D.J. Simonetti

I’m terminating a cash balance plan with a PYE 7/31 and am trying to get all benefits paid out prior to that date so that the 5500 for that PY will be the final 5500. The plan document is from FT William which has a Secure Act amendment for terminating DC plans but has advised that it won’t have one for terminating CB plans for several months. Any ideas? Thanks.

Not an OE unless the plan document specifies the dates by which the deferrals must be made (which it is not required to do).

When I became the Office Managing Shareholder of our Birmingham office, I insisted on "HMFWIC".

Macallan 18

Client with about 50 employees in its 401(k) plan wants to change TPAs. The new TPA (major insurance company) has suggested a third party ERISA 3(38) investment manager (major investment firm) to select and monitor investment options to be made available to participants. Big emphasis on how 3(38) allows fiduciaries to avoid or minimize their fiduciary liability. Seems like a good idea until I read the service agreement with the 3(38) investment manager (“IM”) which states that: 1. Employer is responsible for determining that the investment lineup chosen by the IM is “appropriate for the plan”. Wait, isn’t that the IM’s job? 2. IM will indemnify the plan (but not the fiduciaries) against losses arising from its breach of fiduciary duty, willful misconduct or breach of the agreement (but not from its negligence). First, you can’t sue the plan for a fiduciary’s breach of his fiduciary duty. Second, the whole point of 3(38) is to protect the plan fiduciaries, not the plan. Third, the IM should indemnify if the loss is attributable to its negligence. 3. The Employer and the plan indemnify the IM for any losses arising in connection with the services provided by the IM unless attributable its breach of fiduciary duty, willful misconduct or breach of the agreement. So, the Employer and the plan have to indemnify the IM for it losses even if those losses are due to the IM’s negligence. Bottom line is that the Employer is not receiving the protection from statutory fiduciary liability that the marketing materials promised and, in fact, is assuming contractual liability to the very party that is supposed to assume that fiduciary liability. Am I missing something?

As I understand the CARES Act rules re coronavirus-related distributions (CRDs), a distribution that otherwise qualifies for treatment as a CRD can “attain” that status either by (1) the employer designating it as such or (2) the participant treating it as such on his tax return. So, my questions are: How does the employer designate a distribution as a CRD? Can the employer designate a distribution as a CRD without amending the plan, for example where the employer intends that only distributions on employment termination will be designated as CRDs? If an employer does not designate an otherwise qualified distribution as a CRD, does the employer have to withhold 20% even if the participant treats it as such on his tax return? Thanks.

Thanks, Bill. I agree with your assessment of PEPs but their proponents are starting to push them as a cost saving/ risk shifting measure.

I have noticed that some plan administrators have been approaching employers about PEPs that they are planning to make available in time for the 2021 effective date. Does anyone have an idea of how flexible or inflexible the PEPs are likely to be regarding an employer’s preferences concerning eligibility, vesting, contribution formulas, loans, in- service distributions, etc.? None of the literature I have found on PEPs discusses this issue but flexibility in plan design would seem to be very important to an employer considering a move from a single employer VSP to a PEP. Any ideas and/or guesses? Thanks.

Absitively. On the facts, the YOS ended on 1/1 so the entry date is determined by the plan language. Most employers whose plans say "next following" would probably give the employee a break and let him in on 1/1 anyway but that might be risky if the employee is an HCE.

The checklist is the one used to prepare a volume submitter cash balance plan. I'll email you a copy of the first page that contains the indemnifications.

Has anyone death with the indemnification clauses that have been added to the plan checklists that require the customer (not the adopting employer) to indemnify Relius in the event Relius fails to notify the customer of required amendments? If you use Relius and haven't seen this language, pull up a checklist and see Section 3.

Yep. I get that a lot from my wife.

Point taken. "ERISA prohibits impermissible discrimination in favor of HCEs."

Yes, at least re counting prior service. The language of the reg sited above is clear in that regard. The absolute number of HCEs and NHCEs who are simply covered by the plan doesn't matter. What matters is the number of NHCEs and HCEs who are affected by the amendment .

I'm not making up a rule, Larry. No law can specify everything that it allows. Most laws only specify what they prohibit. ERISA prohibits discrimination in favor of HCEs. Counting prior service in the manner I described above is nondiscriminatory because it does not favor HCEs. Therefore, it does not violate ERISA's prohibition on nondiscrimination. It does not have to comply with a a provision of ERISA that specifically allows it. Although the reg quoted by LRC above is nice to know, it is not necessary to the result. Counting prior service as I described above is nondiscriminatory and therefore allowed even without the reg.

No, there is no such rule but it does satisfy the requirement that a benefit, right or feature (or anything else) cannot discriminate in favor of HCEs. If at least one NHCE is affected by the amendment for every HCE affected by the amendment, the amendment does not discriminate in favor of HCEs. Also, as Bill Presson and one of my partners reminded me, all of the new employees will be NHCEs for the year of employment because their status as NHCE/HCE is based on their prior year's compensation from their new employer:i.e., zero.

Mike, the amendment will discriminate in favor of HCEs if the number of HCEs who benefit from counting prior service exceeds the number of NHCEs who benefit from counting prior service.

You have to make sure that the amendment does not discriminate in favor of HCEs. That is, for every HCE that is affected by the amendment, at least one NHCE must be affected by the amendment.