ethical dilemma

[K2retire]

My employer has lost a large number of clients in the past year. In an effort to avoid lay offs, document work for another company has been brought in. As I've been training on how the new company does things, I've learned that they routinely back date their amendments. Although I don't agree with that practice, when the amendment is to change trustees or plan name, I'm not terribly concerned about it. However, in the first 10 amendments they sent us, one of the amendments is to remove a safe harbor non-elective contribution effective 1-1-10 and another is to remove a fixed non safe harbor match with no accrual requirement effective 1-1-10.

My manager, whose background is mutual fund recordkeeping,, not qualified plans, is struggling to understand why this is a problem. If we are ultimately directed to write the amendments according to the direction of the other company, what sort of problems might I create for myself, personally? (I'm reminded of the Nazis who claimed innocence of war crimes because they were following orders....)

[Belgarath]

I was put in this position once, 20 years or so ago, on a plan. I refused. Fortunately, I wasn't fired, but I was fully prepared for it, and also fully prepared to file a suit, (likely unwinnable) against my company if they retaliated. I was also prepared to report them to the DOL, the IRS, the SEC, and various State regulatory agencies. I think they knew this, and they ultimately decided not to proceed with the amendment because the costs of such a suit, and the horrible publicity they would receive. But, it is a dangerous game of brinksmanship which usually goes against the employee, and I was prepared to lose. I just couldn't stand the thought of having this on my conscience.

I'd try a little harder to force your manager's hand. I would discuss your position, pointing out exactly why this is illegal, with accompanying citations from the IRC/ERISA. As you say, some managers simply don't really understand the problem, and they aren't necessarily "bad" or unethical people. I had a similar situation a couple of years ago with a new manager (although I don't prepare the amendments any more) where the manager was directing someone else to do it. I sat down with the manager and explained that in the situation he was contemplating, we would be involved in knowingly assisting in tax fraud. Once the manager truly understood the gravity, the decision was changed so we refused to process the amendment desired by the employer.

If manager still persists, you may want to consult an atorney first to find out your options, and the specific steps you should take to protect yourself if you decide to refuse. Good luck with whatever you decide.

[Bird]

I don't claim total innocence in this area, I mean, if something needs to be tidied up and it's just a piece of paper, let's just say that those pieces of paper have been found. But when it comes to something that affects benefits, I'm pretty strict. Belgarath makes some great points, especially about protecting yourself.

[david rigby]

Belgarath points are very good, especially

...knowingly assisting in tax fraud...

Let's also take the high road, not just the convenient road. You will never regret a high level of personal integrity.

[Guest Sieve]

Hear, hear!! (or, as some might say, "Here, here" . . .)

[Kevin C]

How about asking your manager if your firm's liability insurance covers falsifying documents so that the plan sponsor can violate the Internal Revenue Code? If one of these plan sponsors gets caught, who do you think they will blame? A financial argument may work better than an ethical one.

[K2retire]

I have pointed out the possible liability and am still hopeful that management will make the right decision. At this point I'm trying to plan what to do if they don't. I appreciate the confirmation that I'm not overreacting!

FYI, the capacity of the individual who directed me to back date the documents is still being quietly researched. What he told me is that it isn't the client's fault that his company was late in processing a request that was received in November. (And I can certainly sympathize with not wanting to have that conversation with their clients.) We are hoping that his manager will agree with me. I know the manager to be a QKA who has lamented about his staff not being as knowledgeable as he would like.

[Guest Sieve]

Now we get to the real gist of the issue, K2: the TPA dropped the ball, and the suggested backdating is to save the TPA's butt. Since it's not your client, however, but is the client of the refering TPA, hopefully your manager will recommend that your company fire the referring TPA (or simply refuse to backdate this amendment), and force them either to prepare the document themselves or find another document provider willling to do it.

Remember that it is not necessarily fraud to make an amendment effective retroactively--the fraud is in backdating the signing of the document, i.e. falsifying the execution date. Adopting an EGTRRA document retroactively is obviously ok. The fraud comes by signing the document on day X but dating the signature as having occurred 3 months before date X so that the signature will appear to have been timely. Or, the fraud might be in knowingly administering an amendment known to have been delinquent.

There is another approach your company & you can take take. Prepare the document, with the effective date and execution date blank. Let someone else commit the fraud when they fill in the dates.

[david rigby]

Let someone else commit the fraud when they fill in the dates.

Nice that you are so direct, Sieve.

[Guest Sieve]

Well, David, for what it's worth, I've used that approach--after explaining the ramifications--when I was directed by another attorney in the office to prepare a back-dated amendment (and have given that same advise to legal assistants directed to do the same). I simply provided to the other attorney (but NOT directly to the client) the usual language: "Signed this __ day of ________, ____." I didn't get fired & I didn't backdate the document--although I was fully prepared to explain what I was asked to do & what I did, if push ever came to shove. That's why I suggested that approach to K2, since he was not going to provide the document to either his client (the other TPA) or to the plan sponsor.

Personally, I will not prepare a document today that says: "Signed this 15th day of December, 2009." Nor will I recommend or even consider it. But I never really know what a client does with a timely provided document--therefore, I use Bird's approach (asking the client to locate a signed document) only if I have not yet received a signed copy of a document that I previously (& timely) sent to the client.

But, ultimately, we all have to deal with this in our own way.

[K2retire]

We always leave the date on the signature page blank. The other TPA prepares their amendments as a completely restated document. They wants us to backdate the effeective date of the restatement that appears near the beginning of the document.

[david rigby]

They wants us to backdate the effective date of the restatement that appears near the beginning of the document.

Not the first person who can't understand the difference between effective date and adoption date.

[Ron Snyder]

Attorneys are bound by the Code of Professional Responsibility, which prohibits inappropriate backdating. An attorney may be suspended or have his shingle revoked for dating documents back when the effect will be to change someone's rights, defraud (claim a tax deduction for which the taxpayer was not eligible), etc. See the Nixon Papers Case (US Supreme Court 1977).

Therefore, most backdating is either illegal or unethical or both. (However, not fattening per se.)

However, check the following examples using a calendar year entity:

1. The Board of Directors of a corporation meets on December 29th and adopts a proposed retirement plan, with 2 minor changes. The handwritten minutes are written up and the minor changes are made on January 3rd. What date should be placed by the signature. IMHO, it is not inappropriate to put December 29th under these facts.

2. A corporation considers adoption of a retirement plan in May, but doesn't get around to executing it until September. The plan is adopted retroactive to January 1st, the effective date. Backdating to May (or even January) would not affect rights, but would be inappropriate to execute and date until after the Board has considered it and voted.

3. An employer which has not yet filed its tax return adopts a remedial amendment intended to cure its lack of required language on March 14th, effective as of the beginning of the prior plan year. This is also specifically permissible, although there is no need to date the signature back.

[Guest Sieve]

But, K2, you are not being asked to backdate the document--backdating is when a document is signed, but the date indicated for the signature is prior to the date that it actually is signed. This restatement (which is really an amendment), as any other restatement, can be retroactive to the beginning of the plan year--i.e., a calendar year plan can be restated effective as of 1/1/2010 at any time during 2010--except that certain benefits, rights and features simply cannot be cut back or changed for periods prior to when the amendment/restatement was adopted (signed) or the effective date, whichever is later (i.e., when the document was actually signed if the effective date is retroactive). (See Treas. Reg. Section 1.411(d)-4, Q&A-2(a)(1).)

Here's how I see it . . .

The current plan document, requiring the SH contribution, will be in place until the amendment/restatement is adopted. The signed amendment/restatement takes over as of its effective date (in this case, 1/1/2010), but, based on when it is actually adopted (the current date it is signed), certain provisions of the prior document cannot be removed as of the amendment/restatement's effective date (i.e., they can only be eliminated prospectively, in this case from the date the document is signed)--e.g., a SH contribution feature (subject to SH contribution elimination special rules), or an increase in the retirement age, or the institution of an end-of-year requirement for a PS allocation. So, reading the 2 documents in concert means that the amendment/restatement--which eliminated the SH contribution--cannot apply the SH elimination as of the restatement's general 1/1/2010 effective date. This fact ought to be stated in the Adoption Agreement somewhere, or on an Appendix that protects certain BRFs from before the amendment, but those BRFs will be protected by law even if not specifically mentioned in the restatement as being protected. I see amendments/restatements all the time that do not specifically protect BRFs in the document, but that's probably ok as long as the plans are administered in such a way that the BRFs are, in fact, operationally protected (as they must be by law).

So, as I see it, the problem, here, comes in the administration of the plan by the other TPA, not in the retroactive amendment/restatement by your company. Your preparation of this amendment/restatement does not "legitimize" the SH elimination, since proper administration of the Plan, based on the amendment/restatement and its prior document--assuming the amendment/restatement was properly dated when it was signed--requires that the SH contribution not be eliminated retroactively to 1/1/2010 (EVEN if the restatement is retroactive to 1/1/2010) because it was signed (adopted) after that date.

It's OK to prepare the restatement, but I'd also protect the SH contribution in either an Appendix or on the AA, or else I'd let the other TPA know very clearly (in the cover letter transmitting the restated document) that they must administer the SH provisions of the Plan based on the prospective nature of the SH elimination and that the restatement does not eliminate the SH contribution as of 12/31/2009 (although I understand your company's dilemma in not following the direction of a paying client--which we all have to deal with from time to time). Ongoing proper or improper administration of the plan is not at all your responsibility, and so you are not responsible for properly protecting BRFs. Your restatement of the Plan will have been proper, and not outside normal guidelines.

[Kevin C]

ASPPA's code of conduct has a control of work product section that prohibits backdating or assisting with backdating.

K2, the bottom line is you have to make the decision for yourself. Which ever way you decide, you will have to live with the consequences.

[PensionPro]

I once refused to backdate documents and got fired by my TPA/actuarial firm employer, because my employer felt "everybody is doing it" and you can't stay competitive if you are not "flexible" when dealing with brokers, attorneys, etc. who are a source of new business.

Anyway, I was able to keep a clean conscience, and get a new job (this was before the economic slowdown).

[K2retire]

Anyway, I was able to keep a clean conscience, and get a new job (this was before the economic slowdown).

And that is truly the scary part of the situation today!