mbozek

Congress could have extended the non alienation provision to apply after benefits were distributed to the participant since both SS benefits and Veterans disability benefits cannot be seized by creditors after they have been distributed to recipients. But Congress chose not to do so. Since the benefits have no creditor protection after distribution there is no requirement than an annuity contract distributed to a participant must have such protection. As for fiduciary breaches I have addressed the issues by citing the DOL regs and PBGC regs that allow an employer to purchase annuities for participants in DB plans. Don't see how purchase of an annuity benefit for a DB participant that complies with the applicable regs can be held to be a breach of fiduciary duty because the annuity may be subject to claims of the employees creditor. Employee's rights to annuity can be protected under state law or by placing annuity in a trust.

Just how does the nonalienation provision of ERISA inhibit an employer from distributing accrued benefits in a annuity? ERISA only applies to benefits held in the DB plan, it does not apply to benefits that are distributed from the plan. Purchase of the annuity must meet the requirement of DOL reg 2509.95-1. Since ERISA was enacted 40 years ago the legislative preference has been to encourage distribution of benefits in an annuity form. PBGC regulations allow an employer who terminates a DB plan to pay benefits in an annuity purchased from an insurer licensed to do business under state law. If an employer can purchase annuities for a plan that is voluntarily terminated why would ERISA prohibit a plan from voluntarily purchasing an annuity for a group of employees covered under the plan? Plan can have many valid reasons for transferring longevity risk and investment risk to an insurer to avoid retaining increasing liabilities associated with those risks. In 2001 Bethelham Steel, the last of the legacy steel co declared bankruptcy. At that time it had 93,000 retirees and only 14,000 employees. VZ management can reasonably foresee a future business model where the number of employees will shrink because of improvements in IT which allow most work to be done by softwear and robots as its profit margin diminishes. Avoiding retirement benefit liabilities would keep it solvent. no brainer. Under ERISA participants do not have a legal right to receive their benefits in a lump sum. 30 years ago TIAA-CREF was sued by participants because their benefits were provided in an individual annuity which did not have a lump sump option. Federal courts held that the employer could determine the form in which the benefit would be distributed. As for bailing out the PBGC why would congress bail out the single employer trust fund when it refused to bail out the multi employer trust last year? Doesn't make sense to bail out one but not the other.

The law suit by VZ employees against de risking is the last gasp by Participants who are covered by DB retirement plans to preserve an obsolete, inefficient and costly retirement plan business model which modern corp can no longer afford. Their complaints lacks merit for the following reasons. 1. Derisking of liabilities by purchasing annuities is permitted by ERISA and has been going on for over 30 years. I worked on an annuity purchase for a fortune 100 Co 25 years ago where the liability for paying retirement benefits was shifted to a NY regulated insurer. There is a DOL regulation on the criteria for purchasing annuities. 2. Sponsors have valid business reasons for de risking including saving the PBGC annual per participant premium which can add up to thousands of dollars, lowering cost of future benefit liability due to increasing longevity and lower return on investments and administrative costs. 3. While large insurers such as MBL have failed the frequency is rate is low. MBL was the 18th largest LI insurer when it failed in 1991. However it was taken over by the NJ insurance department and rehabilitated so that in 2000 it was restored to solvency after all of the bad RE investments were sold. Annuity owners did not lose any of their investments and received interest on their annuity contracts during rehabilitation although it was a lower rate than rate guaranteed by MBL. 4. Pru is more heavily regulated for solvency than MBL because in addition to the NJ Insurance dept it has been designated under Dodd Frank by the financial stability oversight council as a systemically risky financial institution regulated by the Federal Reserve which requires higher capital requirements and review by the Fed. Other non bank entities regulated by the fed are AIG, GE capital and Met LIfe. 5. Many state insurance laws protect annuities and LI proceeds from creditors claims which are comparable to the protection available under ERISA. According to one survey there is no creditor protection in CO, MA, MT, NH, VA and WV. Annuity owner can always establish an irrevocable trust to protect assets. Some laws may protect the annuity benefits from creditors even after they have been deposited in the annuitants bank account. Need to review state protection of annuity benefits. 6. The belief that greater protection of the annuity benefits is available under the PBGC is misplaced. PBGC single employer trust fund has an unfunded liability of about $20B and unlike the FDIC there is no guarantee of a shortfall by the US treasury because the PBGC is an off budget agency. Last year Congress refused to guarantee the benefits insured by the multi employer trust fund run by the PBGC against a shortfall in assets needed to pay benefits and permitted plans that are underfunded to reduce accrued benefits which had already been earned in prior years. Congress is not going to guarantee any shortfall in the PBGC single employer fund so as to prevent a reduction in benefits of plan participants. PBGC estimates that it needs about a 4% net return each year to fully fund all benefits currently guaranteed.

The only beneficiary who can rollover an interest in a decedent's IRA is the spouse which is permissible for the spouse's interest if spouse does not want to take distributions. Non spouse beneficiary must take MRD of bene's interest beginning with year after IRA owner's death. High bracket beneficary can always disclaim interest in an IRA so that it could be transferred to the next contingent beneficiary who would pay less tax on MRDs if they are in a lower tax bracket but that is specifically permitted under gift tax law.

There is a PLR that allowed a rollover from an IRA to a qual plan to eliminate MRDS after the year of the rollover. Logic is simple. IRA MRD is required for any year based on FMV of IRA as of dec 31 of prior yr. If IRA account balance as of Dec 31, 2015 is 0 the MRD for 2016 is 0. Participant over 70 1/2 who is actively employed is not required to take MRD from 403b if plan permits deferral of MRDs.

Did client change its name after it adopted the plan?

My understanding is that the trust for the plan must be a US domiciled trust and that the indicia of ownership of the assets must be within the jurisdiction of the US courts. What I dont know is whether a foreign corp could be the plan administrator and have its controller sign the necessary govt forms. Providers may restrict who represent the plan. Closest analogy I know of was a case where a Hong Kong corp established a qualified plan for its sole US employee. Court held that plan was subject to the Qdro rules of Title I. I assume you can check the instructions for filing the 5500 to see if there are any restrictions on who can be administrator.

There is no rule for determining who must take the RMD in year of death. IRS only requires that RMD must be taken. It can be shared or taken by one beneficiary. there is no way IRS knows if beneficiaries take the MRD required for the year of death. If beneficiaries take MRD for year of death it will be reported under their SS # not the deceased's owner.

I have no idea of how to calculate the correct comp amount. However Pub 560 about P 25-6 has a worksheet that shows how to determine the max deduction for self employer persons. Maybe you can create a math formula for determining what comp would be correct comp that would pass the ADP test.

Why not just amend the plan to allow for withdrawals in year 70 1/2 is attained because you cant put toothpaste back in the tube?

Plans change investment options and eliminate existing options all the time without incurring fiduciary liability because some participants investments are transferred to a different category. participant investment in an alternative fund X can always be moved to another class of fund for many reasons such as excessive cost, low participation rate, lack of similar investment in new providers. No brainer. There is no fiduciary breach because some fund options are eliminated. When a plan remaps participants funds to new lineup participants are supposed to perform due diligence to determine if the new fund is suitable for their investment goals. While the new investment option is supposed to be a prudent option the courts have said on many occasions that prudence does not require that fiduciaries be prescient in selecting investment choices. The fact that an investment option declines in FMV after being added to a plan is not indicative that the choice was imprudent under ERISA. On Black Monday in October 1987 the Dow industrials declined over 22% on one day. Only one ERISA lawsuit because of a decline in value was brought by a lawyer ( of course) against the insurer who sponsored the ABA prototype profit sharing plan that his law firm had adopted. Lawyer had rolled over his IRA to the plan and invested it in a 60/40 balanced fund in Sept 87 that declined in value due to the Oct 87 blow out. Lawyer claimed the balanced fund was imprudent investment and introduced expert testimony of a financial advisor who said balance funds were not suitable for a retirement plan. Court dismissed the complaint on the grounds that experts opinion was not material because the Oct. 87 crash was a systemic failure of the equity markets. Court said proper standard was whether the balanced fund in the ABA plan substantially under performed other 60/40 balanced funds. If I can locate the case I will cite it. those who think that a claim of 100k would be interest to an attorney have never done a litigation analysis. 100k claim could easily be reduced by a judge to 25k or dismissed by summary judgment. Attorneys in cases where participants prevail usually have legal fees paid by plan sponsor under ERISA provision for payment of legal fees at an hourly rate called a lodestar rate which is an average fee charged in the district. Lodestar rate is less than prevailing rate for attorneys.

Austin: Why do you think the participant would sue because loss is 6 figures? ERISA claims are tried as equity cases - there is no jury trial. Case is decided by a judge who is well versed in the law. Since the participant admits that he did not read the notice he was sent that would have informed him of his right to transfer out of the new investment fund judge could decide the case on motion for summary judgment for the plan fids because the participant could have prevented the loss. Also court could award legal fees to the plan fids / sponsor to be paid by the participant. In the Deere case, the plan participant who sued the deere 401k plan because the plan did not offer low cost institutional index fees was ordered to pay legal fees to the plan. Court ruled that the 22 core fidelity funds with fees of 1% or less were reasonable fees.

I agree with Belgarath. Merciless was given the required notice and ignored it by his own act so there is no claim for not being informed of the change of his investment choice. While the investment was changed from one investment sector to a different sector there is no requirement that the fiduciaries must map each investment option in the old plan to a similar investment choice in the new plan. Participant could have elected out of long/short fund as soon as blackout period ended but failed to do so even though he received notice of change in fund investments. Given the limited fact presented its my opinion that in order to prevail merciless would have to demonstrate that over/under fund was an imprudent investment choice under plans IPS. However he may be considered to be a sophisticated investor since he was investing in an alternative fund that invested in gold and silver mining co which is a risky business.

I thought that supreme court decisions in civil matters were not retroactive. Simple solution is for employee to file a new application for health insurance naming the same sex spouse as the dependent.

There is a statute of limitations for filing a claim for benefits which is the s/l for the state law which is most similar to a claim for benefits under ERISA. For example if the most similar s/l is for breach of contract then the s/l for the claim will be the s/l for breach of contract in the state where the participant resides. Most s/l are no more than 4-6 years.

Only way to find out the answer is to have counsel determine what action the employer took with regard to the old and new plans. Was old plan terminated or did employer establish new plan (MEP) beginning 2015 for futre contributions? Its the plan sponsors call as what to do with the Plan that has a trustee. Someone at the plan sponsor has to make a decision as to who is plan administrator/trustee of the plan going forward and what is the status of the plan with the trustee.

Where do policyholders have the right to question the quality of the investments in a TIAA fixed annuity? As I understand it TIAA guarantees a 3% minimum return on individual annuity contract. There is nothing in the contract that allows policyholders question the assets in the TIAA general account Where did you get the idea the policyholders have any standing to question the investments?

As long as TIAA continues to have the highest rating from all 4 rating agencies there is nothing to discuss regarding the liability of fiduciaries of plans where contributions have been made to individual contracts.

If you really what to pursue the question of fiduciary liability you should research whether there were any lawsuits against employers who used Mutual benefit life annuities in their 403b plans. MBL was the 18th largest insurer when it became insolvent in 1994 and was taken over by the NJ insurance dept because it invested in 30 RE projects and which went bust. MBL annuities were used by many public and non profit employer 403b plans. MBL was AA rated until 60 days before it was taken over which prevented most owners of annuity contracts from withdrawing the funds. It took 7 years before MBL was able to collect enough revenue from the investments to pay off the policyholders. I don't know if any employers were sued because their 403b plans were funded with MBL annuities.

Not exactly. See P 3 of the sidley article which indicates that the breach of fiduciary duty occurred because due diligence was not conducted as to whether the 3 retail funds were suitable for the plan. " The court found insufficient evidence that the defendants or their investment consultant had utilized a prudent selection process. Citing evidence that the institutional funds offered lower fees with " no salient differences in investment quality or management" the court held that defendants had failed to show reasonable reliance on the consultant's advice. The court observed that "this might have been a different case had defendants shown that the advisor "engaged in a prudent process " by presenting evidence of the advisor's specific recommendations to the defendant committee about the funds, the scope of the advisor's review, whether the advisor considered both retail and institutional share classes, or what questions or steps the defendants used to evaluate the recommendations." The court's decision indicates that the liability for a breach of fiduciary duty could have been avoided if the investment consultant had performed due diligence in reviewing the three funds and presenting evidence to the committee of why the retail investments were suitable for the plan. There is a back story that the consultant did not look into whether cheaper classes of funds were available because the consultant believed that the plan's assets were not high enough for the fund providers to offer the lower cost share classes. This decision makes clear that plan fiduciaries must periodically review funds used in plan to determine if they are suitable and have plan consultants document the review process including searching to see if there are lower cost funds and documenting reasons for using the higher cost fund when a lower cost fund is available.

In response to my two cents questions: 1. Because Public employers are statutorily exempt from ERISA they cannot be sued for violating ERISA even if they voluntarily adopt a plan subject to ERISA. 2. Under numerous supreme ct decisions federal employment discrimination laws do not apply to the states because the 11th amendment prohibits states from being sued in federal court. The one exception is FMLA which applies to pregnancy discrimination under the 14th amendment.

In order to clear up the confusion I am submitting a summary of the Tibble case from the Sidley law firm on the question of prudence in selecting retail mutual funds instead of cheaper institutional funds. "The court declined to hold that retail mutual funds are categorically imprudent, recognizing that such funds offer benefits over their institutional counterparts, that fiduciaries are not required to offer only "wholesale" funds and that expense ratios of the retail funds Edison offered were not so out of the ordinary as to be inherently imprudent. P40-43 of the opinion Citing Loomis v. Exelon Corp, 658 F3d 667, 671-672 and Hecker v. Deere 556 F3d 575, 586. ERISA_UPDATE_041513.pdf

If the participant wants a loan from a t/c contract which is a qualified loan then the loan must conform to t/c procedures. Need to adapt the corbel plan document to the T/c procedures in order for participants under the plan who take loans from t/c contracts to obtain qualified loans. If corbel document cannot be modified to conform to t/c procedures then plan should not permit loans from T/C contracts.

Joel: where does the tibble decision state that it is imprudent for participants to invest in retail funds. You and Dan solin need to read the Tibble decision of the 9th circuit as well as section 408b2 of ERISA before posting. My two cents: Tibble does not apply to Public plans but Joel does not understand what the tibble decision stands for.

What settlements have there been on litigation over public plans for excessive fees. Problem that I have seen where the question is raised is sovereign immunity in suing a govt plan. Any administrator who provides services to a govt plan will have negotiated indemnification from the govt for liability for services rendered or payments received. there is a separate question of whether a govt 457b plan with voluntary participation is even a retirement plan under state law. NJ has a voluntary 457b plan which has been administered by an insurance company for years which some persons have contended that the fees are excessive but no action has been taken. Plaintiffs lawyers do not want to sue Govt pension plans because the Govt has unlimited legal resources to defend the law suit where any recovery of legal fees would be on a contingency basis.