401(k) distributions

[Guest Rosyw]

One of our clients was audited by the Department of Labor recently. They asked the client to put procedures in place that would require 2 different plan sponsor signatures for approving a distribution. The DOL rep said it isn't a regulation but would like them to voluntarily comply.

Has anyone else run into this?

[jaemmons]

Yes, but normally the Trustees sign this paperwork since they have the authority to "controll" the plan's assets. In the current environment we live in (individual accounts), why is it such a concern by the DOL for 2 individuals to consent to a distribution from a participant's individual account. Personally, I feel it is unwarranted, not to mention a little cumbersome, especially if one Trustee is out of the office. I agree that a Trustee cannot authorize their own distribution/loan, and would require the other to sign off on it, for quality control purposes. Aside from this, I don't feel your client needs to follow their direction, unless it becomes a fiduciary issue which the DOL is going to acknowledge in writing.

I just love how the DOL can make things up as they go along during audit. Maybe if this, as well as other issues (e.g.-15 day funding for ee $'s), were a STANDARD put in writing and not a "shoot by the hip" issue, based upon an individual auditor's opinion, I would feel otherwise.

[QDROphile]

The plan sponsor should not be authorizing distributions. That is a fiduciary function and the sponsor should not be a fiduciary.

[jaemmons]

QDROphile,

I would think that inherently the plan sponsor (employer) is a fiduciary, even though an employee may be appointed in writing to act on the employer's behalf. Therefore, I don't understand how they can indemnify themselves from becoming a fiduciary to the plan, since a named plan administrator is acting on behalf of the employer(s) sponsoring the plan.

[QDROphile]

An employer should not be authorizing an employee to be acting on its behalf becuase the employer should have nothing to do with distributions. I know about the unfortunate decision in Varity and the confusion it has spawned, but employers are not necessarily fiduciaries and they should not design their plans to make themselves fiduciaries

[Kirk Maldonado]

I agree completely with QDROphile, but we are lone voices crying in the wilderness.

[QDROphile]

Fortunately, a few judges have seen it our way and dismissed a few ill-considered lawsuits. No attorneys fees yet.

[jaemmons]

Kirk/QDROphile,

I truthfully respect your opinions, but the plans my office primarily handle are those of small employers, whereby the person signing

"on behalf" of the employer, as Plan Administrator is normally an executive officer or principal shareholder, not a "Director of HR" (not meant to disrespect anyone who may be one) for a large corporation. These are the "key" individuals who make ALL decisions concerning their companies, and since most, if not all, of our employers are either corps or LLC's, I don't see how the employer, whether named as plan administrator or not, can side step becoming a fiduciary, since the liability of decisions made on its behalf is borne by the employer and not the individuals severally. This is one of the reasons they incorporate or become an LLC, so they cannot be held severally liable for their decisions made on behalf of the company. That's not to say that the employer does not have legal recourse against the individual(s), but it doesn't matter whether they name someone as plan administrator or not, the employer is generally the one who is going to be sued.

[QDROphile]

If you intend or expect every director and officer of the company to be personally liable for every fiduciary act, then the company can be the fiduciary.

It is not a matter of the employer having recourse against the individuals, it is that the individuals who have corporate responsibility will all be exposed personally. ERISA will pierce the corporate veil to find individual fiduciaries.

It is better to identify those persons who will in fact have fiduciary responsibility, make them named fiduciaries (via a committee or otherwise), and protect those who will not in fact have fiduciary fuctions by not lumping them in with a group that has fiduciary functions.