Unauthorized Practice of Law

[Guest Grumpy456]

I know that each state imposes its own rules with respect to what activities constitute the "practice of law". And I also suspect that in all or virtually all of those states, a retirement plan consultant/TPA would engage in the "unauthorized practice of law" by representing a client in court. But what about everything else? Does anyone else who is a nonlawyer worry about meeting with a client to discuss what plan design best fits their situation, advising the client about controlled group/affiliated service group issues, preparing a plan document to implement the selected design (whether the document is a prototype, volume submitter or individually designed plan), advising the client about fiduciary compliance issues or prohibited transaction issues and all of the other "practicing law-like" things that we as retirement plan consultants and TPAs do on a regular basis?

In a takeover case, for example, I might discover that a client's plan documentation is outdated (likely because they haven't been using a lawyer) and that they have inadvertantly engaged in a prohibited transaction (maybe because the "financial advisor" they used didn't know anything about the PT rules)? Is a lawyer needed to fix/address these issues?

I know there was a Florida Bar Association opinion a while back (I think in the 80s) and a North Carolina Bar Association opinion more recently, but I don't know what those opinions really say or how, if at all, they should affect how I provide TPA and consulting services to my clients (fortunately, I don't do anything with clients in Florida or North Carolina).

I've never seen a seminar or break out session at any of the industry seminars on this issue--why is that?

I may just be a worry wort. I am not a CPA or an enrolled actuary. Should I look into getting the new Enrolled Agent or whatever it's called designation from the IRS? Does that give us nonlawyers who are not CPAs or EAs any protection from state laws governing the provision of "legal services"? Maybe my most basic question is where do you all look for guidance on what constitutes "legal services" in order to make sure you're not stepping "over the line"? I'm sure the people who spent a gazillion dollars to get through law school and their state's bar exam don't want me doing the same thing they are doing without having to have gone through that too--but maybe I can do just that so long as I don't represent any of my TPA/consulting clients in court. Is it really that easy?

I also wonder about my errors and omissions/liability insurance policy. It specifically says that it does not cover the provision of "legal services" and the definition of "legal services" is defined, in part, as "legal advice and counsel, and the preparation of legal instruments and contracts by which legal rights are secured, although such matter may or may not be depending in a court." One of the basic precepts under ERISA is that a plan document is a legal contract creating legal rights. If I mess up a plan document and get sued by a client I wonder if my insurer would take the position that when I prepared the plan document I was involved in the "preparation of legal instruments and contracts"? How do other folks handle their insurance coverage needs?

My background is in the banking industry as a trust officer who migrated, as did so many other folks, into recordkeeping and ultimately into running my own small consulting/TPA firm. This issue has always made me nervous, but now that the DOL is stepping up its fiduciary compliance reviews my clients are more and more frequently asking me to render opinions about does such and such practice satisfy the fiduciary standards or is such and such a prohibited transaction.

Any thoughts or help sorting these issues out?

[Peanut Butter Man]

I've wondered about this too. We use a couple of sources for plan documents, and one proposal we received for individually designed plan documentst was from someone who called themselves an independent plan document consultant. The individual plan document consultant said they could not sign Form 2848 because they were not a CPA, enrolled actuary, attorney or enrolled agent but they could write plan documents which the IRS would accept, which I don't understand. Their price for a cash balance plan document was about half what our prototype and volume submitter company wanted to charge us. Do plan documents have to be written by an attorney or someone who can sign Form 2848?

[david rigby]

Here are a couple of prior discussions on this topic (there may be others):

http://benefitslink.com/boards/index.php?showtopic=31654

http://benefitslink.com/boards/index.php?showtopic=17031

[Guest Grumpy456]

Thanks for the comments and info!

I was able to locate a copy of ASPA's friend of the court brief in the NC case--it's attached. It suggests that everything I'm worried about is permissible (regardless of whether I'm a CPA or an EA)--except for my E&O coverage which I guess I need to have changed to cover "legal services".

I'd really like for ASPA to put on a seminar addressing what "retirement plan consultants" or whatever we're called (i.e., folks running TPA firms who are not CPAs or EAs) should and should not be doing (I used "should/shouldn't" instead of "can/can't" intentionally).

2002_ncbar.pdf

[david rigby]

No doubt you are aware that an amicus brief is not necessarily the final word; just cause ASPA said it, does not make it so.

The NC State Bar website has a page on "Preventing the Unauthorized Practice of Law". Excerpt from Q&A:

Q: Who may provide legal services in North Carolina ?

Under the statutes, only licensed North Carolina attorneys may provide legal services in North Carolina , represent that they are attorneys, or appear in court on behalf of another party.

Q: Are there any exceptions?

The primary exception to the unauthorized practice of law rules is the exception for self-representation – an individual may prepare legal documents for his own use and may represent himself or herself in court.

By statute and regulation, some federal agencies permit lawyers licensed in any jurisdiction and nonlawyers to provide limited legal services before that agency. Those agencies include:

• Social Security Administration;

• Internal Revenue Service;

• Patent and Trademark Office; and

• U.S. Citizenship and Immigration Services (USCIS)

Although these agencies permit certain activities by nonlawyers, the services that may be provided are limited and persons who are qualified to appear before these agencies may not hold themselves out as North Carolina attorneys.

An attorney licensed in another state may qualify to represent a party in a North Carolina court under a procedure known as pro hac vice admission as long as the North Carolina court authorizes the attorney to represent the party.

[Guest Grumpy456]

You're absolutely right, David, an amicus brief is simply ASPA's view of how the NC State Bar should address the issue.

It seems unreasonable (impractical at least) for the NC State Bar to conclude that all the things retirement plan consultants and TPAs do automatically constitute the practice of law (for the sake of argument, let's say that's what the NC State Bar concluded). It seems equally unreasonable, to me, for ASPA to conclude that all the things retirement plan consultants and TPAs do automatically do not constitute the practice of law (which is exactly the way I understood ASPA's amicus brief). Was anyone else struck by the breadth of ASPA's position?

I think retirement plan consultants/TPAs simply want guidance on what they should and shouldn't do.

What, according to ASPA, are retirement plan consultants and TPAs precluded from doing (if anything)?

It's just curious to someone honestly trying to figure out the limits.

Thanks again for the responses so far. They're much appreciated!

[masteff]

One thing I liked in the ASPA brief was the attempt to distinguish between "application" of "clear legal rules" and "questions of law". It's not unlike this board where some answers are clear cut and some provoke a quick "you really need ERISA counsel". Of course the issue you're raising is the ones that fall in the middle. Where is that grey area?

I think when we find ourselves in those grey areas, we have to 1) use our expert judgement as to how much we can speak to w/out crossing the line and 2) take steps to make sure we're not "holding ourselves out" as being in practice. As a CPA who works in industry, I do not have a permit to practice, meaning I can't hold myself out to the public. Therefore, I make sure when I'm the grey area to add those little disclaimers: "for discussion purposes only", "this is not a legal opinion", "please review this with your attorney", etc.

Peanut Butter Man provides us an interesting example above w/ the plan writer who won't sign certain things. I would believe that a simple individually-designed plan would fall into ASPA's theory of application of clear legal rules. Once you've seen enough plans, it's pretty clear what constitutes a valid basic plan design. But we could quickly come up with enough customized features that we move from "clear legal rules" to "questions of law" (like several recent discussions here on beneficiary designations and variances thereto). And that's where (hopefully) the plan writer has to excersize judgement on when a change should be blessed by an attorney.

[J Simmons]

Grumpy456,

As to your E&O, you want to disclose in detail all you can on the application about what services you perform so that the insurer has a harder chore trying to wiggle out of providing you the coverage you are paying for, if and when a customer makes a claim. Maybe throw the question back on your E&O carrier as to what its definition of practicing law is and whether it thinks that any of the activities you've explained on your application are/are not within the ambit of 'practicing law' for purposes of the coverage exclusion.

Also, adding the disclaimers should give you some buffer. Doing this won't hermetically seal you from the possibility of being found to be practicing law without a license, but it could help.

[Guest Grumpy456]

Great suggestions, everyone--thanks! I get the sense that, like most situations involving judgment, a little common sense goes a long way.

I've used disclaimers before, but sometimes they undercut my credibility with clients. I helped a client with a "clear cut" (to me) prohibited transaction analysis in connection with a takeover case not too long ago and issued an "opinion" that included a disclaimer. The client called me to ask what they'd just paid for if my opinion couldn't be relied upon and they should have hired a lawyer from the get-go. It's a client like that that I worry might report me to the relevant state bar. This client ultimately hired a lawyer who came to the same conclusion--but I suspect the fact that my conclusion agreed with his lawyer's doesn't provide me with a defense to practicing law without a license (assuming that's what I was doing).

When others use disclaimers do you give a sort of wink/wink/nod/nod to the client letting them know that while you're using a disclaimer to protect yourself, they can really rely on the conclusions you've reached and don't really need to retain a lawyer?

Thanks again for all of the feedback and suggestions.

[GMK]

No nudge nudge. No wink wink. Always recommend that the client have a lawyer review your findings if the client has any concerns as they relate to the law.

If the client gets grumpy, point out that you are probably saving the client money. The client's (expensive) lawyer only has to review your work. The client isn't paying lawyer rates for all the research time you put in.

[Guest Grumpy456]

Very good idea--if my time saves the client some money with their lawyer that is a positive--I hadn't looked at it that way (I guess I assumed the lawyer would do his/her own "research" instead of using mine).

[Guest mjb]

No nudge nudge. No wink wink. Always recommend that the client have a lawyer review your findings if the client has any concerns as they relate to the law.

If the client gets grumpy, point out that you are probably saving the client money. The client's (expensive) lawyer only has to review your work. The client isn't paying lawyer rates for all the research time you put in.

How does rendering an opinion that client cannot rely upon save the client any money? No attorney is going limit his review of a non lawyer's opinion to reviewing the non lawyer's work product because that would open the lawyer up to malpractice if the non lawyer's opinion was incorrectly researched or omitted contrary rulings. Competent counsel will conduct its own review of the issues before rendering an opinion of whether there was a prohibited transaction for which the client will be billed.

The client is rigthfully outraged that he has to pay for another opinion if the non lawyer's opinion has to be reviewed a second time by counsel. The client is entitled to a refund for the fee paid to the non lawyer because it cannot be relied upon by the client for the purpose for which it was intended to be used.

[GMK]

Sorry if I sounded flippant, mjb.

Sometimes clients ask their non attorney advisors for an opinion on a matter to determine if they need to consult a lawyer. Sometimes the non attorney's response includes enough cites or other references that the client can decide to rely on it without an attorney's review. The non attorney's review may reveal that little or no guidance exists and conclude that an attorney's opinion should be obtained. It depends on the question the client needs answered. Clients see disclaimer statements on virtually every document that attorneys and non attorney advisors issue, so the degree upon which an opionion can be relied is generally pretty clear.

No doubt an attorney will do her/his own research, but the non attorney's opinion (unless it is completely erroneous) will generally provide a starting point that saves the attorney some time (which can save the client some money).

[Guest Grumpy456]

In general terms, there seem to be two camps:

1. those nonlawyer TPAs who honestly don't want to engage in the unauthorized practice of law ("Camp 1") and

2. those nonlawyer TPA who want to do what they do regardless of whether, technically speaking, they are engaging in the the unauthorized practice of law so long as it isn't too blatant ("Camp 2").

I fall into Camp 1 (I'm not passing judgment on Camp 2).

With respect to my view, I am "unauthorized" to practice law because I don't have a law license and am not specially authorized to represent clients in front of the IRS as a CPA or an enrolled actuary. My original question was what activities, if any, that TPAs regularly do might constitute (do constitute) the "practice of law"? If I know that, then I can stay away from such activities and focus on the things that clearly do not constitute the practice of law.

TPAs do two things: (1) keep records and fill out forms (which seems clear isn't the practice of law) and (2) consult. The real question is what sort of consulting constitutes the practice of law and what doesn't.

Consider the following list:

1. TPAs routinely assist clients with controlled group/affiliated service group issues (at least I do). I have to in order to properly complete a 5500. Is telling a client what information is relevant to such a determination, helping them collect and analyze that information (maybe by using Derrin Watson's book on the topic) and then providing one's "opinion", in writing, the practice of law? My guess is that such an activity either is or is not the practice of law regardless of any disclaimer I might include in the written opinion. The disclaimer might protect me from a claim made by my client, but I doubt whether it would protect me from a state bar association (or whoever is charged with investigating unauthorized practice questions).

Maybe nobody knows whether this activity constitutes the practice of law. Maybe it depends.

2. TPAs routinely assist client with prohibited transaction issues (to include helping a client determine whether such and such a transaction must be reported as a PT on the 5500)--is that activity the practice of law.

Again, maybe we don't know.

3. TPAs routinely advise clients about how changes in the law affect their plan and the legal rights of the plan participants. Is that the practice of law? What about if we prepare a plan amendment implementing such changes (does the type of plan that's involved matter)?

As masteff points out, in its NC amicus brief, ASPA draws a distinction between the application of clear legal rules and legitimate questions of law. This, to me, seems like a good example of the logical fallacy called a distinction without a difference. Don't two elements, at least, go into practicing law--(1) telling a client what the law means (which might include knowing what various entities, e.g., courts, interpret the law to mean) and (2) applying the law, whatever it means, to a particular set of facts. Maybe what ASPA is getting at is that doing (2) when the rules are "clear" is OK, but doing (1) in other situations crosses over the line. If that's what ASPA means, though, it isn't very helpful to nonlawyer TPAs.

I would really like ASPA (or some TPA-related organization) to come up with a practical, workable tool (pamphlet, seminar, webcast, etc.) for nonlawyer TPAs--something that would summarize what the current rules are and provide us with helpful recommendations of what we can/should do and what we shouldn't do.

Thanks for all of the different perspectives, but it doesn't seem like we're not making much substantive progress in answering the question the practice of law with respect to employee benefits means. . .

Ironically, is it a legal question to answer this question? Are we engaged in the unauthorized practice of law by expressing our opinions about this very question. Is there any help out there. . .

[pmacduff]

I know this may create a firestorm but for what it's worth I've seen plenty of attorney drafted plan documents that should never have been written. Apparently written with no pension related experience & definately not what the client needed or wanted (& with a high price tag).

So let's agree that there can be errors by either side (attorney or TPA) as well as excellent preparation and implementation of plans by either group while following the letter of the law.

I think that what roles each should play in plan design, consultation and the like should be based upon experience and background among many other things. I don't believe just because someone has a law degree that she/he can prepare a client's plan document better and more "legally" than I can as a TPA with 18 years of experience.

just my 2 cents.

[Kimberly S]

This topic makes me grumpy too! And I am also disappointed that ASPPA doesn't have some clear guidance on the issue.

Working in the mutual fund world where management has little interest and less understanding of these issues, we are often pushed to make decisions and advise clients about things that should be handled by ERISA attorneys. It's very frustrating that there is no definitive answer that can be used to demonstrate why we should not be determining things like whether or not 2 companies comprise an affiliated service group based on a facts and circumstances test when we only know the names of the companies and that they have some common ownership.

Any authorities that could be referenced would be helpful.

[Guest mjb]

This topic makes me grumpy too! And I am also disappointed that ASPPA doesn't have some clear guidance on the issue.

Working in the mutual fund world where management has little interest and less understanding of these issues, we are often pushed to make decisions and advise clients about things that should be handled by ERISA attorneys. It's very frustrating that there is no definitive answer that can be used to demonstrate why we should not be determining things like whether or not 2 companies comprise an affiliated service group based on a facts and circumstances test when we only know the names of the companies and that they have some common ownership.

Any authorities that could be referenced would be helpful.

Clients are always looking for FLA (free legal advice) from the providers because it saves money. Deciding factual issues such as whether there is a CG should be left to counsel because only counsel can provide an opinion that the client can rely on if any questions are raised by the IRS or DOL. Would your company defend your CG opinion if it is questioned by the IRS? Best thing to tell the client is that they need to retain a tax advisor to obtain a definitive opinion which can be relied upon if it is challenged by the IRS.

[Kimberly S]

Best thing to tell the client is that they need to retain a tax advisor to obtain a definitive opinion which can be relied upon if it is challenged by the IRS.

I agree, but with managers who are more concerned about scaring away clients than what might happen if/when the governement auditors come calling, that doesn't sell well.

[J Simmons]

I would really like ASPA (or some TPA-related organization) to come up with a practical, workable tool (pamphlet, seminar, webcast, etc.) for nonlawyer TPAs--something that would summarize what the current rules are and provide us with helpful recommendations of what we can/should do and what we shouldn't do.

The ASPA (or some TPA-related organization) would not be the place to look for guidance as to whether certain advice or functions are the practice of law. It would be the agency or entity in each state that regulates the practice of law and is charged with pursing the unauthorized practice of law.

It would be helpful if the ABA put together a 50-state compendium of where one crosses the line of practicing law, for ERISA plan purposes maybe the Section of Taxation's Committee on Employee Benefits would contribute commentary and identify specific functions in relation to plans. ERISA attorneys too would like such as most state's rules of professional conduct applicable to attorneys makes it unethical to assist anyone in the unauthorized practice of law. Suppose an ERISA attorney is asked a question by a non-attorney handling some aspect of a plan and the question presupposes actions taken or being taken by that non-attorney that have crossed the line in that state. If the attorney answers that question, is he or she assisting in the unauthorized practice of law?

[Peter Gulia]

At the outset of this post, I’ll mention my personal view: anyone – whether a lawyer, accountant, actuary, or none of those – ought to be permitted to render legal advice. Along with this, a person should be responsible (as provided or limited by contracts, negligence, and other law) for his, her, or its legal advice.

But until we change today’s law, John Simmons has a good idea that we need clearer communication about what that law is.

Although it might be nice to have a playbook, it’s doubtful that a nongovernmental association could publish anything that would state enough “bright-line” conclusions to be much help. While I’m reluctant to serve as a messenger of unhappy tidings, here’s one reason why.

From 1937 to 1978, lawyers’ associations and associations of persons in other professions and occupations negotiated “peace treaties” that tried to state agreed-on views about what expressions of information are or aren’t legal advice. (And some of the businesses then wanted a “law” or rule to support not answering a question.) Also, some bar associations published advisory opinions. Among these, the New York State Bar Association in 1975 and the American Bar Association in 1977 published opinions on what they thought ought to be allowable or “out-of-bounds” for a nonlawyer’s services concerning employee-benefit plans.

The United States Government challenged some of the “treaty” efforts as contrary to antitrust law. See, for example, United States v. New York County Lawyers’ Ass’n, 1981-2 Trade Cases (CCH) ¶ 64,371, 1981 U.S. Dist. LEXIS 16250 (S.D.N.Y. Oct. 14, 1981) (consent decree enjoining lawyers’ association from “[a]dopting, promulgating, publishing or seeking adherence to any statement of principles, code of ethics[,] or other guide, rule or standard which [sic] restricts or governs, or delineates as proper or improper, practices or activities of corporate fiduciaries[.]”). Bar associations withdrew many of the “treaties”. See, for example, 105 Reports of the American Bar Association 291, 382, 637, 789 (1979).

A few years ago, an ABA task force tried a project that would publish a model definition of the practice of law. In the face of many negative comments, including a letter from the U.S. Department of Justice and Federal Trade Commission, the ABA abandoned that project.

That said, the antitrust concerns don’t preclude employee-benefits professionals (acting personally, rather than for trade associations) from communicating about what makes sense for a practitioner or service provider to answer and how.

[Guest mjb]

The reason why no bar association wants to promulgate any compendium of what constitutes the unauthorized practice of law in employee benefits is because no one knows what the law really is. Consider this fact pattern: Can a lawyer in admitted in state A provide advice on ERISA or IRC matters to a client in State B, regarding B's plan sited in state C or answer a question regarding an ERISA claim by an employee working in State C if the lawyer is not admitted in states B or C? It is done every day but is it the unauthorized practice of law? And, what is the unauthorized practice of law over the internet?

A few years ago a CA court refused to allow a prominent NY law firm to collect a fee for sucessfully representing a CA corporation in an CA employment discrimination matter for which the client had contractually agreed to pay because the NY law firm did not maintain an office in CA and therefore was engaged in the unauthorized practice of law under CA rules. Why wouldn't this precedent be applicable to a client who seeks advice on a benefit matter?

[Guest Grumpy456]

I'm glad I am not the only one who would like better (not complete or perfect) guidance. I think ASPA is in a position to provide some guidance--it must have some idea of how the unique questions relating to the unauthorized practice of employee benefits related law should be resolved otherwise it wouldn't have submitted an amicus brief in the North Carolina case. Let's face it, ASPA submitted that brief to protect all of its non-attorney members. The posts stating that a complete, definitive answer will not be forthcoming are likely correct, but wouldn't it be possible to categorize the sorts of employee benefits activities that non-lawyer TPAs are engaged in as either:

1. clearly the practice of law (and, as such, if performed by a non-lawyer the unauthorized practice of law);

2. clearly not the practice of law; and

3. we're not sure (do what your comfortable with).

I know that technically speaking a lawyer is licensed to practice in a particular state(s) and if he/she practices law in a state in which they are not licensed, they are generally engaging in the unauthorized practice of law in that state too, but that's not the question I'm struggling with.

I'm struggling with classifying the typical sorts of things non-lawyer TPAs/advisors do into the three categories mentioned above (and not state by state although I understand why technically speaking that would be required). This isn't an academic question to me. I would think ASPA is in a good position to help non-lawyer TPAs identify which employee benefits activities fall into category 3 based on the experience of its membership across the country and its direct involvement, on behalf of certain members, in at least one actual case (the North Carolina case).

I get the sense, for example, that most of those leaving posts believe controlled group analysis clearly constitutes the practice of law.

Thanks again for all of the posts.

Here is an interesting link which summarizes, in general, what many of the states define as the "practice of law": http://www.abanet.org/cpr/model-def/model_def_statutes.pdf

Also, take a look at page 3 of the following item summarizing the disposition of the NC case--I'm not sure us non-enrolled actuary, non-CPA types are able to find much comfort: http://www.actuary.org/ear/pdf/spring_2004.pdf

[david rigby]

As Grumpy notes (in a backhand sort of way), NC did not exempt "ERISA work" from any UPL claim. Rather, the NC Bar noted that certain qualifications entitle individuals to "practice" before the IRS (and DOL and PBGC) on ERISA-related matters. If you are a TPA without a CPA, EA, attorney, or Enrolled Agent, then you don't get any exemption in NC; in addition, having such qualified individuals will not automatically provide any exemption, unless the work is supervised or reviewed by such qualified individual.

[BeckyMiller]

In addition to the unlicensed practice of law issues, ERISA practitioners in whatever guise must also consider the implications of new IRC Section 6694. This has raised the preparer penalties to the greater of $1,000 or $5,000 or 50 percent of the fees charged for the engagement. The penalty is extended to payroll and excise taxes, not just income taxes and it includes "non-signing" preparers - meaning folks who offer advice on tax return matters without actually signing the return. Included within the scope of coverage are returns, such as Form 5500, which do not include a preparer penalty. If you are a TPA who is not authorized to practice before the IRS, do not assume that you are not subject to these new rules. See example 2 in Notice 2007-39. There an unenrolled tax return preparer became subject to these standards because employees were authorized to practice and did sign Forms 2848.

[Peter Gulia]

Thank you to Becky Miller for pointing out this risk.

Even if a Form 5500 does not state a liability for a tax, information about the reported-on plan might be reflected in a tax return of an employer or a participant. If that information is a “substantial portion” of the information user’s tax return, a preparer of a Form 5500 is a preparer of that other tax return. Page 25 of the attached IRS Notice lists Form 5500 as an “information return” that could result in this characterization.

But it’s simple to avoid the preparer penalty on an unsupported position. A nonsigning tax return preparer may explain the difference between the penalty standards of a preparer and a taxpayer.

There is perhaps a logic gap in the IRS’s thinking: what if a nonsigning tax return preparer delivers a good disclosure concerning a Form 5500 to his or her client (that report’s maker - the plan’s administrator), but the employer or other ultimate taxpayer is a person unaffiliated with the plan’s administrator? Who is responsible to inform the taxpayer about the differences in penalty standards?

tax_return_preparer_n_08_13.pdf