Old Lawyer

Given the relief in DOL Notice 2020-01, it would seem a plan/fiduciary/employer could take the position that it has additional time to respond to a claim or appeal during the COVID-19 outbreak. That Notice states: “In addition to the relief provided in the joint notice, the Department is separately announcing in this notice an extension of deadlines for furnishing other required notices or disclosures to plan participants, beneficiaries, and other persons so that plan fiduciaries and plan sponsors have additional time to meet their obligations under Title of I ERISA during the COVID-19 outbreak. This extension applies to the furnishing of notices, disclosures, and other documents required by provisions of Title I of ERISA over which the Department has interpretive and regulatory authority, except for those notices and disclosures addressed in the Section 518 joint notice issued by the Department and the Treasury Department/IRS. Subject to the duration limitation in ERISA section 518, an employee benefit plan and the responsible plan fiduciary will not be in violation of ERISA for a failure to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020, and 60 days after the announced end of the COVID-19 National Emergency, if the plan and responsible fiduciary act in good faith and furnish the notice, disclosure, or document as soon as administratively practicable under the circumstances.”

Take a look at AO 77-08, which acknowledges that de minimis recoupment need not be undertaken, even if a strict reading of a statute or regulation would require the action. The principle appears applicable to the fact pattern.

Rev. Proc. 2019-19 modifies Rev. Proc. 2018-52, but does not alter Appendix A .05. Appendix A.05(4) does not seem to fit the fact pattern because there was an opportunity to elect a catch-up payment. Appendix A.05(5) applies when there is an election, as described here, but there is a plan failure to make the contribution. Again, the IRS rules address qualification only, not the fiduciary duty of plan administrators to correct deficiencies so that the plan is implemented as written. ERISA 404(a)(1)(D).

You may wish to see a lawyer because the IRS 25% safe harbor applies only to missed payments extending more than three months. My reading of the IRS rules, including the Appendix, suggests that, in the case of the shorter period you describe, the erroneous payments should be corrected in whole, e.g., by deduction from your next pay on 12/27. You can also have a lawyer discuss whether there is a fiduciary breach by the employer under ERISA in failing to follow plan documents, including employee elections, even though compliance with an IRS safe harbor protects the plan from disqualification.

It is quite common for financial institutions to freeze an IRA account, file an interpleader action, and allow the court to determine the claimants' rights so that there is no double payment; indeed, interpleader actions are common even where a claim seems frivolous. New Jersey law as to the right of a spouse to claim under an augmented estate theory suggests that interpleader may be appropriate as an action by the IRA custodian.

You should talk to an attorney in your state regarding potential liability. The statute of limitations and your failure to review statements in a timely fashion is an issue you may wish to raise with the attorney.

Of some note is that ERISA does not appear to expressly preclude the assignment of welfare benefits such as life insurance (unlike pension benefits). See 29 USC 1056(d)(1) ("Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.") (emphasis added). As a result, while some courts, such as the Sixth Circuit in Sun Life Assur. Co v. Jackson, 877 F.3d 698 (6th Cir. 2017), have subjected a participant's/beneficiary's assignment of welfare plan benefits to the QDRO test established in 1056(d)(3), even though that provision applies only as an exception to 1056(d)(1). See 29 USC 1056(d)(3)(A) ("Paragraph (1) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that paragraph (1) shall not apply if the order is determined to be a qualified domestic relations order. Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order."). In short, Jackson assumed that the provision in 1103(c)(1) that "the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan," imposed a non-assignability of welfare benefits requirement. The language of 1103(c)(1) does not do so (and would render 1056(d)(1) redundant and superfluous, were it read to do so). Simply put, ERISA provides no statutory rationale for either precluding the assignment of welfare benefits (although a plan document could do so) or for requiring a QDRO (as opposed to a valid state law assignment). A wise administrator/insurer is likely to seek an interpleader (as occurred in Jackson) to avoid a potential double payment.