Peter Gulia

Consider that a nonelective contributions subaccount might not be a countable resource regarding a Social Security disability benefit if, following the retirement plan’s provisions, the participant cannot get a distribution from that subaccount. 20 C.F.R. § 416.1201(a) https://www.ecfr.gov/current/title-20/chapter-III/part-416/subpart-L/section-416.1201 For example, if the plan provides no distribution from a nonelective contributions subaccount until the participant’s normal retirement age, a younger participant might lack a countable resource.

The rulemaking project remains open. View Rule (reginfo.gov) https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202110&RIN=1210-AB97

In my fee statements, I include (in chronological order) descriptions of tasks I choose not to bill with as much detail as for tasks billed. Among other advantages, this creates another record about work I did and advice I delivered. If ever there is the question “Why didn’t you tell me . . . .”, it’s nice to have an extra way to show I delivered the advice. For an audit, I can truthfully confirm the statements needed for an ABA/AICPA no-undisclosed-loss-contingencies letter looking only at my billing entries. If there is no entry in my fee statements, I must not have given “substantive attention” to whatever might have been or became a potential loss contingency.

Just curious, does an amendment—whether of a plan document, or of a separate trust document—to remove a trustee (and perhaps appoint another) incur a fee? Or is this routine processing with no incremental fee?

R Griffith, thank you for your observations.

After the Schlicter fiduciary-breach lawsuits began in December 2006, for a while I kept my own internal records. But the increases in complaints overwhelmed the time I could devote to keeping score. Now that the cases number over a thousand (with about 100 to 200 new cases in each of recent years), it would be a big lift to develop a scorecard. I read the officially and commercially published court decisions. I selectively read some complaints, and some settlement agreements. I continually update my written advice on how to be less attractive as a target. Not counting employer-securities cases, I remember only three ERISA fiduciary-breach actions with a trial—ABB, Kraft Foods II, and Edison. (But which did I not remember?} ABB commenced on December 29, 2006; went to trial over five years later in 2012; endured several more rounds, including two appeals trips; and settled in 2019 (after 12¼ years’ litigation).

For the fiduciary-breach lawsuits that been in the news for the past 15½ years, has anyone done a scorecard on how many, or what percentage, were: completely dismissed? won by the plaintiffs? won by the defendants? settled?

You might begin by using your Bloomberg Law, LEXIS, or Westlaw subscription to read the reported and unreported but commercially published decisions in Neil v. Zell, Case No. 08-CV-6833 in the United States court for the Northern District of Illinois. While there are many reports, some essentials are these: Neil v. Zell, 2008 WL 11342700 (C.D. Cal. Nov. 17, 2008) (transferring case to Illinois where the ESOP was administered, most of the evidence was found, and the operative agreements called for the application of Illinois law). Neil v. Zell, 677 F. Supp. 2d 1010 (N.D. Ill. Dec. 17, 2009 amended Mar. 11, 2010) (dismissing some claims, and denying dismissal of other claims) (complaint alleged enough to assert a claim that GreatBanc breached its fiduciary responsibility). Neil v. Zell, No. 08 C 6833, 2010 WL 3167293 (N.D. Ill. Aug. 9, 2010) (“Tribune [Company] is not a party to this case, so the court cannot order relief that would involve repayment of funds that originated with Tribune.”) (“if Zell and EGI-TRB are shown to have participated in a fiduciary breach or to have engaged in a transaction prohibited by ERISA, barring them from having fiduciary responsibility over the ESOP might constitute appropriate equitable relief.”). Neil v. Zell, 753 F. Supp. 2d 724, 731 (N.D. Ill. Nov. 9, 2010) (analyzing ERISA §§ 407(d), 408(b)(3), 408(e), and Internal Revenue Code of 1986 §§ 409(l), 4975, 26 C.F.R. §§ 54.4975-7, 54.4975-11) (For a person to be subject to equitable relief regarding a prohibited transaction, it is enough that the person “had actual or constructive knowledge of the deal's details”; one need not show the actor knew, or even ought to have known, that the transaction was a prohibited transaction). Neil v. Zell, 767 F. Supp. 2d 933, 50 Empl. Benefits Cas. (BL) 2801 (N.D. Ill. Feb. 28, 2011) (denying GreatBanc partial summary judgment to limit restoration). Neil v. Zell, 275 F.R.D. 256, 259 (N.D. Ill. Mar. 4, 2011) (granting motions to certify the class and appoint plaintiffs’ counsel as class counsel). Ex-Tribune Workers Reach $32 Million Deal In ERISA Lawsuit Involving Buyout of ESOP, Bloomberg Law Benefits & Executive Comp, Aug. 23, 2011, 12:00 AM.

For a spouse’s consent to an election against a survivor annuity or naming a beneficiary other than the participant’s spouse, the IRS has relaxed the physical-presence condition and allows—from January 1, 2020 through June 30, 2022—a remote witnessing that uses live audio-video technology and meets all requirements and conditions under the State law that applies to the notary or, for a plan representative, meets controls specified in the IRS’s notice. IRS Notice 2021-40; 2021-28 I.R.B. 15 (July 12, 2021); Notice 2021-3, 2021-2 I.R.B 316 (Jan. 11, 2021); Notice 2020-42, 2020-26 I.R.B. 986 (June 3, 2020). Do we guess the IRS will let this relief expire with June 30? Or does anyone predict another extension?

Bifurcated mess, just for BenefitsLink friends’ curiosity: Which spouse asked the court to grant a bifurcated divorce? Did the participant ask? Or did the would-be alternate payee ask? Did the spouses together assent to the bifurcated divorce? Or did the court grant it despite a spouse’s opposition? For ERISA practitioners who might not know the concept, a bifurcated or divisible divorce is “[a] divorce whereby the marriage itself is dissolved but the issues incident to the divorce . . . [which might include dividing property] are reserved until a later proceeding.” Divorce, divisible divorce, Black’s Law Dictionary 603 (11th ed. 2019). California Family Code § 2337 https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=2337.&lawCode=FAM California Rules of Court https://www.courts.ca.gov/cms/rules/index.cfm?title=five&linkid=rule5_390 Since (at least) the mid-1980s, family lawyers’ mainstream guidance is that a spouse who might want some portion of the other’s pension should oppose bifurcation because a divorce defeats one’s pension rights as a spouse or surviving spouse.

The Form 5500 report’s attachment you mentioned states: “The lnsperity 401(k) Plan is a single employer plan which is operated consistent with the requirements for a “Multiple Employer Retirement Plan” as defined in Revenue Procedure 2002-21. Revenue Procedure 2002-21 defines a “Multiple Employer Retirement Plan” as a defined contribution plan (including a plan that includes a cash or deferred arrangement described in section 401(k)) intended to satisfy the requirements of section 401(a) or section 403(a), and section 413(c), under which each Client Organization is “treated as” an employer.” It seems Insperity might assert that the plan is a multiple-employer plan within the meaning of the Revenue Procedure’s special definition, but is not “a plan maintained by more than one employer” described in Internal Revenue Code § 413(c) and is not other than a single-employer plan defined in ERISA § 3(41). The Revenue Procedure’s definitions § 6.02 states: “The term ‘Multiple Employer Retirement Plan’ means a defined contribution plan (including a plan that includes a cash or deferred arrangement described in § 401(k)) intended to satisfy the requirements of § 401(a) or § 403(a), and § 413(c), under which each CO [client organization] is treated as an employer. Rev. Proc. 2002–21, 2002-19 I.R.B. 911, (May 13, 2002) https://www.irs.gov/pub/irs-irbs/irb02-19.pdf

The filed Form 5500 report is a public record. Unless your client is the PEO or some investment or service provider named in the report, you might attach the report here without revealing a secret or confidence of your client. Reading the report might help us consider whether there is some reasonable interpretation to support the reporting you observed.

Liz Hallam, thank you for your further information.

MoJo makes the sensible point that a TPA might not need its auditor’s review of some other person’s controls. So, let’s ask these questions: If a TPA often or sometimes works with data when the data is on the TPA’s system (rather than in the custodian’s, recordkeeper’s, or employer/administrator’s system), should such a TPA engage a data-security audit (focused on what would be on the TPA’s system)? Even if a TPA always works with data sitting only on someone else’s system, should such a TPA nonetheless engage a data-security audit about the TPA’s controls for identifying the TPA’s users and safeguarding a user’s powers to access others’ systems?

EBECatty, thank you for this excellent help.

It’s typical for a recordkeeper to get assurance reports of the kinds MoJo describes. But is an assurance report about data security typical for a third-party administrator (one that’s not part of, and not affiliated with, a recordkeeper)?

Just curious, if the employer adopts the CPA’s tax-return preparation, does it affect anything in the pension plan’s administration or the actuary’s valuations?

Some governmental employers allocate a matching contribution under a § 401(a) plan on a participant’s deferral under a § 457(b) plan. Does any provider’s IRS-preapproved document allow a user to specify this within the adoption agreement’s check-the-boxes (or allowed fill-in) choices? If not, how the IRS would respond to a Form 5307 application in which this point is the only variation from the preapproved document?

For purposes such as whether a corrective distribution was made by March 15 or April 15 (or such a date as adjusted under a holidays rule), I’ve heard some providers reason that a distribution is made on the day the instruction is processed such that mutual fund shares are redeemed, or collective trust fund units are withdrawn, as of that day. Do BenefitsLink mavens concur?

For an explanation of some rules about holidays, see https://benefitslink.com/boards/index.php?/topic/69147-6302021-5500-due-today-or-monday-the-18th/#comment-322161. If your client did not file Friday and files today, your BenefitsLink neighbors would welcome information about whether the government’s systems treat today’s filing as timely. As I mentioned in the other discussion, one might imagine the Labor department having set the software to follow a combination of Federal holidays and the tax-law rule, which looks also to a District of Columbia holiday.

How did an applicant obtain fiduciary liability insurance without furnishing at least the most recent Form 5500 report as a part of the application for the insurance?

If the records show an account with neither a name nor a taxpayer identification number, the plan’s administrator might investigate whether that supposed participant ever existed, or whether there is an error in the records. Is the plan a defined-benefit plan, or an individual-account plan? What does the record show as the accrued benefit? If not for the plan’s termination, what otherwise would have been the vested benefit? How strong or weak are the employer’s other records, particularly on employment-law matters? Would finding one or more Form W-2 wage reports that used the “bad” SSN, show a name the employer then assumed was associated with the number? What information describes that the SSN is “incorrect”?

It’s an interesting line of reasoning. And if a person seeking to get a disclaimer recognized were my client, I might consider using that reasoning with other arguments. The minimum-distribution rule includes: “Accordingly, if a person disclaims entitlement to the employee’s benefit, pursuant to a disclaimer that satisfies section 2518 by that September 30 thereby allowing other beneficiaries to receive the benefit in lieu of that person, the disclaiming person is not taken into account in determining the employee’s designated beneficiary.” 26 C.F.R. § 1.401(a)(9)-4/Q&A-4(a) (emphasis added). The rule recognizes the possibility that a plan’s administrator might recognize a disclaimer. But there is no Federal statute (and no rule or regulation interpreting a Federal statute) that requires (whether as an ERISA command, or as a condition of IRC § 401(a) tax treatment) a plan to recognize a disclaimer. (For a governmental plan or a church plan, if not ERISA-governed, one would consider applicable and relevant State laws.) If a plan’s administrator plausibly interpreted the plan to not require recognizing a disclaimer, I doubt a contingent beneficiary’s claim for a benefit, or action for equitable relief on a fiduciary’s breach, would succeed. Many plans’ documents grant the administrator powers to interpret the plan. At least since February 21, 1989, courts defer to a fiduciary’s exercise of that discretion unless an ostensible interpretation is so obviously unreasoned that it is an abuse of discretion. (The result might be different in an interpleader action. Courts sometimes interpret ERISA by filling a perceived gap with Federal common law.) All that observed, I imagine many practitioners would interpret a plan that does not expressly preclude a disclaimer to allow a qualified disclaimer. Such an interpretation would be logically consistent with a common-law idea that a person ought not to be compelled to accept a gift.

CuseFan and Patty, thank you for confirming that many documents are silent, and that many administrators might interpret such a document to not preclude a disclaimer. fmsinc, many retirement plans, including individual-account plans, use the lingo “death benefit” or “death distribution” to distinguish between a distribution to a participant on or after her severance-from-employment or attainment of a specified age (a “retirement distribution”) and a distribution to a beneficiary after the participant’s death. Bob the Swimmer, your memory is good. Many States have laws based on uniform laws or model laws recommended by the Uniform Law Commission. A majority of States have laws based on one or both versions of the Uniform Disclaimer of Property Interests Act. https://www.uniformlaws.org/committees/community-home?CommunityKey=7118ea8a-f4f9-4b0a-be20-d918c59bd650 That current recommended law states: “A person may disclaim the interest or power even if its creator imposed . . . a restriction or limitation on the right to disclaim.” But a State law cannot compel an ERISA-governed plan to accept a disclaimer. ERISA § 404(a)(1)(D), § 514. However, a State law might affect whether a disclaimer is respected for Federal tax purposes, or accepted by a retirement plan’s administrator. Every plan document I write (and even others’ documents I supplement) includes a detailed provision on what makes a disclaimer acceptable.

A typical rollovers-as-business-startups transaction has the retirement plan pay into the corporation an amount in exchange for original-issue shares of the corporation. The typical valuation sets the fair-market value of those shares as the same amount that will be paid in. But if a corporation yet has no real property, no contracts, no money (until the purchase of the shares), no other assets, and no operations, isn’t its fair-market value $0.00?