investment, even if it is not directly expressed in the plan’s governing documents. A broker-dealer’s securities account often has account terms that provide how to invest an amount for which the broker-dealer has received no other instruction.

It would be inappropriate to attempt even a general answer without seeing much more information, including information that might be improper or unwise to communicate without a lawyer-client relationship. If your friend the ERISA lawyer wants my suggestions about how to sort the issues, that person is welcome to call me. Lawyers’ professional-conduct rules allow ways for a lawyer to reveal her client’s confidential information to get another lawyer’s advice about the client’s matter or the lawyer’s conduct. I often help as a lawyer’s lawyer.

Thank you for this great help. While there is a filter for plans coded as including self-employed individuals, I see nothing to capture a plan with only self-employed individuals. And while there are many employer and plan codes, I see none about service codes. But thank you for your smart thinking.

Another curiosity, how many of these plans have an investment adviser, and how many lack an investment adviser?

Bill Presson, thank you for your helpful information. Of my clients, there is no small-business plan sponsor/administrator I advise, and even my indirect experience from advising law, accounting, and actuarial firms and retirement-services providers is rather limited. That’s why I sometimes ask BenefitsLink neighbors to share experiences. A mid-size law firm I advise asked for my advice about a non-ERISA plan’s trust and investment arrangements. That got me wondering about how often TPAs work with only-owners (not just one owner) plans. And about what differences one might face because State law, rather than ERISA’s title I, governs a plan. For some points, differences are slight because meeting Internal Revenue Code conditions for § 401(a) treatment results in many provisions ERISA §§ 201-210 would require or permit. But for some points about participant-directed investment, investment managers, investment advisers, co-fiduciary responsibility, trusts, prohibited transactions, and other fiduciary law issues, there can be meaningful differences between ERISA and a State’s law. Does this affect a TPA’s work? Or are the fiduciary points beyond a TPA’s usual work? I imagine no fiduciary issue is raised for a plan with only one owner/participant. But what about a plan for several partners, with not all of them involved in the fiduciary decision-making?

TPApril, when you say there is no QDIA, do you mean there is no default investment alternative at all, or that there is a default but it is not a qualified default?

BG5150, thank you for your information, which helps me. In your work, do you encounter issues or questions that come up because ERISA’s title I does not govern the plan? Or because State law governs the plan?

And your firm might want your lawyer’s advice about when and how to end your services while managing risks of your exposures to, if not liabilities, at least defense and other expenses.

Yes, I am asking about owners-only plans. How often does it happen? Is an owners-only plan a regular aspect of a TPA's practice?

Does the plan provide any contribution beyond a participant's elective-deferral contribution or rollover contribution?

Is the issuer of the employer securities a C corporation or an S corporation? Does the issuer's certificate of incorporation restrict stock ownership to employees? What does the plan provide about whether a distribution is, to the extent an account has employer securities, a delivery of the employer securities (and not a payment of money)?

Leaving aside your question about a lag between a discontinuance or termination date and the plan’s final distribution: Following your idea that the plan’s documents “must be fully up to date” when the plan terminates, wouldn’t at least some provisions in a cycle 3 restatement be needed for the plan’s termination? Wouldn’t the plan’s sponsor want the cycle 3 restatement and whichever further amendments are needed to make the user’s document up-to-date for the termination?

Recently, I was asked for advice on State-law fiduciary issues about a retirement plan. The plan’s sponsor, a profit-seeking limited-liability company (treated as a partnership for Federal income tax purposes), has no employee, and no intent to hire an employee. Everyone who works in the business is an LLC member. And yes, I checked that the LLC interests are real, and not a sham to evade treating a worker as an employee. How often does this happen—that every worker is a partner, an LLC member treated as a partner, or otherwise an owner treated as not an employee? Does it happen often enough that a service provider would plan for these situations?

JM, thank you for pointing us to California’s Family Code § 1101. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=FAM&sectionNum=1101 That California or another of the States with a community-property regime (or a State with provisions for dispositions of community property acquired under another State’s regime) has such a statute, or even that the statute is classified under California’s Family Code or another State’s title for domestic-relations law, might support, but does not control, whether such an order always is a domestic-relations order within the meaning of ERISA § 206(d)(3)(B)(ii). That question involves interpreting Federal law. For those who don’t disdain legislative history as sometimes a possible indicator of what a legislature meant, one might consider Congress’s purposes for the Retirement Equity Act of 1984, including its portions that amended ERISA sections 205 and 206. And even an interpreter who considers only an enacted statute would interpret the whole statute, including (at least) ERISA sections 2, 3, 205, 206, 404, and 514. Even ignoring the intent of the participant, the nonparticipant spouse, and the court that issued the order, and without failing to accept the State court’s factual findings and application of State law, a plan’s administrator could decide that a reordering of the spouses’ property unrelated to a divorce or separation action is not a domestic-relations order. Or an administrator could decide that it is a DRO and, if other conditions are met, a QDRO. Either way, a court reviewing an administrator’s decision should defer to the administrator’s discretionary decision-making unless it was so lacking in reasoning that it was not an exercise of the plan-granted discretion.

I hope BenefitsLink neighbors will help me by responding to this survey about methods and customs in delivering documents for a managed-account service. Assume an individual-account retirement plan that provides participant-directed investment. Assume the plan’s top fiduciary approves a registered investment adviser’s offer of its managed-account service. The service is provided only to a participant (or other investment-directing individual) who agrees to the extra service, and agrees that the investment adviser’s fee is charged against her plan account. Does the adviser deliver its investment-advisory agreement: 1) as a paper document? 2) as a pdf attached to an email? 3) by showing a hyperlink that points to a webpage on which the agreement is hosted? 4) by some other means, and if so what? Does the participant/advisee sign the agreement: 1) with ink on paper? 2) using an electronic-signature service? 3) by clicking an “I approve” button in the plan’s or the adviser’s website? 4) by some other means, and if so what? When the adviser later must deliver a required disclosure, is it: 1) paper sent by US mail? 2) a pdf attached to an email sent to each participant/advisee? 3) a notice-and-access email with a pointer to the website on which the document is hosted? 4) notice in a quarterly statement? 5) by some other means, and if so what? Thank you for your good help and practical observations.

Among other possibilities: If a participant dies, what distribution might a surviving spouse or other designated beneficiary be entitled to? Which valuation would the plan’s administrator use to determine the beneficiary’s right or the plan’s obligation? If a participant quits her job after the intra-year valuation is available (and before the close of the year), which valuation would determine such a participant’s after-severance distribution?

I am unaware of any later ERISA Advisory Opinion that undoes the reasoning of Opinion 90-46A (Dec. 4, 1990). An agency’s document that is not a rule or regulation (and usually is made with less process than a notice-and-comment rulemaking) is an interpretation a court need not defer to; instead, it gets only “respect” and only if the interpretation is persuasive. For example, Christensen v. Harris County, 529 U.S. 576 (May 1, 2000) (rejecting an argument that the Court should give Chevron deference to a Labor department opinion letter); Bussian v. RJR Nabisco Inc., 223 F.3d 286, 25 Empl. Benefits Cas. (BL) 1120, 1127-1128 (5th Cir. Aug. 14, 2000) (rejecting the Secretary of Labor’s argument that the court should give Chevron deference to a Labor department interpretive bulletin). For an example of a case in which a State court denied a DRO, your lawyers might read Jago v. Jago, 2019 Pa. Super. 246 (Pa. Super. Ct. 2019) https://casetext.com/case/jago-v-jago?sort=relevance&resultsNav=false&q=. The petition did not ask for a divorce, or for any relief other than entry of an order to be directed to a retirement plan. The court “h[e]ld that absent a divorce or other domestic relations matter pending between spouses, they cannot obtain a QDRO for the sole purpose of moving funds in the participant/spouse's ERISA plan out of the plan to the non-participating spouse.” The opinion reflects the court’s reasoning because only one attorney appeared, and he presented the argument for allowing the domestic-relations order. I am unaware of any similar case involving spouses under a community-property regime. Beyond the merits of whether the court’s order is or isn’t a DRO, your lawyers also might consider whether the plan’s governing documents provide deference to an administrator’s decision about whether a court’s order is a QDRO or even a DRO. And your lawyers might evaluate the extent to which a court should or would defer to the administrator’s plausible interpretations of the plan’s governing documents (including interpretations of ERISA sections 3, 205, 206, 404, and 514) and discretionary findings.

If your client has made that considered choice, you'll want to read carefully (and consider the perspective of a challenger who seeks to invent an ambiguity) to catch everything and negate all the unwelcome interpretations. I've done documents of the kind you describe. It can work if you sweat the details.

ERISA Advisory Opinion 90-46A, https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1990-46a.pdf. It concludes: “[I]t is the view of the Department of Labor that Congress intended the QDRO provisions to encompass state community property laws only insofar as such laws would ordinarily be recognized by courts in determining alimony, property settlement and similar orders issued in domestic relations proceedings. We find no indication Congress contemplated that the QDRO provisions would serve as a mechanism in which a non-participant spouse’s interest derived only from state property law could be enforced against a pension plan.” But others might construe or interpret the statute differently.

Many employers, acting as an administrator of a group health plan (whether with or without health insurance), seek some evidence that a person a participant seeks to cover as one’s spouse is the participant’s spouse. If a plan provides coverage for a same-sex spouse, one convention is to ask (or not ask) for certificates equally for same-sex and opposite-sex marriages. Some plans recognize a declaration of informal or common-law marriage. If a plan recognizes an uncertificated marriage, one convention is to recognize it equally regarding same-sex and opposite-sex marriages. Increasing numbers of plans use dependent-eligibility audits to catch a range of frauds.

One cannot confidently answer your questions without reading the several agreements involved: (at least) the TPA’s service agreement, the recordkeeper’s service agreement, the custodian’s service agreement, the trustees’ agreement, and the documents governing the plan. If you are the TPA, consider starting with the TPA’s service agreement and how much or how little it obligates the TPA to do, and how much or how little protection the agreement provides for relying on others’ instructions. Also, one might read the documents, especially the trustees’ agreement, to discern whether ending one’s employment with the employer that appointed the trustee results in a resignation or removal from the plan trusteeship (or did nothing to change a trusteeship). A trust agreement might include or lack such a provision. There can be risks—regarding the employer, the administrator, a trustee, a participant, and a participant’s spouse or other beneficiary—for (either) processing a claim that was not properly approved, or failing to process a claim that was properly approved.

If one makes documents using word-processing software: What efficiencies do you gain by putting distinct employers’ obligations under one document? Might a drafter’s added sentences to make clear that each employer/service recipient has obligations only for the deferred compensation of that employer’s service providers be more work than using a document that refers to only one obligor? Might a drafter’s added sentences to make clear that a creditor of one employer has no right regarding the assets of another employer be more work than using a document that refers to only one employer? If the plans’ provisions truly are identical (but for the identity of the obligor), isn’t making separate documents little more than editing the name of each employer? Or is there some other business reason why one or more of your clients might like putting the several employers’ obligations under one document?

ERISA § 206(d)(3)(B)(ii)(II) recognizes that community-property law might, in some contexts, also be domestic-relations law. But that does not negate § 206(d)(3)(B)(ii)(I)’s condition that a domestic-relations order must “relate[] to the provision of . . . alimony payments, or marital property rights to a spouse, former spouse . . . of a participant[.]” The QDRO-deciding administrator should read carefully the exact text, and the whole text, of the court’s order. Also, which court and division of the court issued the order might be a relevant aid to help consider whether the order is a domestic-relations order.