Is a plan administrator considered a fiduciary

[Guest Iwonder]

Under 409A, would a plan admministrator be considered a fiduciary, as would be the case under ERISA?

Can a plan fiduciary be indemnified by the sponsoring company for the plan administrator's errors in administering the nonqualified plan?

[gc@chimentowebb.com]

<<Under 409A, would a plan admministrator be considered a fiduciary, as would be the case under ERISA?Can a plan fiduciary be indemnified by the sponsoring company for the plan administrator's errors in administering the nonqualified plan?>>

409A plans are "top-hat" plans. Accordingly, the fiduciary rules of ERISA do not apply. I don't see a problem in indemnifying employees who administer 409A plans, however, subject to limitations in the corporate bylaws.

[Chaz]

<<Under 409A, would a plan admministrator be considered a fiduciary, as would be the case under ERISA?Can a plan fiduciary be indemnified by the sponsoring company for the plan administrator's errors in administering the nonqualified plan?>>

409A plans are "top-hat" plans. Accordingly, the fiduciary rules of ERISA do not apply. I don't see a problem in indemnifying employees who administer 409A plans, however, subject to limitations in the corporate bylaws.

I disagree. While it would be unusual for a plan with Section 409A concerns to be an ERISA plan, it is possible. 409A is just a law addressing the taxation of nonqualified deferred compensation; a service provider who is not among a select group of management or highly compensated employees may easily be subject to 409A's penalties.

[gc@chimentowebb.com]

<<I disagree. While it would be unusual for a plan with Section 409A concerns to be an ERISA plan, it is possible. 409A is just a law addressing the taxation of nonqualified deferred compensation; a service provider who is not among a select group of management or highly compensated employees may easily be subject to 409A's penalties.>>

You have set up a bit of a straw man. I didn't suggest that 409A penalties are limited to top hat people. The question I responded to was whether company officers administering a 409A plan are ERISA fiduciaries. And I observed that most 409A plans are technically exempt from ERISA fiduciary rules because of the top-hat exemption.

This might seem a little technical, so apologies in advance:

1. if an unfunded deferred compensation plan is not a "pension benefit" plan, it's not under ERISA. It can cover non top-hat people. Officers are clearly not ERISA fiduciaries in that case. You are correct that 409A applies to all employees. Bonus plans that pay after the applicable 2 & 1/2 month S.T. deferral deadline might be in this category.

2. if it is a typical unfunded "top hat" pension benefit plan (i.e. deferrals will be paid after separation from service), it is under ERISA, subject to Part 5 of Title I and exempt from most of ERISA, including Part 4 fiduciary requirements. I might add that 409A was focused on ERISA pension benefit top-hat plans (i.e. the typical SERP or elective deferred comp. program). They are not a rare exception, as you suggest. If maintained according to top-hat rules, administering officers are not ERISA fiduciaries but can still be indemnified

3. If an unfunded pension benefit plan improperly covers non top-hat people, ERISA requires it to be funded. If it's funded properly, 402(b) is the operative taxing statute. If it's not funded, and if non top-hats are covered (the situation you suggested), there are serious ERISA violations, because full reporting, trust and vesting requirements are applicable. If there is a designated fiduciary for that type of non-complying plan, he or she needs to address the ERISA issues.

Getting back to the original question, corporate indemnification is always permissible, subject to bylaws and applicable state statutes, which generally prohibit indemnification for intentional malfeasance. Whether the person is an ERISA fiduciary depends on whether the plan is a "pension benefit plan" and whether it is a non-complying top-hat plan -- because of including average people --that should then be covered by Part 4 (fiduciary rules) of ERISA.

I hope that helps, and I apologize for the complexity.

GC

[Chaz]

Thanks for the explanation. I was just taking issue with your statement "409A plans are 'top-hat' plans."