Kirk Maldonado

What caused the participant to have a negative cash account balance?

See ERISA section 407, which allows a plan to hold qualifying employer securities, which term includes debt instruments if certain conditions are met, which are pretty stringent.

You could check to see what people did with respect to demutualization proceeds. That seems like an analogous situation.

When you say "director" do you mean a person that is on the board of directors? If the person only functions as a member of the board of directors, he or she is not an employee, much less a highly compensated employee. However, I'd be surprised if the person would earn $60,000 per year for services solely as a director.

Emiman: I think that both you and the CPA are wrong, at least to the extent that you are looking at the wrong rules. Treasury Regulation section 1.414©-3©(2) provides as follows: An interest which is an interest in or stock of such organization held by an employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be excluded if such trust is for the benefit of the employees of such organization.

I thought that if you want section 404© protection, you have to disclose those fees, but I didn't research that point before making this post.

Looking at this question very briefly, I think you don't have to take into account the shares in the ESOP, if you parse through all of the code sectiions.

I'm not sure why the DOL has jurisdiction over this issue, inasmuch as the term "amount involved" does not even appear in ERISA. Furthermore, the IRS issued a temporary regulation back in 1976 defining the term "amount involved" by reference to the private foundation regulations. Reg § 141.4975-13. It seems kind of odd that the DOL would want to change a definition that has been in use for 30 years. At a bare minimum, the DOL would have to promulgate regulations to do that. Given the speed at which they draft regulations, I don't think we'll see that in our lifetimes.

29 CFR §2520.104-24 Exemption for welfare plans for certain selected employees. (a) Purpose and scope. (1) This section, under the authority of section 104(a)(3) of the Employee Retirement Income Security Act of 1974, exempts unfunded or insured welfare plans maintained by an employer for the purpose of providing benefits for a select group of management or highly compensated employees from the reporting and disclosure provisions of Part 1 of Title I of the Act, except for the requirement to provide plan documents to the Secretary of Labor upon request under section 104(a)(1) of the Act. (2) Under section 104(a)(3) of the Act, the Secretary is authorized to exempt by regulation any welfare benefit plan from all or part of the reporting and disclosure requirements of Title I of the Act. (b) Exemption. Under the authority of section 104(a)(3) of the Act, each employee welfare benefit plan described in paragraph © of this section is exempted from the reporting and disclosure provisions of Part 1 of Title I of the Act, except for providing plan documents to the Secretary of Labor upon request as required by section 104(a)(6). © Application. This exemption is available only to employee welfare benefit plans: (1) Which are maintained by an employer primarily for the purpose of providing benefits for a select group of management or highly compensated employees, and (2) For which benefits (i) are paid as needed solely from the general assets of the employer, (ii) are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or (iii) both.

CSA 401(K) PLAN v. PENSION PROFESSIONALS, INC. Docket: Nos. 98-56012, 98-56353. , 195 F3d 1135 , 1999 Daily Journal D.A.R. 11,811 , 1999 WL 1054907 Court: U.S. Court of Appeals, 9th Circuit, Date Argued: 11/01/1999 Date: 11/23/1999 Participants in employer's 401(k) plan brought action against plan's third- party administrator under Employee Retirement Income Security Act (ERISA), alleging that administrator was liable as fiduciary for funds embezzled from plan by employer's chief executive officer (CEO). The United States District Court for the Central District of California, Ronald S.W. Lew, District Judge, entered summary judgment in favor of administrator. Participants appealed. The Court of Appeals, Goodwin, Circuit Judge, held that: (1) administrator did not become fiduciary when it discovered that embezzlement, notified plan trustees, and conditioned its continuance as administrator upon repayment of the underfunding, and (2) administrator had no duty to warn 401 participants beyond including disclosure notice in plan material stating that portion of 401(k) benefits had not yet been received by trust. Affirmed. [*pg. 1137] Mark K. Drew, Pick&Boydston, Los Angeles, California, for the plaintiffs-appellants. Cynthia A. Goodman, Robinson, Di Lando&Whitaker, Los Angeles, California, for the defendant-appellee. Appeals from the United States District Court for the Central District of California; Ronald S.W. Lew, District Judge, Presiding. D.C. No. CV 96-05190-RSWL. Before: Goodwin, Schroeder, and Alarcon, Circuit Judges. GOODWIN, Circuit Judge: Levi Carey, the CEO of Computer Software Analysts, Inc. (“CSA”) and a co-trustee of CSA's 401(k) employee benefit plan (the “Plan”), embezzled funds from the Plan. After the employees learned that their trustee had absconded with the funds, the Plan sued Pension Professionals, Inc. (“PPI”), in district court. The Plan appeals a summary judgment in favor of PPI. We affirm. FACTUAL & PROCEDURAL BACKGROUND In July of 1991, PPI was hired by CSA to prepare financial reports and perform other third-party administrative services for the Plan. The terms of the agreement that CSA and PPI entered into (the “Service Agreement”) specified that PPI was to provide its services as a third-party administrator and not as a fiduciary of the Plan. A “fiduciary” and its duties are defined in the Employee Retirement Security Income Act (“ERISA”), 29 U.S.C. §§ 1001, et seq. Approximately six months into the job, PPI discovered what appeared to be discrepancies between the amount of funds that CSA withheld from employee paychecks for investment in the Plan and the amounts actually deposited in the employee 401(k) retirement accounts. PPI sought to ascertain whether the missing assets were located elsewhere, but suspected embezzlement by the Plan's co-trustee and chief executive officer of CSA, Levi Carey. PPI formally notified the Plan trustees, Carey and Louis King, that the failure to deposit employees' funds into their retirement accounts violated Internal Revenue Service and Department of Labor regulations, and could be classified as both embezzlement and a breach of their fiduciary duties under ERISA. PPI further indicated that it would have to disclose the shortage on the financial reports that it was required to prepare. Carey reassured PPI that CSA intended to bring all Plan assets current, and agreed to a repayment schedule as set out in a March 31, 1993 letter to PPI. Upon consulting with legal counsel, PPI agreed to continue its third-party administration duties for the Plan as long as Carey fulfilled certain “conditions.” PPI required Carey to adhere to the repayment schedule that he outlined in his March 31, 1993 letter, and stated that PPI would need to place the following language on all employee participant (the “Plan Participants”) account statements: “Contrary to the requirements of the Department of Labor and the Internal Revenue Service, a portion of the 401(k) benefits have not yet been received by the trust.” PPI also required verification of Carey's compliance with the repayments (i.e., copies of deposited checks), and indicated that it would withdraw as third-party administrator of the Plan if Carey failed to follow the repayment schedule. Carey signed a letter witnessing his agreement, and deposited approximately $35,000 of previously missing Plan funds. Carey later told PPI that he would like to modify the repayment schedule. His request was rebuffed by PPI, which again stated that it would discontinue its administrative services unless Carey honored his repayment agreement. In July of 1994, after receiving falsified financial statements from CSA, PPI resigned as third-party administrator of the Plan. PPI did[*pg. 1138] not warn law enforcement authorities or the Plan Participants of Carey's suspected embezzlement after its resignation. In July of 1998, Carey pleaded guilty to embezzling the missing funds. On October 3, 1996, several former employees of CSA and participants in the Plan filed suit in federal court against PPI, seeking to recover the embezzled funds. The employees asserted that PPI is liable as a fiduciary under ERISA for the misappropriated money because it exercised authority and control over Plan administration after its discovery of Carey's embezzlement, and failed to take reasonable steps to warn the Plan Participants or governmental authorities of Carey's conduct as trustee. The district court granted summary judgment in favor of PPI, concluding that PPI did not exercise any discretionary authority or control over the Plan, and therefore was not rendered a fiduciary under ERISA, 29 U.S.C. § 1002(21)(A) . CSA timely filed its notice of appeal on May 14, 1998, and also filed a motion for reconsideration, which was denied on June 19, 1998. That denial was appealed on July 15, 1998, thus giving CSA two appeals relating to the district court's grant of summary judgment. Those appeals were consolidated on August 25, 1998. I. Fiduciary Status Under ERISA [1] Liability for breach of fiduciary duty under ERISA may be imposed only against ERISA-defined fiduciaries. Gibson v. Prudential Ins. Co., 915 F.2d 414, 417 (9th Cir.1990). Although responsibility is originally vested upon the “named fiduciary” of an employee benefit plan, ERISA § 402(a) , 29 U.S.C. § 1102(a) , such status may be imposed on anyone who carries out fiduciary duties. ERISA § 405 , 29 U.S.C. § 1105 . [2] [3] [4] Under ERISA, a person is deemed a fiduciary if he “exercises discretionary authority or control respecting the management or administration of an employee benefit plan.” Kyle Rys., Inc. v. Pacific Admin. Serv., Inc., 990 F.2d 513, 516 (9th Cir.1993); 29 U.S.C. § 1002(21)(A) . 1 Fiduciary liability depends not on how one's duties are formally characterized in an ERISA plan, but rather upon functional terms of control and authority over the plan. IT Corp. v. General American Life Ins., 107 F.3d 1415, 1419 (9th Cir.1997). A person's “actions, not the official designation of his role, determines whether he enjoys fiduciary status,” regardless of what his agreed- upon contractual responsibilities may be. Id. at 1418; Acosta v. Pacific Enterprises, 950 F.2d 611, 618 (9th Cir.1991). [5] [6] While the express terms of the Service Agreement between CSA and PPI provided that PPI was not a fiduciary of the Plan, CSA contends that PPI became one by virtue of its actions subsequent to its hire. However, third-party administrators are not fiduciaries if they merely perform ministerial functions, including the preparation of financial reports. 2 See Pacificare [*pg. 1139] v. Martin, 34 F.3d 834, 837 (9th Cir.1994). Section 2509.75-5 of the Department of Labor Regulations provides that attorneys, accountants, actuaries, or consultants who perform their usual professional functions in rendering legal, accounting, actuarial, or consulting services to an employee benefit plan are not considered fiduciaries of the plan solely by virtue of rendering such services. Similarly, § 2509.75-8 states that persons who have no power to make decisions as to plan policy interpretations, practices or procedures but who perform specific administrative functions within a framework of policies, interpretations, rules, practices and procedures made by others are not deemed fiduciaries of the plan. The policy behind this exception to fiduciary status is to encourage professionals to provide their necessary services without fear of incurring fiduciary liability or feeling the need to charge a higher price to compensate for such risk. Arizona Carpenters Pension Trust Fund v. Citibank, 125 F.3d 715, 722 (9th Cir.1997). In the instant case, PPI's functions included the preparation of quarterly and annual financial reports based upon information provided to PPI by CSA, both of which are ministerial tasks that do not give rise to fiduciary liability. See 29 C.F.R. § 2509.75-8 . However, the question becomes: Did PPI step outside the scope of rendering administrative services and in fact exercise discretionary authority or control over the Plan when it discovered apparent embezzlement and notified Plan trustees, and thereafter conditioned its continuance as a third-party administrator upon their repayment? CSA contends that PPI's conditions for continued employment established effective control over the Plan and constituted actual decision-making power. However, the conditions that PPI proposed were designed to assert control over its own engagement, and not to exercise discretionary authority or control over the Plan's management or administration. We have held that “[t]o become a fiduciary, the person or entity must have control respecting the management of the plan or its assets, give investment advice for a fee, or have discretionary responsibility in the administration of the plan.” Arizona, 125 F.3d at 722 (citations omitted). In Arizona, the court determined that Citibank did not become a fiduciary by “devising and controlling its own reporting system, ... regularly analyzing the delinquency information, deciding whether it suggested a problem serious enough to warrant reporting to the Trustees, and determining that the delinquency information was sufficiently alarming to question the investment manager.” Id. at 721. In the case at bar, PPI similarly discovered financial discrepancies, brought them to the attention of the Plan trustees, insisted on placing a disclosure notice in Plan material, and informed Carey that it would discontinue its administrative services if the underfunding was not remedied. PPI explicitly noted, however, in a letter to CSA that PPI had “no authority, nor the ability, to make the needed changes to the CSA 401(k) Plan; that is your [CSA's] responsibility.” Carey claims that he relinquished his discretion and decision-making power, but the facts do not bear that out. He was free to accept or reject PPI's condition that he replace the missing funds, and he had the option of retaining another third-party administrator to prepare financial reports if he so chose. His decision to deposit $35,000 back into the Plan was his alone; PPI had no authority or control to make this happen. Likewise, Carey's subsequent decision to continue his embezzlement and[*pg. 1140] to present fraudulent reports to PPI (which led to the termination of the Service Agreement) indicates that control over the Plan was always within his hands. Thus, there has been no showing that PPI exercised actual control or discretionary authority over the Plan itself, and therefore it cannot be deemed a fiduciary under ERISA. See Mertens v. Hewitt Associates, 948 F.2d 607, 610 (9th Cir.1991); Arizona, 125 F.3d at 722 . In an analogous First Circuit case, the court held that a bank did not become an ERISA fiduciary by questioning suspicious real estate valuations, engaging an independent appraiser to investigate them, and ultimately threatening to report the unlawful practices to the authorities. Beddall v. State Street Bank and Trust Co., 137 F.3d 12, 21 (1st Cir.1998). The court stated that as a matter of policy and principle, ERISA does not impose Good Samaritan liability. Id. at 21. As we noted in Arizona, to convert a depository into a volunteer fiduciary “would discourage depository institutions from voluntarily making information available to fund administrators, investment managers, and other fiduciaries. It would also risk creating a climate in which depository institutions would routinely increase their fees to account for the risk that fiduciary liability might attach to nonfiduciary work.” Arizona, 125 F.3d at 722 . “Imputing fiduciary status to those who gratuitously assist a plan's administrators is undesirable in a variety of ways, and ERISA's somewhat narrow fiduciary provisions are designed to avoid such incremental costs.” Beddall, 137 F.3d at 21 (citing Mertens v. Hewitt, 508 U.S. 248 , 262-63, 113 S.Ct. 2063 , 124 L.Ed.2d 161 (1993)). CSA cites cases where persons have been held to be fiduciaries despite the presence of express contractual language rejecting the role. See IT Corp., 107 F.3d at 1418-19 (administrator who interpreted plan, controlled money in plan's bank account, and who had authority to disallow benefits is a fiduciary); Parker v. Bain, 68 F.3d 1131, 1140 (9th Cir.1995) (exercising discretionary authority over plan assets makes one a fiduciary whether or not the plan names one as such); Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1459 (9th Cir.1995) (corporate officer could be held liable as fiduciary on the basis of his conduct and authority even if the officer was not a named plan fiduciary); Reich v. Lancaster, 55 F.3d 1034, 1048 (5th Cir.1995) (authority to grant, deny or review denied claims can make one a fiduciary). However, these cases involve fact patterns in which the alleged fiduciary exercised substantially greater discretion or control than PPI did, including the active interpretation of employee benefit plans, the management and disbursement of fund assets, the approval and rejection of claims, and the rendering of ultimate decisions regarding benefits eligibility. In contrast, PPI had no power over the management or disposition of Plan assets and was never confronted with making discretionary eligibility or claims decisions. Rather, PPI was conditioning its continued provision of third-party administrative services upon the Plan trustees bringing themselves within the bounds of the law by replacing the missing funds. Hence, since PPI lacked discretionary authority or control over the management and administration of the Plan, it cannot be deemed a fiduciary under ERISA. II. Duty to Report Suspicion of Trustee Embezzlement [7] CSA further contends that PPI had a duty to report to the Plan Participants its suspicions regarding possible criminal breach of fiduciary duties by Carey. CSA states that the Ninth Circuit has found a broad duty to investigate suspicious activity of another fiduciary's management activities that threaten the funding of retirement benefits. See Barker v. American Mobil Power Corp., 64 F.3d 1397, 1403 (9th Cir.1995). Further, the Barker court held that “[a] fiduciary has an obligation to convey complete and accurate information material to the beneficiary's circumstance, even when a beneficiary has not specifically[*pg. 1141] asked for the information.” Id. at 1403 (citing Bixler v. Central Pa. Teamsters Health&Welfare Fund, 12 F.3d 1292, 1300 (3d Cir.1993)). Hence, CSA argues that PPI had a responsibility to investigate the threat to the employees' funds under the Plan, and inform the Plan Participants of its findings. [8] However, CSA's argument presumes that PPI was already a fiduciary of the Plan (or became one) and therefore had a duty to protect the beneficiaries. While it is true that an “ERISA fiduciary has an affirmative duty to inform beneficiaries of circumstances that threaten the funding of benefits,” Acosta, 950 F.2d at 619 , CSA can point to no case holding that non- fiduciaries have a similar duty. As discussed in Part I, supra, PPI never did incur fiduciary status because it failed to exercise control or discretionary authority over the Plan, and therefore had no duty to warn the Plan Participants. The Fourth Circuit has held that a third-party insurer of an ERISA plan did not have a duty to warn the beneficiaries that their eligibility for healthcare benefits was threatened by their employer's failure to pay premiums. Coleman v. Nationwide Life Insurance Co., 969 F.2d 54 (4th Cir.1992), cert. denied, 506 U.S. 1081 , 113 S.Ct. 1051 , 122 L.Ed.2d 359 (1993). The court asked whether the plan documents granted the insurer the “discretionary authority or responsibility to notify all Plan beneficiaries of circumstances, such as the failure of a Plan sponsor to pay policy premiums, that would affect the availability of benefits to all.” Id. at 61. Because the plan documents did not bestow such power on the insurance company, it could not have a duty to warn as a fiduciary. Id. Further, the statutory language of ERISA imposes such notification duties on a plan's administrator, i.e., the employer. Similarly, in the case at bar, the Service Agreement that PPI signed contained no provision for communication between PPI and the Plan Participants, and all statements that PPI made were reviewed by CSA prior to distribution to the Plan Participants. Thus, PPI did not have the authority to notify the Plan Participants directly, and did fulfill its responsibilities by insisting on a disclosure notice in the Plan material stating that “[c]ontrary to the requirements of the Department of Labor and the Internal Revenue Service, a portion of the 401(k) benefits have not yet been received by the trust.” As a non-fiduciary, PPI's duty to warn ended there. Hence, PPI did not fail any duty to report its suspicions of trustee embezzlement to the Plan Participants, and cannot be held liable as a fiduciary under ERISA because it did not exercise discretionary authority over the Plan. AFFIRMED. -------------------------------------------------------------------------------- 1 29 U.S.C. § 1002(21)(A) defines a “fiduciary” as follows: [A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. -------------------------------------------------------------------------------- 2 Section 2509.75-8 of the Department of Labor regulations provides that persons who perform the following administrative functions will not be deemed a fiduciary with respect to an employee benefit plan: (1) Applications of rules determining eligibility for participation or benefits; (2) Calculation of services and compensation credits for benefits; (3) Preparation of employee communications material; (4) Maintenance of participant' service and employment records; (5) Preparation of reports required by governmental agencies; (6) Calculation of benefits; (7) Orientation of new participants and advising participants of their rights and the options under the plan; (8) Collection of contributions and application of contributions as provided in the plan; (9) Preparation of reports concerning participants' benefits; (10) Processing of claims; (11) Making recommendations to others for decisions with respect to plan administration.

Derrin also has a Q&A column on BenefitsLink in which he has answered hundreds of questions. You might find the answer there.

I checked and they are not available through RIA Checkpoint.

Actuarial perversion?

The DOL has a wealth of information available on its website, and it's free.

As a last resort, you could try to find a copy of the edition of the Federal Register in which the regulations were published. Unfortunately, the version of the Federal Register that is available online does not go back that far. (The proposed regulations were published in 1987 at 52 FR 32502.) However, you can find ancient versions of the Federal Register at a Federal Despository Library. The list of the various Federal Depository Libraries around the country is available online at: http://www.access.gpo.gov/cgi-bin/locate.c...O/LPS1756%7D%7D As a historical note, in a prior life, I was the drafter of the other set of the affiliated service group regulations.

MARYMM: 1. I've not done any 403(b) work for at least 15 years, but my recollection was that life insurance protection provided under a 403(b) plan is taxabble in the same manner as if it were provided in a tax-qualified retirement plan. If anybody knows differently, please correct me. 2. This scheme of taxation for coverage provided under tax-qualified retirement plans was based upon an IRS pronouncement referred to as "P.S. 58." I believe that this guidance was issued in the late 1950s.

Kevin C: Thanks for that information; I wasn't aware of it. However, the DOL added a caveat to the Mailbox Rule: Where, for example, an employer mails a check to the plan, the Department is of the view that the employer has segregated participant contributions from plan assets on the day the check is mailed to the plan, provided that the check clears the bank. [Footnote 6 to the preamble to Section 2510.3-102, 61 Federal Register 51225 (1996). In its most typical formulation, the Mailbox Rule does not require actual receipt of the document, simply its mailing.

Lawrence J. CARICH, Plaintiff-Appellant, v. JAMES RIVER CORPORATION, A Virginia Corporation Administrator of the Crown Zellerbach Salaried Employees Retirement Savings Plan, Defendant-Appellee., 02/03/1992 -------------------------------------------------------------------------------- Carich v. James River Corp., 958 F2d 861 (9th Cir. 1991). Henry Kantor, Pozzi, Wilson, Atchison, O'Leary & Conboy, Portland, Or., for plaintiff-appellant. Steven J. Nemirow, Spears, Lubersky, Campbell, Bledsoe, Anderson & Young, Portland, Or., for defendant-appellee. Appeal from the United States District Court for the District of Oregon. ERISA employee benefits plan participant filed an action to recover the difference between the value of stock at the time he reasonably expected that the stock would be sold and the date of sale. The United States District Court for the District of Oregon, Owen M. Panner, J., found for plan administrator, and participant appealed. The Court of Appeals, Schroeder, Circuit Judge, held that: (1) remand was needed to determine whether plan administrator and fiduciarys in handling the plan participant's stock transfer request was unreasonable, and (2) the risk of delay and problems resulting from changes in plan administrative procedures for stock transfers were risks to be borne by the party responsible for choosing the administrators, not by plan participants. Reversed and remanded. Before GOODWIN, SCHROEDER and NOONAN, Circuit Judges. SCHROEDER, Circuit Judge: Lawrence J. Carich appeals the district court's summary judgment dismissal of his claim for benefits under ERISA, 29 U.S.C. § 1132(a) . Defendant-appellee James River Corporation (James River), is the administrator and fiduciary of the James River II, Inc. Salaried Employees Retirement Savings Plan (Plan). The Plan is made up of a number of funds. Carich, a participant in the Plan, in January of 1987, asked the Plan to transfer the value of his ownership of stock in the Common Stock Fund to the Fixed Income Investment Fund. Using a form supplied by the Plan, he directed that the transfer become effective March 31, 1987. Such a transfer, however, required the Plan Administrator to sell stock, and the sale was not in fact accomplished until June 3, 1987. Unfortunately, during the month of May the stock declined in value. Carich filed this suit to recover approximately $24,000, representing the difference between the value of stock when it was sold in June and its value at the time he reasonably expected the transfer to take place. The district court viewed the issue to be whether the Plan Administrator acted arbitrarily or capriciously in valuing the stock as of the date of sale rather than as of March 31, 1987. It held that the valuation was not arbitrary or capricious because the Plan Document provided that James River could elect to value shares as of the date of sale, and because the Administrator notified participants that the Plan was changing its method of valuation. In his appeal Carich argues that he reasonably expected transferred funds to be valued as of approximately March 31 in accordance with his direction, and, further, that he could not have anticipated that the transfer would be valued as of a date more than four months after he had submitted the transfer request. Evidence in the record suggests that the length of time that elapsed before the sale was consummated was excessive. [1] [2] The district court, however, agreed with the position espoused by James River that according to the Plan documents, the Plan was entitled to value the stock as of the date of sale, regardless of the delay resulting from any improper handling of the participant's request. We conclude that such a result would give the Plan and its Administrator unlimited discretion in the handling of Fund transfers and is contrary to the principles underlying ERISA. See 29 U.S.C. § 1104(a)(1) . See also Local Union 598 etc. v. J.A. Jones Construction Co., 846 F.2d 1213, 1217 (9th Cir.1988) (ERISA designed to protect employee interest in pension and welfare plans through uniform reporting, disclosure and fiduciary responsibility standards); Blau v. Del Monte Corp., 748 F.2d 1348, 1353 (9th Cir.1984) (plan administrator has no discretion to flout fiduciary obligations imposed by ERISA). We therefore reverse and remand to the district court for further proceedings to determine the merits of the plaintiff's claim that the defendant delayed excessively in processing the fund transfer request. The events leading up to this controversy occurred in 1986, when the defendant James River Corporation acquired Crown Zellerbach, the company which had employed Carich for many years. As a result of this acquisition, the Crown Zellerbach Salaried Employees Retirement Plan became a part of the James River II, Inc. Salaried Employees Benefit Plan. James River, as Administrator of the Plan, instituted certain changes that affected transfers of interest between funds. Up until July 1, 1986, a request from a participant like Mr. Carich, for the transfer of interest from the Stock Fund to the Income Fund, was accomplished by the Plan Administrator without any actual sale of stock on the open market. Effective July 1, 1986, however, James River suspended employee and employer contributions to the Crown Zellerbach Plan. After that time, transfers from a participant's Stock Fund required the actual sale of stock. Prior to that date, stock transfers were effective as of the last day of the calendar quarter. After July 1, 1986, transfers were to be effective as of the date of the sale of the stock and the interest transferred was valued accordingly. The James River Plan Document itself authorized this change in the method of valuation, since it provided that when a transfer of account balances involved the sale of stock, James River had the discretion to value the shares at the actual amount realized from the sale. Section 8(d)(ii) of the Plan Document provided: * * * (ii) if shares of Stock are sold to provide cash needed for transfer, James River, in its discretion, may instruct the Trustee to value such shares at the amount realized therefore * * *. In a letter dated May 23, 1986, the so-called “Sperling letter,” the Vice President of James River wrote to all “Crown Zellerbach/James River Employees participating in the Crown Zellerbach Retirement Savings Plan,” explaining that effective July 1, 1986, contributions to that plan would be suspended and valuation procedures changed. The notification letter said in pertinent part: The “Valuation Date” for any transaction involving shares of stock will be the actual date of sale or purchase of shares, rather than the last day of the month. Neither the Sperling letter nor the Plan Document stated how much time it would take to process requests for transfers in the event stock needed to be sold, nor did either the Sperling letter or the Plan Document notify participants that more time would be required if the sale of stock were involved. The Sperling letter did not explain which transactions would involve shares of stock and hence trigger valuation as of the actual date of sale or purchase of shares. The letter did state that “transfers between your James River Stock Account and the Income Fund are permitted on a quarterly basis.” There was, in short, no way for Mr. Carich to know, when he submitted his “Inter-Fund Transfer of Balances Form” on January 23, 1987, that he was in fact requesting a sale of stock that would not take place until June. Carich contends that he submitted his request on January 23, 1987, on a form provided by the defendant. The form itself had a blank where the “effective date of transfer” was to be shown. Carich alleges he spoke to employees of the defendant and was told that the effective date would be March 31 and that, according to his direction, the form was typed to reflect that date. Above the signature line was a form statement advising both Carich and James River as follows: “I understand that the amounts of the transfers are based on the market value of my employee account(s) as of the effective date of transfer.” Thus, although Carich could not have anticipated a June sale, the defendant James River, for its part, should have known that Carich was asking for the transfer to be effective March 31, 1987. [3] James River explains its delay in effecting the sale of stock, and hence the account transfer, by pointing out that it had hired a new recordkeeper to administer the accounts, that this was a transition period in that administration, and that the Plan Administrator needed time to accumulate transfer requests in order to save brokerage fees on stock sales. Those facts are not disputed. This problem may well have arisen because new administrators took longer than they should have to turn around initial requests for stock transfers. That is a risk, however, to be borne by the party responsible for choosing the administrators, not a risk to be borne by a plan participant. Batchelor v. Oak Hill Medical Group, 870 F.2d 1446, 1449 (9th Cir.1989) (third party responsible for establishing pension had duty regarding selection and retention of fund administrator); Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1325 (9th Cir.1985) (Corporation had fiduciary duty, and could be liable with respect to selection of Plan Administrator). In the absence of notice as to the likelihood of delay, Carich would appear on this record to have been entitled to have the transfer made as of March 31, or at least within a reasonable period after his request. James River, however, disputes Carich's version of what occurred on Jan. 23, 1987, and suggests that Carich may not have reasonably expected the transfer to occur as of March 31 or shortly thereafter. Carich has not moved for summary judgment because issues of fact remain to be determined. The JUDGMENT of the district court is REVERSED AND THE MATTER IS REMANDED FOR FURTHER PROCEEDINGS ON THE MERITS OF PLAINTIFF'S CLAIM.

I've not thought this thru, but the arrangement might violate the requirement of Code Section 401(k)(4)(A) provides that no benefit, other than matching contributions, may be conditioned upon an employee elected to make or not to make section 401(k) contributions. Anybody else care to give us their take on this issue?

Lori H: I think your firm needs to retain competent ERISA counsel to obtain advice on how to proceed. That is a truly ugly situation and it could get even worse if the employer gets an IRS or DOL audit. Your firm needs to take prudent action to minimize its risk exposure (to the extent that you can).

For what it is worth, for the vast majority of my career in private practice, I was in Southern California. My ERISA practice has been very different than my brethern on the East Coast. I've had few clients with defined benefit plans and/or retiree medical plans in almost 25 years in private practice. Similarly, they have few SERPs (of the defined benefit variety) Also, there isn't nearly as much work on the West Coast involving multiemployer (pension) plans and collectively bargained single employer plans. Likewise, my impression is that West Coast companies are much less likely to have COLI, split dollar arrangements, extensive severance pay plans, and other types of executive compensation plans providing cash benefits. This difference in the types of plans the employers sponsor may be one reason why companies on the East Coast have a greater need for in-house ERISA attorneys than their West Coast counterparts.

Lexi: I think that there are privacy concerns associated with using a grid. I wouldn't recommend it. Here is a website where all of the DOL regulations (at least the more recently issued ones) are located, but unfortunately, they are arranged in chronological sequence, which won't be of much use to you: http://www.dol.gov/ebsa/regs/fedreg/final/main.htm. You can also use the Code of Federal Regulations to find the regulations: http://www.gpoaccess.gov/cfr/index.html. The IRS regulations are Title 26 and the DOL regulations are Title 29. RIA Checkpoint is expensive, but it is quick and very easy to use when you are searching for items like this. Their analysis is generally pretty good, they offer some newsletters, and even access to some online treatises for their subscription price. By the way, I have no connection with RIA, other than having used their service for 10 or 15 years (and been pleased with it).

Although this is a tax law concept, there is the "mailbox rule" pursuant to which documents are deemed to have been delivered on the date that they are deposited with the U.S. Postal Service. For example, the IRS does not have to receive your tax payment by April 15th, it just has to be postmarked no later than April 15th. The courts have adopted the same analysis for COBRA cases (part of COBRA was an amendment to ERISA), so it would seem that it should also work for the fiduciary responsibility rules of ERISA. But you will probably have to do a bit of research on this point to be able to convince the DOL auditor.

Blinky: Thanks for posting that; it is very valuable information. How did you find that out?

I doubt that you will find a single dedicated ERISA in-house attorney at a company of 5,000 employees. In over 25 years in private practice, I've encountered less than ten of them, and they were almost all with companies of 50,000 to 100,000 employees. I've done work for Fortune 100 Companies that didn't have a dedicated ERISA in-house attorney.