Carol V. Calhoun

Well, there is always the question of whether the DOL is right in saying that 403(b) plans need not be ERISA plans, even if the employer has a written plan document that complies with IRS requirements. I suppose a participant lawsuit could argue otherwise. But barring that, compliance with the DOL's enforcement position seems safe.

Yes, I would. It would be impermissible to pay settlor fees from plan assets, so if the DOL used those payments as indications of an ERISA plan, it would make it impossible to have a non-ERISA plan. I was interpreting "related 403(b) fees" as meaning fees associated with the management of assets under the contract itself.

Most likely yes. This is not all that different from an employer contribution, which would clearly shift the plan to ERISA status.

I don't think the employer has such an obligation. An adviser that advises participants on whether to take a rollover has an obligation to make sure such advice is prudent. However, the employer has no continuing obligation once the money leaves the plan.

There is no federal requirement that any governmental plan (Social Security replacement or otherwise) provide a spousal benefit. If such a requirement exists, it would have to come from the plan document or applicable state or local law.

As a governmental plan, it is not subject to PBGC jurisdiction.

We have a client that had a defined plan that provided that if a participant could not be located, the benefit would be forfeited, and then reinstated if the participant reappeared. The client terminated the plan, and made no provision for the participants it couldn't locate. Now, some previously missing participants have appeared. The client is perfectly willing to pay them from its own assets. However, clearly the money can't go into the trust, since the trust no longer exists. And we're trying to figure out whether there is any way to set things up that the money can be rolled over. In case it matters, it's a governmental plan, so we're not concerned about ERISA rules. And qualification is not really an issue, for a number of reasons: The statute of limitations has passed. The plan got a determination letter with the provision disclosed. Because the employer is governmental, no deductions are at issue, and the trust would be tax-exempt even if the plan were disqualified. So the only real issue is the taxation of the participants who just turned up.

No. There is no provision to merge a plan into a plan of a different type. Your best bet is to terminate the money purchase plan, tell people you are distributing all assets, and allow people to roll over into the 403(b) if they want to.

No, it doesn't. It's a qualification rule, not a 403(b) rule. Any governmental plan is going to be non-ERISA. But the plan presumably calls for the continued vesting. As a contractual matter, I don't know how you get out of complete vesting if you completely terminate the plan and thus cease to allow future vesting.

ERISA wouldn't require one. But you'd need to look at applicable state law, since ERISA preemption also doesn't apply.

I think your only option is going to be to just freeze the plan, and allow vesting to continue. There really isn't any way to move the money to another type of plan without terminating it, which would require full vesting. Treas. Reg. § 1.403(b)-10 allows an ineligible employer to maintain a 403(b) contract, so long as it makes no future contributions.

Well, that was the conclusion I was coming to, although it's not the one I wanted to hear. I think we may be able to get around the annual additions problem due to Treas. Reg. § 1.415(c)-1(b)(6)(i)(A), which states: If the contributions had been made in the prior year, they would have been allocated to that year, so I would take the position that it was an erroneous failure to allocate amounts in a prior limitation year. But I'm not seeing a way around either the earnings or deductions issue.

I know we don't have to worry about the prohibited transaction rules when we're talking about the match rather than the deferrals. But my concern about the late contributions relates to the issue of not operating the plan in accordance with its terms. I'd like to say that the participants can have no legitimate expectation of having the match made by March 15, given that the employer could have gotten an automatic extension and that the plan would then have been able to make the contributions as late as the extended date. But if the plan itself says the match is to be made by the date of filing, including extensions, do you see a way we can avoid the argument that the plan was not operated in accordance with its terms? Not making the match is not an option, since this is a mandatory rather than discretionary match.

We have a client with 401(k) plan that provides for matching contributions. Under the terms of the plan, the matching contributions should be made by the time for filing of the employer's tax returns, including extensions. And of course, under Code section 404(a)(6), they have to be made by then in order to be deductible on the prior year's tax return. In this case, the calculation of the matching contributions for 2016 got bogged down, and still hasn't happened. But over in finance, they got very efficient and actually filed the corporate return on March 15, without ever requesting an extension. So, it would appear we may have two problems: The company may have to give people earnings on the late contributions. The company may not be able to take a tax deduction for 2016 for the contributions. Obviously, both of these problems could have been averted by requesting an extension (which would have been automatic). But is there anything we can do after the fact? It just seems silly that the company will be out a lot of money due to late contributions, when those contributions wouldn't even have been considered late had the company just requested the automatic extension on its tax return.

There are a number of bases on which the ex-wife could potentially challenge the designation: Forged signature. Undue influence. Fraud. Incompetence of the participant. And incompetence or undue influence are particularly likely to be an issue in the case of a form signed immediately before death. So in an instance in which we've already had an inquiry on behalf of the ex-wife, I wouldn't want to tell the PA just to determine whether the form is in order, without allowing the ex-wife a chance to respond. Best outcome is that the ex-wife just goes away on being told that there is a subsequent designation. But if she does not, the PA's determination is most likely to be upheld if there is a showing that it did its best to determine the validity of any competing claims.

I don't want to speculate ahead of time as to what arguments the ex-wife might make. I just think that when we've already got inquiries from two different parties, we should notify both of them of this fact and let them both submit claims. PA can adjudicate those claims if they materialize. And as to my original question, absent a plan provision, I'm thinking I've got confirmation that the mere fact that the beneficiary form wasn't filed until after the death isn't fatal. Now the task is to make sure that the PA follows all claims procedures, so that its determination is likely to be respected if the whole mess ends up in court.

Yeah, my sense is that having already received an inquiry from the ex-wife's new husband, we should at least provide some notice to the ex-wife, and allow her to contest the designation of the sister. If she doesn't, PA is in the clear. If she does, it can get evidence from both sides. The PA's determination is more likely to be respected if it can show that it notified everyone and allowed everyone to present their claims.

Ex-wife's new husband has already inquired about benefits (presumably being unaware of the beneficiary designation in favor of the sister). So, there isn't a second claim right now. But we're wary of paying the sister, then having a claim from the ex-wife come in. My instinct would be to tell the ex-wife that there is a later beneficiary designation in favor of the sister, and that if for any reason she wants to contest the validity of that, she needs to file her own claim. No, we wouldn't "tell" her to submit a claim. But with an inquiry having already been filed, I'm not sure we can simply ignore it and process the sister's claim.

@My 2 cents: I'm not sure how we'd ever get to the point of saying there is no valid beneficiary. We've got two potentially valid beneficiaries in this case. The designation of the ex-wife would be valid, unless it was revoked by the designation of the sister.

Yes, I already knew to check the plan document. But in the absence of anything useful in it, it looks like we'll have to tell both the ex-wife and the sister to submit formal claims, get as much evidence as we can, and hope that the facts end up being clear enough that this never gets to court. If it does, we may have to file that interpleader action.

I'm assuming you're talking about a nongovernmental 457(b)? In that case, since in theory both plans are unfunded, I can't see an issue with commingling the assets, provided that the plan documents do not forbid it. I'd be more concerned about this with a governmental plan, which has to fund a 457(b) plan.

We're dealing with a situation in which a participant named his spouse as his beneficiary of his 401(k) plan. He later divorced, but did not at that time change the beneficiary designation. (Under Egelhoff v. Egelhoff, 532 US 141 (2001), the divorce would not itself change the beneficiary designation.) However, after he died, his sister sent a signed beneficiary designation in favor of the sister. The plan is now asking us whether they can honor a beneficiary designation signed by the participant, but not received until after the participant's death. The plan document is silent on the issue. My gut reaction is that the plan should simply refuse to pay until this is straightened out, and file an interpleader action if one of the parties sues for benefits. But has anyone seen any guidance as to whether a beneficiary designation not received until after death can be honored?

More facts on this one: The TPA is an ERISA fiduciary with respect to claims. The care coordinator gets paid a flat fee for each participant who has a care plan. The way a participant becomes eligible for a care plan is to have multiple health conditions for which the plan is responsible for payment. Thus, if the TPA approves more claims, this would in theory result in more participants having care plans, and the care coordinator subsidiary getting paid more money. Now, as a practical matter, we think it highly unlikely that the TPA would approve extra claims just so its subsidiary could get the extra money. The money received by the subsidiary per participant would be far less than the amount of any claim that would cause a participant to receive a care plan. If the TPA were approving thousands of dollars in claims so that its subsidiary could get a few hundred dollars in fees, it would rapidly lose business from employers upset by the high number of claims being paid. However, we're wondering whether there is nevertheless a prohibited transaction, and if so, whether there is any kind of statutory or administrative exemption. And so far, I'm just not finding any discussion of prohibited transaction issues in a health plan. Is anyone aware of anything out there?

I still have the odd view that the workings of a statute or other authority should result in the intent of the statute or other authority being fulfilled. And that it makes no sense when this does not happen. It's like my view of VCP and governmental plans. It is clear that VCP does apply to governmental plans. But the whole point of VCP was to encourage employers to come forward, knowing that the penalties for doing so are less than the penalties if they get audited. For governmental plans, in which the penalties on the employer if they get audited are typically nonexistent (deductions aren't at issue, and the trust is tax-exempt even if disqualified), it makes no sense to apply penalties if they come forward. "Incongruous" might go into a formal memo to a client. But I'm allowed my occasional rant here.

Under Code section 413 and 26 CFR 1.413-2(d), all employers in a multiple employer plan are combined for purposes of section 411. But governmental plans are subject only to the pre-ERISA version of section 411. And section 413 was added with ERISA. Thus, standards for an exclusively governmental multiple employer plan should not require that vesting be combined.