Plan fiduciaries in breach of ERISA for failing to operate ERISA-cover

[Christine Roberts]

If an employer-contributory 403(B) arrangement (hence subject to ERISA) does not update its plan document for SBJPA et seq. (presume underlying annuity contracts/custodial accounts ARE legally up to date) but is operated in conformance with SBJPA et seq. changes (e.g., multiple salary deferrals OK), are the Plan fiduciaries in breach of ERISA for failing to operate the Plan in accordance with its written terms??

[Carol V. Calhoun]

Possibly. This requirement has been waived when plans are still within the period for updating the plan, but I haven't seen anything which would suggest that a plan which is never amended can just ignore this requirement.

[Christine Roberts]

Would ERISA 502(l) penalties be likely to apply, and if so, how would the "applicable recovery amount" be calculated??

[Guest RJT]

First, its important to recognize that there are no tax consequences arising from the failure of a 403(B) plan document to be updated for SBJA, or any other statute, though tax consequences arise if the annuity conrtract or custodial agreement don't have certain required language. So, as long as the plan is administered in accordance with the tax rules, the documnet failure means little.

Under Tilte I, the annuity contract or the custodial agreement could be seen as part of the written documents constituting the plan, so that shouldn't be a failure if the annuity had the right language. But even if it were a Title I failure, the key to liability will be whether or not substantive rights were communicated to the participants, and whether the failure to communicate those rights resulted in a loss to participants.

In your example, a plan does not have to allow multiple deferral elections, and can therefore choose not to offer what SBJA allows.The mere failure to adopt the SBJA rule would not be a problem. However, the inconsistent application of the rules may well cause liability.

The 502(l) penalties only arises when there is an "applicable recovery amount" related to a fiduciary breach which is paid pursuant to a settlement agreeement with the DOL or ordered by a court in a judicial proceeding instituted by the DOL. In your SBJA example, I'm not sure where there would be any losses related to a fiduciary breach against which the penalty could be applied, and even if there was such a loss, the 20% would apply only if the DOL were involved.

[MWeddell]

Carol,

To what are you referring when you stated "this requirement has been waived ...?" Has the DOL ever explicitly said that it'll ignore failures to update plan documents as long as the plan is still within an IRS remedial amendment period? If so, how does that apply to 403(B) plans for which the IRS didn't extend a GUST remedial amendment period (due to concerns about lack of statutory authority)?

Thanks in advance for any clarification you can offer.

Michael