Qualified termination administrators may wind up the affairs of abandoned individual account plans under final regulations and a class exemption published by the Department of Labor. [71 FR 20819 (regulations); 71 FR 20855 (class exemption); 06-717-NAT (press release); Fact Sheet; Abandoned Plan Program. See also the 11/8/2002 report of the ERISA Advisory Council's Working Group on Orphan Plans.] The regulations and class exemption are effective May 22, 2006.
- Qualified Termination Administrator (QTA)- To qualify as a QTA, an institution must meet two conditions: (1) the institution must be eligible to serve as a trustee or issuer of an individual retirement plan; and (2) the institution must be holding the assets of the plan for which it will serve as QTA. See the Model Notice of Plan Abandonment and Intent to Serve as Qualified Termination Administrator.Only one institution should serve as a plan's QTA. If more than one institution holds assets of the plan, then the other institutions are expected to cooperate with the QTA.
- Determination of Plan Abandonment- An individual account plan, such as a 401(k) plan, will generally be considered abandoned if no contributions to or distributions from the plan have been made for at least 12 consecutive months, and if the QTA has determined that the plan sponsor no longer exists, cannot be located, or is unable to maintain the plan.
- Deemed Termination- An abandoned plan will be deemed terminated on the 90th day following the DOL's acknowledgement of receipt of the notice of plan abandonment. The plan termination will not go through or will be delayed if either the plan sponsor or the DOL objects to the proposed termination. The DOL may waive some or all of the 90-day period, in which case the plan is deemed terminated when the DOL provides notice of the waiver to the QTA.
- Winding Up the Affairs of an Abandoned Plan- The regulations provide procedures for a QTA to conclude the affairs of an abandoned plan, including -
- Notification to the DOL before and after winding up the affairs of and terminating the plan;
- Locating and updating plan records;
- Calculating amounts payable to plan participants and beneficiaries;
- Notification to plan participants and beneficiaries regarding the plan termination and individuals' rights and options;
- Distribution of amounts to participants and beneficiaries; and
- Filing a summary terminal report.
Reasonable expenses incurred in the plan's winding-up and termination may be paid from plan assets. The regulation includes provisions addressing the allocation of expenses and unallocated assets (e.g., forfeitures or amounts in a suspense account), including rules for situations where a plan document is unavailable or ambiguous. The QTA must notify the DOL of any known delinquent employer contributions, but is not required to collect delinquent contributions on the plan's behalf.
The QTA is not required to amend the plan in order to proceed with the plan's winding-up and termination. Rather, the plan is deemed to have been amended to the extent necessary for the QTA to conduct its responsibilities.
- Limited Liability- If the QTA conducts its duties in accordance with the regulations, then it will be deemed to satisfy its responsibilities under ERISA §404(a), except with respect to selection and monitoring of service providers. If service providers are selected and monitored prudently, then the QTA will not be held liable for service provider acts or omissions about which the QTA has no knowledge.
- Plan Qualification- Although not directly within the scope of the DOL's own enforcement authority, the preamble to its regulations state that the IRS will not challenge the qualified status of any plan terminated under the regulation or initiate any adverse action against the QTA, the plan, or any participant or beneficiary, provided the QTA satisfies three conditions -
- Survivor Annuity Requirements – The QTA must reasonably determine the extent to which the survivor annuity requirements apply to benefits payable under the plan and take reasonable steps to comply with those requirements if applicable.
- Vesting – Each participant and beneficiary must have full nonforfeitable rights to accrued benefits as of the date of deemed termination, subject to income, expenses, gains and losses between that date and the date of distribution.
- 402(f) Notice – Participants and beneficiaries must receive notice of their rights under IRC §402(f).
The Department of Labor's Employee Benefits Security Administration has expanded and streamlined its Voluntary Fiduciary Correction Program. [News Release 06-689-NAT; 71 FR 20261] Concurrently, EBSA has revised and extended PTE 2002-51 relating to certain transactions identified in the VFC Program. [71 FR 20135]
Both the VFC Program changes and the PTE 2002-51 amendments are effective May 19, 2006. During the month prior to that effective date, relief remains available under the original VFC Program or the April 2005 VFC Program, both of which will be superseded by the final VFC Program when it takes effect. The final VFC Program will not foreclose resolution of fiduciary violation by other means, such as settlement agreements with the Department of Labor.
The final VFC Program will retain the fundamentals of the original program, as revised in April 2005. New changes include -
- Covered Transactions -
- Illiquid Assets – Divestment will be permitted in the case of acquisition of an asset from a party in interest to which a statutory or administrative exemption applied.
- Participant Loans – Corrections can include transactions for violations involving level amortization or default loans. Correction under the VFC Program will only require correction under the IRS' forthcoming EPCRS (still pending), followed by submission to EBSA of the EPCRS compliance statement and proof of payment of any required payments.
- Settlor Expenses – Violations involving use of plan assets to pay certain expenses that should have been paid by the plan sponsor may be corrected under the VFC Program. Correction requires restoration of the principal amount plus the greater of lost earnings or restoration of profits.
- Program Calculations – Multiple Recovery Dates – Corrections involving multiple transactions with different time periods may be corrected by performing the necessary calculations in steps using different recovery dates, using either the Online Calculator or a manual calculation.
- Correction Methodology – Cash Settlement – A plan will be permitted to retain an asset purchased from a party in interest, settling the correction amount in cash, provided an independent fiduciary determines that the plan will realize a greater benefit from the cash settlement than through resale of the asset.
The ERISA §403 requirement that plan trustees exercise exclusive control over plan assets has an "implied exception" permitting participant investment direction for an individual account plan, according to a 7th Circuit decision affirming the district court. [Jenkins v. Yager, 04-4258] A plan participant had contended that a 401(k) plan's individual direction provision violated the ERISA by delegating trustee duties. Although the 401(k) plan did not meet the special conditions for participant-directed accounts under ERISA §404(c), since individual investment changes could only be made once annually instead of quarterly, the court recognized §404(c) as only a safe harbor, not the exclusive authorization for participant-directed accounts.
If a participant-directed plan does not meet the conditions set forth in 29 C.F.R. §2550.404c-1(b), the plan trustee and fiduciaries simply do not receive the benefits of section 404(c), and they are not shielded from liability for losses or breaches of duty which result from the plan participant's exercise of control. It does not necessarily mean that such a plan violates ERISA; instead, the actions of the plan trustee, when delegating decision-making authority to plan participants, must be evaluated to see if they violate the trustee's fiduciary duty.
In the case of the 401(k) plan involved in this case, the court then found that the trustee had not breached fiduciary duties in initial selection of available investments, in monitoring of the investments, or in the information provided to plan participants regarding investment choices. Although three of the four available investment alternatives suffered losses during 2000-2002, that in and of itself was insufficient to demonstrate a fiduciary violation.
However, the appellate court reversed the judgment of the district court favoring the trustee with respect to the profit-sharing portion of the plan, where the trustee retained authority to make the plan investments. Noting that the district court had not specifically addressed that particular claim, and finding sufficient evidence to suggest neglect, the case was remanded for further proceedings on that issue.
The 7th Circuit’s decision on the Cooper v. IBM cash balance plan age discrimination case is expected soon, sooner than we now expect to see final legislative action on pending pension reform that includes provisions addressing cash balance plans. Whether or not the appellate court’s word on the issue will influence the legislation remains to be seen. Meanwhile, by a vote of 248-178, the House has instructed its conferees on the pension bill to accept the Senate’s version of the cash balance plan provisions, which reflect Administration positions on safeguards needed against benefit wearaway in the conversion of a traditional defined benefit plan to a cash balance plan.
The Department of Labor has revised PTE 1980-26 to remove its 3-day limit on interest-free loans to employee benefit plans from a disqualified person or party in interest, such as an employer or union sponsor. [71 FR 17917] The class exemption, intended to permit the plan to deal with liquidity problems for ordinary operating expenses or purposes incidental to the ordinary operation of the plan, provides relief from prohibited transaction restrictions of ERISA §406 and related taxes under IRC §4975.
Under the amended PTE, an interest-free loan may be made to a plan for a period extending beyond 3 days, provided the remaining conditions of PTE 1980-26 are met. Loans made on or after 12/15/04 involving a purpose incidental to the ordinary operation of the plan must be made pursuant to a written loan agreement containing all of the loan's material terms if the term of the loan extends 60 days or more. For loans involving the payment of the plan's ordinary operating expenses, the written loan agreement requirement for loans extending 60 days or more applies prospectively for loans made on or after 4/7/06.
PTE 1980-26 has also been clarified to preclude relief for a loan to an ESOP to the extent that the loan relates to the ESOP's acquisition of employer securities.
The singular fact of working in-house does not disqualify a doctor from rendering an independent opinion any more than does paying an outside doctor to do the same….
The district court misapplied the arbitrary and capricious standard by undervaluing the opinion of a long-term disability plan administrator's in-house doctors, according to a 7th Circuit decision reversing the district court to grant summary judgment for the plan in denial of disability benefits. [Davis v. Unum, Nos. 05-2001 and 05-2165] Rejecting the argument that in-house doctors pose an inherent conflict of interest, the appellate court saw no need for the plan administrator to verify the in-house doctors' conclusions with outside doctors as long as the in-house decision was reasonable and the in-house doctors had no specific stake in the outcome.
The appellate court also faulted the district court for expecting the plan administrator's in-house doctors to conduct a personal examination of the claimant or communicate directly with his personal physicians, versus the medical file review that had been conducted. Finally, the appellate court disagreed with the district court's criticism of the brevity of the in-house doctors' reports, commenting -
[T]here is nothing in ERISA or our precedent requiring doctors to write like lawyers or plan administrators.
It's a good weekend to relax, so excuse me a diversion meant rather less than seriously. Just that I had to laugh when a colleague warned me to beware, that I had not so many more years before I stand to lose the monthly crossword puzzle I do in my AARP magazine.
Seems someone he knows recently discovered that not all AARP magazines are published equally. Along with geographic distinctions, AARP publishes a different magazine for members aged 70 and over than for its younger members. Differently focused articles make a certain degree of sense: readers who have not yet reached retirement seek content about planning ahead, while those over 70 are going to be more interested in content about the here and now. Even so, along with the significantly lower page count given to the superannuated, the AARP magazine drops the crossword puzzle once you reach 70, providing a word search puzzle as replacement.
My colleague passes along that when his source enquired, AARP apologized for appearances, but promised that age discrimination was not the intent. One would hardly expect otherwise from the public policy group at the vanguard of advocacy against age discrimination. Then again, did they flip a coin to determine which age group gets which level of leisure difficulty? Disclose detailed transcripts of the editorial meetings when the puzzle choice was actually made, and it would be rather surprising if the selection were entirely accidental, without some explicit conclusion reached as to declining puzzle-solving abilities upon advancing age.
Not to suggest that good intentions should be given credit in disputes such as we'll soon be seeing more of, by way of the Coopers v. IBM appeals court ruling anticipated soon, and later via the Erie County litigation, among numerous other cases drawing ADEA lines for benefits programs. Still, without reading more into this than is worth a Sunday's brief relaxation, one can see even in dealing with light leisure how dangerously easy it is to treat the elderly as a class less capable than their children.
AARP does permit members to select which magazine edition will be sent, although you have to take the rest of the age-specific content in a package deal if you choose against your age. Or one can always go on-line, where AARP offers puzzles of all type without checking your birth certificate. As for me, I love my paper crossword puzzles too much, so expect me to stick with the younger members' printed edition permanently.