Steelerfan

responding to Locusts second paragraph--sometimes I wish the justices would address concurring and dissenting opinions like they used to do. I actually thought that Thomas was slightly misinterpreting the majority. I didn't get the sense that the majority was saying that the change in benefits landscape caused a change in how the law should be interpreted. If that's what they are saying, then I don't really agree and I definitely don't think they had to go that far. I interpreted that part of the discussion as essentially saying that Russell was decided with defined benefit-type plans in mind and should be basically be interpreted in that light and limited to analogous facts. I mean Russell isn't irrelevant just because the benefits landscape changed. A Cash balance plan would really be problematic as a hybrid; it would be hard to tell when to apply the "entire plan" theory or the individual account theory. Likely the answer would depend on the nature of the breach, the approprate remedy and whether the behavior affects the "individual account" aspects of the plan or the "defined benefit" nature of the plan.

It'd be pretty safe to assume that the Supreme Court was aware of 502(a)(1)(B) but likely assumes that a claim under that section would either be denied or used as an adjuct/subsequent claim to recover what is owed after the loss is restored. The Court clearly stated that there can be a cause of action under 502(a)(2) assuming a breach occurred. Who cares if 502(a)(1)(B) is available or unavailable for relief? It's a different claim. What is the point of continuing to discuss the interplay between them, other than the obvious point that no one should be able to double dip? Does anyone here seriously think that after this opinion, a court could or should get away with dismissing this claim on the basis that 502(a)(1)(B) provides an adequate remedy because relief under 502(a)(2) might be inappropriate?

mjb--Yes, there is personal liability for fiduciary breaches under ERISA. So they can and should be held personally liable. But why are you worried about collection? You are now ignoring the law and have entered the realm of not agreeing with it. The Court did say that a resoration of profits under trust law is an appropriate remedy under ERISA. If Congress doesn't like it they need to amend the statute.

I think you mean thomas and Scalia. I agree that that the action is for a participant to restore losses to the plan, then the participant should recover from the plan. Before this case was decided, in an other thread I said something like the term "plan" in the statute should be construed to include an individual's account. The majority didn't seem to concern itself with that detail. the next step, though is that he go back to trial and prove there was a fiduciary breach since it would seem that administrative remedies would be futile at this point.

Unfortunately for mjb, there will likely be no LaRue II because CJ Roberts concurring opinion is NOT the law. The majority opinion, which is the law, states very clearly that if a fiduciary breach occurred, this behavior "falls squarely within that category" of misconduct that is meant to be redressed by the remedial provisions of 502(a)(2); the only potential limits should be (1) there was no fiduciary breach or (2) one of the other limits discussed in footnote 3 applies (failure to exhaust administrative remedy, etc.). Roberts says that courts are free to consider the effect of 502(a)(1)(B) on the ability to proceed under 502(a)(2), but this statement is not supported by the rule or rationale put forth by the majority. The plaintiff, by the terms of the opinion, need not show that 502(a)(1)(B) is inadequate, and a trial court that makes this argument should be overturned. But really, as has been pointed out very eloquently, 502(a)(1)(B) would not be adequate in most breaches of this type, anyway, so why open this can of worms, it adds nothing and only serves to detract from the analysis. Justice Roberts pointed out that other plaintiffs have used 501(a)(1)(B) for similar claims. Well, duh, that's because they're making every argument they can where the deck was heavily stacked against them. Any plaintiff would be stupid not to make every argument, and I fail to see how there would be a proliferation of claims for benefits that are being recharacherized as fiduciary breach in cases where, as in this case, the money is gone and isn't going to instantaneously materialize out of nowhere. Maybe someone can help me out on why he should be so overconcerned about that. We may wonder whether Roberts is right, but we shouldn't have to care, and it shouldn't really matter anyway, since you would have to prove fiduciary breach and the plaintiff will only be entitled to be "made whole."

Maybe you could argue that the arrangement was intended to be a STD and you could just "reform" it to comply with that rule, as having been outside of 409A the entire time. I'd doubt that would work, though-- this looks like the exact trap 409A was meant to set. It's interesting that the IRS has provided relief for operationalal errors, but not innocuous document errors. I don't think the IRS would have any sympathy for the failure to comply document-wise after having had four years to amend plans.

Do a search on benefitslink for "Notice 2007-86" The notice has the most up to date guidance.

Can you elaborate for those of us who are idiots? Yes please, I've never heard of a QDRO for ERISA not being a QDRO for the Code or vice versa. Are you saying it's like the prohibited transactions rules, where at least the statutory language in that case is different thus making different interpretations more plausible?

Does anyone have familiarity with the exemption from FICA tax under 3121(a)(2)© for employer paid life insurance (other than group term life insurance over 50,000) where the benefit is available to employees in general or to a class of employees. For example where a split dollar life insurance program is implemented for employees who are senior vice presidents and above with x years of service, this would seem to be a class of employees. Does anyone see why the exemption from FICA tax would not apply to the amount imputed into income as the economic benefit to employees or retirees who hold policies?

If I understand what you're saying, it sounds like you want to either distribute the money now or place it in an employee trust now, but postpone the taxable event. There's never been any way to do that and unless the tax code gets repealed, there won't ever be any way to do that. If there's any grandfathered funds, you can have the terms of the plan pre-409A apply to the payment, or you could use the transition rule to pay the money out next year and have it taxed in 2009

Sorry Don, we never spoke specifically about the MEWA legislation. I was writing a paper at the time, a thesis on QDROs, and he was an adjuct professor. Heck of a nice man he was, but not much of clue about the practical aspects of the legislation he sponsored.

One could argue that state courts that sought to attach qualified plan benefits (in a divorce) were in violation of the original preemption clause of ERISA, but they did it anyway and no one wanted to litigate the point. Congress responded in DEFRA (1984) with the creation of a QDRO, thus creating a specific exemption. That's probably true, but REA was percieved (properly) as a remedy for women so there was a great amount of support for that remedy. Before I get bashed for writing that, I'll tell you I knew Senator John Erlenborn, a co-author of REA, and he talked about that. For obvious reasons the statute couldn't be drafted that way.

My last word on this (for now) is that I don't really disagree with the general principles outlined in the article because more than once in reading cases and the statute, I felt it to be at the very least extremely unfair for Congress to have preempted so many remedies that would seem to be justified, especially if its been proved the employer did something wrong (whether intentionally or not) I understand that the idea was to burden the empoyer as little as possible so they would be encouraged to maintain pension plans. But maybe it was a little misguided and in hindsight they probably did go overboard with ERISA. But the courts are partially to blame also, instead of clarifying and filling in gaps they were only to happy give too much credence to the badly drafted passages. When the courts don't feel like doing anything they say, "we can't do anything, we're just implementing the "intent" of the statute." Wouldn't it be interesting if congress made a legislative fix to fill in some of the remedy gaps?

Right on--every now and then in a tax case, even recently, the court will address an argument that income taxes are unconstitutional. These arguments are addressed because they have to be, but are treated like a joke in the legal community, that's one reason why judges don't like taxpayers who represent themself. We could waste the rest of our lives talking theory about what the forefather's said or believed, etc., but I'm not aware of anyone who ever put forth the proposition that Congress does or should have "the power to void and thus extinguish, by means of a direct and absolute preemption, ALL other laws, thus abolishing an inalienable right of "We the People" that had existed long before ERISA." If Congress is acting this way, we obviously have a big problem, but I think the Supreme Court provides the best opportunity to correct because ratifing new amendments to the Constitution doesn't seem plausible or likely in today's politics. We have to seek practical solutions. At the risk of repeating myself, the bulk of the regulatory authority that has been seized by Congress is thought to be valid as pursuant to the commerce clause of the constitution. the Supreme Court finally gave in to the government's argument that it should be allowed to legislate in any area that is or could be affected by interstate commerce (the dormant commerce clause). The practical effect of this has been that just about every human activity affects or could affect interstate commerce thus Congress has been unstoppable in areas it want to regulate. (compounding the problem further is that states are dependent on federal money and the feds are permitted to attach conditions to the money, so the federal government can further regulate it areas that it normally wouldn't be able to by virtue of the conditional money) The best way to reverse these problems without talking about amorphous inalienable rights of WE THE PEOPLE is to try get a supreme court that is willing to chip away at this vast power in a number of ways. Such as not interpreting ERISA's preemption provision as broadly as they have in the past or perhaps holding that it is unconstitionally vague and overbroad. Lawyers should bring certain case through the federal courts--then the Supreme Court should slowly scale back on the dormant commerce clause theory little by little by narrowing it's scope. But we need a Supreme Court willing to loosen the stare decisis principles just a little to bring us back to the proper balance of power.

I think both issues are there, but it's pretty well settled that where Congress has the authority to regulate, it has the authority to preempt state law since such laws could frustrate a legitimate federal regulatory purpose. The root issue is clearly whether congress has or should have constitutional authority to regulate. If not, the states presumably "retain" such authority. If not, the proper inquiry should be to what extent, if any, should regulatory authority be retained by the states.

I don't see at least one important point discussed there, which is that Congress is considered to have positive power as a result of the Supreme Court's broad interpretation of Congress's ability to regulate in areas that, prior to when the SC caved in, it could not historically regulate. As stated in the statute, Congress passed ERISA under the authority of the commerce clause, which is a positive power. So it's a combination of the Supreme Court reversing it's historically narrow view of Congress's power to regulate under the commerce clause and Congress seeming need to control every aspect of our lives that is killing us. Maybe the course can be reversed, but it's hard to imagine.

Yes! I was hoping somebody would know of some exemption to that. Thanks, It would appear that you could exclude a former employee if he was previously excludable, can't tell if this applies to your situtation. See Reg §1.410(b)-6. Excludable employees (3) Previously excludable employees. --The employer may treat a former employee as excludable if the former employee was an excludable employee (or would have been an excludable employee if these regulations had been in effect) under the rules of paragraphs (b) through (g) of this section during the plan year in which the former employee became a former employee. If the employer treats a former employee as excludable pursuant to this paragraph (h)(3), the former employee is not taken into account with respect to a plan even if the former employee is benefiting under the plan.

1.409A-2(a)(1) states that "a plan my provide that an election to defer may be changed at any time before the last permissible date for making such election." I think you could safely say that you have until the 30th day to make or change your election so you just need to clarify that in the plan. Since we are in the plan drafting stage, it doesn't seem that you have any thing to worry about as long as your plan is clarified to say that the election is not effective until the 30th day. Shouldn't matter that money was already withheld if the election is still revocable.

I thought that an election could be changed any time prior to it becoming irrevocable, meaning that if your within the 30 days you could revoke and get your money back, but I could be wrong I haven't read the rule in a while. Your approach of using the transition election rule would work fine, but maybe your using as Uzi to kill a fly.

If the regs allow an election to be revoked any time until it becomes irrevocable, why is there an issue? You can easily amend the plan. Plus, wouldn't this be a error that you could correct under the new guidance?

I thought that the regs provided that taxable reimbursements would generally be suject to 409A, but you be ok if the reimbursement was made by the end of the year following the year in which the expense was incurred. Sorry can't provide a cite at the moment.

We seem to be going in circles with this. What are the chances that the plan provides for slice and dice percentages at this time (let alone for overtime pay), without which, it would appear you are locked in until you are permitted by the plan to change your election, which at this time would appear to affect all plan compensation, not just overtime pay.

How is he going to get past the plan's definition of compensation including overtime pay?

If they don't meet the definition of leased employee in the statute, you have to determine whether they are the common law employees of the termporary agency or the client. There is a long list of factors to consider. The likely story is that the client thinks they are employees of the temp agency because they cut the checks and has not considered whether these people might be determined by the irs or a court to be his common law employees. they should hire an attorney to make a proper determination. The IRS has extensive guidance on this, can't remember if they are rev procs or what. Sorry for the lack of specificity, but if you have the capability to research IRS guidance, you should do that.

The plan document does address the issue--the plan's definition of compensation includes overtime, therefore it would be a plan operational failure not to take salary deferrals from it. You'd have to amend the plan document definition of compensation to exclude overtime and the employer might not want to do that. Giving employees the choice of which components of comp to defer out of sounds like a great idea that is a compliance disaster in the waiting.