Fiduciary breach for disqualified plan

[Guest Smokin]

Is anybody aware of cases that discuss whether a failure to maintain tax qualified status is also a fiduciary breach under ERISA

[J Simmons]

Is anybody aware of cases that discuss whether a failure to maintain tax qualified status is also a fiduciary breach under ERISA

I don't know of a case, but it would seem if the plan document designs into tax qualified status, it would be an ERISA fiduciary breach for failure to follow the document if that is the cause of the loss of tax qualification. It would also seem not to be discharge of duties 'solely in the interest of the participants and beneficiaries' if the ERISA fiduciary did not take steps it has reason to know are necessary to keep the plan qualified for tax-deferral even if not specified in the plan documents.

Whether an ER has violated ERISA fiduciary duties by not timely updating the plan documents to keep a tax-qualified plan so qualified might be a greater stretch.

[Everett Moreland]

The following from EBSA Advisory Opinion 2001-01A is consistent with John's statement:

"In the context of tax-qualification activities, it is the view of the Department that the formation of a plan as a tax-qualified plan is a settlor activity for which a plan may not pay. Where a plan is intended to be a tax-qualified plan, however, implementation of this settlor decision may require plan fiduciaries to undertake activities relating to maintaining the plan’s tax-qualified status for which a plan may pay reasonable expenses (i.e., reasonable in light of the services rendered). Implementation activities might include drafting plan amendments required by changes in the tax law, nondiscrimination testing, and requesting IRS determination letters. If, on the other hand, maintaining the plan’s tax-qualified status involves analysis of options for amending the plan from which the plan sponsor makes a choice, the expenses incurred in analyzing the options would be settlor expenses."

[Guest Smokin]

The following from EBSA Advisory Opinion 2001-01A is consistent with John's statement:

"In the context of tax-qualification activities, it is the view of the Department that the formation of a plan as a tax-qualified plan is a settlor activity for which a plan may not pay. Where a plan is intended to be a tax-qualified plan, however, implementation of this settlor decision may require plan fiduciaries to undertake activities relating to maintaining the plan’s tax-qualified status for which a plan may pay reasonable expenses (i.e., reasonable in light of the services rendered). Implementation activities might include drafting plan amendments required by changes in the tax law, nondiscrimination testing, and requesting IRS determination letters. If, on the other hand, maintaining the plan’s tax-qualified status involves analysis of options for amending the plan from which the plan sponsor makes a choice, the expenses incurred in analyzing the options would be settlor expenses."