Peter Gulia

And whichever way your client, the law firm, decides, do what lawyers do for everyone else—insist on “get it in writing” (whether their writing to you, or your email to confirm what you were told) so the plan’s administrator bears responsibility.

Further, a practitioner might read the law firm’s partnership agreement and consider an interpretation of the retirement plan that’s logically consistent with the partnership agreement and the firm’s tax accounting.

If the plan’s year and the employer’s tax year are the same, some practitioners read this rule as some support for treating a worker as a deemed employee for the whole of the year. “For purposes of section 401, a self-employed individual who receives earned income from an employer during a taxable year of such employer beginning after December 31, 1962, shall be considered an employee of such employer for such taxable year. Moreover, such an individual will be considered an employee for a taxable year if he would otherwise be treated as an employee but for the fact that the employer did not have net profits for that taxable year. Accordingly, the employer may cover such an individual under a qualified plan during years of the plan beginning with or within a taxable year of the employer beginning after December 31, 1962.” 26 C.F.R. § 1.401-10(b)(1) (emphasis added) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401-10#p-1.401-10(b)(1).

Although ERISA § 408(b)(2) and Internal Revenue Code § 4975(d)(2) might exempt from prohibited-transactions consequences the transaction of providing necessary services for reasonable compensation, the Labor and Treasury departments have (at least since 1976) interpreted that exemption as not providing relief for self-dealing. “If the furnishing of office space or a service involves an act described in section 406(b) of the Act (relating to acts involving conflicts of interest by fiduciaries), such an act constitutes a separate transaction which is not exempt under section 408(b)(2) of the Act. The prohibitions of section 406(b) supplement the other prohibitions of section 406(a) of the Act by imposing on parties in interest who are fiduciaries a duty of undivided loyalty to the plans for which they act. These prohibitions are imposed upon fiduciaries to deter them from exercising the authority, control, or responsibility which makes such persons fiduciaries when they have interests which may conflict with the interests of the plans for which they act. In such cases, the fiduciaries have interests in the transactions which may affect the exercise of their best judgment as fiduciaries. Thus, a fiduciary may not use the authority, control, or responsibility which makes such person a fiduciary to cause a plan to pay an additional fee to such fiduciary (or to a person in which such fiduciary has an interest which may affect the exercise of such fiduciary’s best judgment as a fiduciary) to provide a service. Nor may a fiduciary use such authority, control, or responsibility to cause a plan to enter into a transaction involving plan assets whereby such fiduciary (or a person in which such fiduciary has an interest which may affect the exercise of such fiduciary’s best judgment as a fiduciary) will receive consideration from a third party in connection with such transaction. A person in which a fiduciary has an interest which may affect the exercise of such fiduciary’s best judgment as a fiduciary includes [and is not limited to], for example, a person who is a party in interest by reason of a relationship to such fiduciary described in section 3(14)(E), (F), (G), (H), or (I).” 29 C.F.R. § 2550.408b-2(e)(1) (emphasis added) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.408b-2#p-2550.408b-2(e)(1). Accord 26 C.F.R. § 54.4975-6(a)(5)(i) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4975-6#p-54.4975-6(a)(5)(i). {Except for references to ERISA or tax Code sections, the Labor and Treasury rules are almost identical.} If the son is the retirement plan’s fiduciary, his father might be a person in whom the fiduciary has an interest that could affect the son’s best judgment as a fiduciary.

Belgarath, thank you for your kind help.

If the employer, without waiting for Friday’s payment of after-reductions net wages, processes the wage reductions on Tuesday, why not pay over the contributions on Tuesday (or on Wednesday morning)?

Does anyone know which plan-documents supplier—Relius, ASC, ftwilliam, someone else—Ascensus/FuturePlan licenses from?

Without condoning any plan or service provisions and without suggesting a lack of other ways to manage the problem, there might be a practical way for an employer to avoid an unwise or unfortunate effect of what’s described above. In the data the employer uploads to the recordkeeper, might the employer wait to record an employee’s severance-from-employment date? For example, an employer might wait until the later of: n weeks, pay periods, or months after the internally recorded severance-from-employment date; when the employer decides that all after-severance pay has been paid. Such a plan-administration procedure would be designed only to slow down an involuntary cash-out distribution. The procedure would include an escape to upload a severance-from-employment date if doing so becomes needed to support processing of a participant’s requested distribution. I do not suggest a retirement plan’s employer/administrator even consider this idea unless it gets advice from its labor-and-employment lawyer and its employee-benefits lawyer.

Beyond checking your service agreement, consider also: If you are a practitioner before the Internal Revenue Service: 31 C.F.R. § 10.28 Return of client’s records https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.28. If you are a member of the American Retirement Association or one of its “affiliate organizations”: “When a Principal has given consent for a new or additional professional to consult with a Member with respect to a matter for which the Member is providing or has provided Professional Services, the Member shall cooperate in assembling and transmitting pertinent data and documents, subject to receiving reasonable compensation for the work required to do so. In accordance with Circular 230, the Member shall promptly, at the request of the Principal, return any and all records of the Principal that are necessary for the Principal to comply with federal tax Law, even if the Member is not subject to Circular 230. The existence of a fee dispute generally does not relieve the Member of this responsibility except to the extent permitted by applicable state Law. The Member need not provide any items of a proprietary nature or work product for which the Member has not been compensated. ARA Code of Conduct rule 8.B https://www.usaretirement.org/code-conduct Even when applying rules of this kind, many practitioners distinguish between records and a professional’s work product. And even about records, one might distinguish between original records and copies. In another BenefitsLink discussion, Larry Starr suggests deliberately not possessing the original of a client’s record. (One might lack a duty or obligation to make copies of copies of records already in a client’s possession.) And as Larry observed in 2020’s discussion, a prospect of incurring fees might motivate a former client to become less lazy about looking for what it already has. https://benefitslink.com/boards/index.php?/topic/65925-circular-230-ethics/ Would you like a retaining lien so you need not deliver work your client hasn’t paid for? Would you like a copying fee? An assembly fee? A delivery fee? What’s in your service agreement? Now that March 15 season is over, is it time for some spring cleaning?

I have not considered how that law and whatever funding might be provided affects a participant’s benefit rights. But in the theory of ERISA § 206(d)(3), one might write an order to provide an alternate payee alternative shares and payments following the occurrence or non-occurrence of a contingent event. What matters is whether the order “clearly specifies” the command the plan’s administrator is called to act on. “A domestic relations order meets the requirements of [ERISA § 206(d)(3)(C)] only if such order clearly specifies— . . . (ii) the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined, [and] (iii) the number of payments or period to which such order applies[.]” ERISA § 206(d)(3)(C)(ii)-(iii), 29 U.S.C. § 1056(d)(3)(C)(ii)-(iii) (emphasis added). http://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true If I were advising the plan’s administrator, I might tell them not to accept an order unless it leaves the administrator in no doubt about exactly what to do or not do.

Here’s a hyperlink to the eCFR’s display of 29 C.F.R. § 2520.105-3(b) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.105-3#p-2520.105-3(b) While I don’t give advice to anyone, in my view it’s safer to reissue the statement and include in it the required lifetime-income illustration.

At least since 1960, the Treasury department has a rule: “A qualified pension, profit-sharing, or stock bonus plan is a definite written program and arrangement which is communicated to the employees[.]” 26 C.F.R. § 1.401-1(a)(2) (emphasis added) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401-1#p-1.401-1(a)(2) The tax-law worry is that a plan isn’t really a plan if employees beyond the owner or top executives don’t know the plan exists. Whatever ostensibly non-discriminatory provisions a plan has aren’t practically real if employees don’t know they have legally enforceable rights. Since the late 1970s, IRS examiners have looked to delivery of a summary plan description as a way (and perhaps a presumed normal way) to “communicate” a plan. Also, an accrued benefit statement might be another way an employee could learn about a plan’s existence and her potential right under the plan. The Internal Revenue Service might consider the quoted rule (and some related tax-law rules) as supporting some information requests that otherwise lack a particular tax-treatment hook. And even for unsupported information requests, your client will want your advice about whether it’s wise or unwise to object. An ERISA rule confirms that “in-hand delivery to an employee at his or her worksite is acceptable.” 29 C.F.R. § 2520.104b-1(b)(1) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.104b-1 If some SPDs, benefit statements, and other communications were hand-delivered, your client might want your help in drafting or editing an affidavit that states what your client did. And an affidavit might describe the employer/administrator’s regular practice for mailing communications not delivered in the worksite.

Here’s two relevant texts from the regulations: “Exempt Employer” means an Employer that . . . (ii) maintains or contributes to a Tax-Qualified Retirement Plan[.] “Tax-Qualified Retirement Plan” means a retirement plan that qualifies for favorable federal income tax treatment under Sections 401(a), 401(k), 403(a), 403(b), 408(k), or 408(p) of Title 26 of the United States Code. An employer-provided payroll deduction IRA program that does not provide for automatic enrollment is not a Tax-Qualified Retirement Plan. https://www.treasurer.ca.gov/calsavers/regulations/final-regulations.pdf

If you or other counsel for the seller don’t persuade the purchaser to relent, there are some methods for lessening an exposure. Among them: Depending on the statement to be made, offer a representation but not a warranty. Or offer a warranty but not a representation. It’s unclear what consequences might result from these distinctions, but some lawyers believe there are possibly different remedies for an inaccuracy in one or the other and that the lingo used might influence a court’s or arbitrator’s interpretations about remedies. Even better, specify exactly which remedies do or don’t apply for an inaccuracy of either (or any) kind of statement or promise. Limit a warranty or a representation to its maker’s actual knowledge. Define what is in out of the maker’s knowledge. Rewrite an assurance as a statement about not knowing. For example, compare “The Plan warrants that the Seller’s agreements with the Customers are legally enforceable according to their written terms.” with “The Plan warrants that the Plan has no Knowledge that the Seller’s agreements with the Customers are not legally enforceable according to their written terms.” Put a time limit on remedies for a breach of a warranty or representation. In the text, recite: “Each warranty or representation made by the Plan is void to the extent ERISA § 410(a) provides.” While that law applies even if the text is silent, it might help to preserve an argument that a party to the agreement knew that ERISA § 410(a) might affect something. And consider whether a remedy against the seller’s plan might be impractical, especially if the seller will terminate the plan before the asset-purchase closing or soon after.

I concur. And I didn't and don't blame anyone for what happened with the plan my client administers. Rather, my observation is that the layers and steps in the intermediated way in which a retirement plan buys shares of an investment pool sometimes leaves a plan fiduciary lacking information.

Bri, the rule Bird points us to distinguishes between a plan that provides a survivor annuity and a plan that need not and does not provide a survivor annuity: . . . . If, because of [Internal Revenue Code of 1986] section 401(a)(11)(B), the plan is not required to distribute in the form of a QJSA to an employee or a QPSA to a surviving spouse, the plan may distribute the required minimum distribution amount to satisfy section 401(a)(9) and the consent requirements of sections 411(a)(11) and 417(e) are deemed to be satisfied if the plan has made reasonable efforts to obtain consent from the employee (or spouse if applicable) and if the distribution otherwise meets the requirements of section 417. 26 C.F.R. § 1.401(a)(9)-8/Q&A-4 (emphasis added) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-8. An individual-account retirement plan (if not subject to funding standards, and not a transferee of such a plan) need not allow an annuity, nor even any periodic payout option. I see many plans that allow a participant a choice only between a voluntary single-sum distribution of the entire account balance and an involuntary distribution (only once a year) of the minimum-distribution amount.

Yes, I too as a Vanguard customer received notices. But if a retirement plan used a custodian and recordkeeper unassociated with Vanguard, such a plan was dependent on whatever notice (if any) the recordkeeper furnished.

Many have reasoned that default choices should aim on the side of what can be changed. But that’s one of many principles some use in setting default choices. Here’s a reason that might point in a Roth-ing direction: A participant who takes a hardship or early distribution might receive lower income (and so, a lower 10% “penalty” tax on a too-early distribution, and perhaps lower marginal income tax rates) to the extent that the hardship or early distribution is allocable to a Roth subaccount. Whichever way an employer sorts out these and other employee-benefit choices, I assume an employer may specify provisions as its plan’s creator or settlor, and so not as the plan’s fiduciary.

EPCRSGuru and Pam Shoup, thank you for your helpful information. Pam Shoup, I too see that an investment adviser might consider it a smart courtesy to inform its client about fund changes. The employer/administrator that asked for my advice about correcting the fallout from missing Vanguard’s change (and started me thinking about these kinds of situations) uses no investment adviser.

Yes, I’m aware many small-business retirement plans operate with little or no internal resources of the employer that serves as the plan’s administrator (and often the plan’s only fiduciary). And I’ve had hands-on experience doing the unautomated work you describe. In the 1980s, I worked in allocating a plan’s subtrusts’ investment results by hand, doing calculations on a hand-held calculator, posting journals’ entries and offsetting entries in old-fashioned ledger books, and typing participants’ statements on an IBM Selectric typewriter. A need for the work you describe should suggest to a resource-constrained fiduciary that it’s imprudent to allow the off-system investment alternatives that result in a need for that work. I certainly don’t fault TPAs. If anything, many TPAs provide advice about what an employer/administrator is missing. And while one waits for an employer to change a plan’s investment alternatives and administration: If a June 30, 2022 account balance isn’t available, why not run the first lifetime-income illustration on the December 31, 2021 balance?

Congress enacted the statute in 2019, and the Labor department published the rule on September 18, 2020 (more quickly than Congress directed). Employers have had more than two years in which one could have asked service providers whether they will offer a service to help an employer/administrator meet its duty. And service providers have had at least the past eighteen months in which one could have designed or bought software and designed work methods to generate the illustrations. But if the worry is that a plan’s administrator might not know (or communicate) a participant’s account balance until months after the date of the account balance, that’s not a weakness in the government’s rulemaking. That’s a weakness in the plan’s administration. I’m aware a TPA or other service provider might feel frustrated in dealing with a client or customer that doesn’t prudently administer its plan. I look for solutions. Ideas I’ve mentioned here are just a few of many ways an employer/administrator might recover from its inattention.

EBSA’s nonrule guidance says June 30, 2022 is the latest quarter-yearly close that ends with time for a delivery before September 18, 2022. But a plan’s administrator might want its lawyer’s advice about whether a summertime or autumn revision of a previously delivered March 31, 2022, December 31, 2021, or September 30, 2021 benefit statement to add a corresponding lifetime-income illustration could suffice to meet ERISA § 105(a)(2)(B)(iii). Perhaps a plan's administrator might find that delivering (before September 18, 2022) a stale illustration generated on a not-most-recent account balance might be less wrong than delivering no illustration.

Another BenefitsLink discussion raises the same worry. In that discussion, I hinted that some practitioners might consider it enough that an illustration generated from a participant’s June 30, 2022 balance is delivered before September 18, 2022. For the background and explanation, see https://benefitslink.com/boards/index.php?/topic/69012-lifetime-income-illustrations/.

Leaving aside the merits of which is a better plan-design choice: To support the discussion WCC seeks, it might help to distinguish between choices an employer makes as its plan’s sponsor (non-fiduciary), and decisions the employer makes as the plan’s administrator (fiduciary). If a plan’s governing plan document specifies the automatic-contribution provision, including whether that contribution is Roth or non-Roth, is that choice a settlor provision? If that choice between a Roth or non-Roth automatic contribution is specified in the plan’s governing document, is the plan administrator’s responsibility limited to obeying the plan document? If the plan’s administrator must do something more than just obey the plan document, what exactly must the administrator consider? Under what circumstances must a plan’s administrator disobey the plan document and put the automatic contributions in the other tax treatment? What facts would a participant need to allege to set up a plausible claim that the plan administrator’s decision not to disobey the plan document harmed the participant? Would that claim be negated or weakened by a finding that the participant had, initially and continually, a power to undo the plan-specified default choice? Do answers to these questions suggest an employer may make its plan-design choice between Roth or non-Roth automatic contributions by focusing on which treatment better helps the implied-assent participants, without too much fear about liability grounded on a fiduciary’s responsibility (if any) to disobey the plan document?

Following Vanguard’s announcements about renaming and reorganizing Vanguard Prime Money Market Fund as Vanguard Cash Reserves Federal Money Market Fund, a recordkeeper and the custodian it works with processed the changes for their retirement plan customers—without advance notice to those plan sponsors. A retirement plan’s sponsor/administrator received no prospectus or other fund document from any Vanguard service provider. (That happens because a fund’s duty is to deliver a document to its record shareholder. Even if a fund might volunteer to send some communications to beneficial owners, often a fund cannot do so because it might lack names and addresses for beneficial owners.) About this reorganization of a Vanguard fund, neither the custodian nor the recordkeeper asked for their customer’s approval or acceptance, not even as an implied-assent “unless you instruct us otherwise” email. Further, neither the custodian nor the recordkeeper did anything even to inform a plan’s sponsor/administrator about the change before processing it. (Arguably, a diligent fiduciary ought to have asked a question after reading the first employer report that showed the new fund name.) I recognize the practical needs for a recordkeeper and custodian to follow a fund’s change (if the plan’s sponsor/administrator has not delivered a different instruction). But is it usual for a recordkeeper to process a fund’s change with no advance notice? Is this the common practice for all or most recordkeepers? Or do some provide more service? If a recordkeeper’s standard service does not include informing employers about fund changes, in what circumstances is it feasible to negotiate an extra service?