Do You Need To Consultant an Attorney or Benefits Consultant?

DO YOU NEED AN ERISA ATTORNEY?  OR A BENEFITS CONSULTANT?

Most 401(k) plan sponsors or plan administrators would admit that they need help from time to time.  Whether they are designing a plan, currently operating a plan, terminating a plan, or facing an audit or litigation involving the plan – in these and many more situations, outside professional help is generally called for.  When it comes to 401(k) plans, there are many different types of service providers, fulfilling may differing functions.  Some of the providers, such as third-party administrators or plan recordkeepers, help keep the plan operational from day to day.  Other providers deliver general advice, or advice targeted to specific circumstances.  Among these are investment advisors, accountants and actuaries, employee benefits consultants, and ERISA attorneys.

There is often confusion between the last two categories – employee benefits consultants and ERISA attorneys.  It is not always clear as to what the differences are between these two in terms of what services they provide, and when it is preferable to retain one versus the other.  Further, in actual practice, the benefits consultant’s and the ERISA attorney’s roles often may overlap. And it’s fair to say that there might even be some competition, in some cases, as to which of these two types of providers is the better choice for a particular task or situation.

The following are two lists of tasks and functions that are typically carried out, either by benefits consultants or attorneys.  Here again, note that there is some overlap between functions, and some functions may be shared – for example, the benefits consultant may initially draft plan amendments for the ERISA attorney to review, and both the benefits consultant and ERISA attorney need to work closely together at certain times, such as during plan terminations.  These are not necessarily rigid categories.  Keep in mind that, in general, benefits consultants focus on design and practical operational plan issues, whereas attorneys focus on legal and compliance issues – including assistance when things go awry.

TYPICAL BENEFITS CONSULTANT ROLES AND FUNCTIONS

• Assist with the design and implementation of a new 401(k) plan.
  • The focus for the benefits consultant is on practical issues involving plan design details, such as eligibility, definition of compensation, vesting, loans, distribution forms, whether to implement a “safe harbor” or automatic enrollment feature, and other plan design decisions; and how these details fit into the company’s overall retirement structure and philosophy.
  • The benefits consultant may draft or prepare the plan documents for attorney review, or this task may be left to the ERISA attorneys themselves (see “Typical ERISA Attorney Roles and Functions,” below).
• Offer standardized and non-standardized pre-approved 401(k) plan documents and related services.
  • Not all benefits consultants offer pre-approved plans, though some benefits consultants may work primarily with a particular pre-approved plan provider.
• Evaluate whether a new 401(k) plan is feasible in terms of the company’s overall budget and business outlook.
• Assist with the selection of the investment manager, along with key investment vehicle types.
  • Factors to be considered are investment performance, risk tolerance, whether to incorporate an employer stock fund, business projections, and market volatility.
  • The benefits consultant may also assist in the ongoing monitoring of plan investments, and the plan’s investment advisors themselves.
• Assist with the selection of other vendors, such as the plan’s recordkeeper, third-party administrator, accountant and any other professional service provider or advisor.
• Assist with the day-to-day operation of the plan, including normal operations and plan governance issues.
  • Note that, although benefits consultants cannot provide legal advice, they are sometimes helpful in interpreting plan provisions or answering general questions about 401(k) plans.
• Assist with conducting periodic plan compliance and plan investment performance reviews.
  • These compliance reviews may include “mock audits” or going through rigorous plan compliance checklists.
  • Online tools such as Compliancedashboard can help eliminate much of the cost of having to have an outside benefits consultant assist with compliance reviews.
  • Investment performance reviews usually involve comparing the plan’s investment fund performance against appropriate benchmarks.
• Draft plan and/or trust amendments for the ERISA attorney to review (see “Typical ERISA Attorney Roles and Functions,” below).
• Assist with or perform non-discrimination testing for the plan.
  • Usually it is the benefits consultant who, possibly with the assistance of an accountant or actuary, does the actual “number crunching” involved with the various non-discrimination tests that apply to the plan. Often, the ERISA attorney will review the results of the non-discrimination tests – particularly if one or more of them fails.
• Help with preparing governmental filings and employee communications, typically for the ERISA attorney to review.
  • These include the annual Form 5500 series filing, any other required DOL or IRS form filings, summary plan descriptions (“SPDs”), required participant notices, and the like – typically for the ERISA attorney to review.
• Assist with the preparation (including the production of initial drafts of applications, forms, memorandum, supporting schedules, etc.) of self-correction memorandum or VCP applications under the IRS EPCRS program, or the DOL VFCP program, typically for the ERISA attorney’s review.
• Assist with the terminations of 401(k) plans.
  • The benefit consultant’s focus is on practical matters – assistance with benefit calculations, preparation of participant notices, termination of plan service agreements, final distributions, final governmental filings, and general tasks related to wrapping up the plan’s business. This is a good example of when the benefits consultant and ERISA attorney will need to work very closely together to help assure a smooth termination and liquidation of plan assets.

TYPICAL ERISA ATTORNEY ROLES AND FUNCTIONS

• Assist with the design and implementation of a new 401(k) plan.
  • The focus for the ERISA attorney is on legal and compliance issues – whether the desired design details are compliant with ERISA, the Internal Revenue Code (“Code”), governmental regulations, and other applicable law, and whether the plan document and each related document together meets all relevant legal requirements.
  • The ERISA attorney may either draft the plan document or carefully review a previously drafted or pre-approved plan document to ensure that it meets all legal requirements.
• Take the lead on the drafting and/or review of the trust agreement with respect to the plan.
  • Trust agreement are very complex, and they are subject not only to ERISA and the Code, but also to the common law of trusts. Accordingly, it is essential to have an ERISA attorney on board to draft and/or approve the 401(k) plan’s trust agreement, along with any and all amendments to the trust agreement.
• Review and negotiate, if necessary, the terms of the various vendor contracts and service agreements, such as third-party administrator agreements and recordkeeper agreements.
  • Service agreements and vendor contracts nearly always have been drafted to favor the service provider or vendor, in terms of indemnification and other important matters. An experienced ERISA attorney can often help strike a bargain with the provider or vendor, resulting in a revised and more balanced service agreement or contract.
• Draft or review the plan’s investment policy statement, the administrative and investment committee charters, the plan’s loan procedures, its QDRO procedures (see below), and any other necessary plan-related legal documents.
• Draft plan and/or trust amendments, as required, or review these amendments if they have been drafted by a benefits consultant (see “Typical Benefits Consultants Roles and Functions, above).
  • It is usually a toss-up as to whether a benefits consultant will initially draft an amendment for the ERISA attorney to review, or whether such amendments will be drafted y the ERISA attorneys themselves. Either way, the ERISA attorney needs to be involved to ensure that any amendment meets ERISA, Code, and any other legal requirements.
• Assist with, and represent the plan with respect to, IRS, DOL, or other governmental plan audits or investigations.
  • It goes without saying that never should a plan sponsor attempt to handle a governmental audit of its 401(k) plan without the assistance of an experienced ERISA attorney! There are pitfalls that an inexperienced plan administrator, not having legal knowledge or experience with the DOL or IRS, can easily fall into, unless they are advised and accompanied by competent ERISA counsel.
• Represent the plan in any litigation.
  • This is obviously a job for the ERISA attorneys — often a team of them which includes highly specialized ERISA litigators.
• Research, and render advice with respect to, unique questions of law as applied to unusual or problematic circumstances involving the plan, or one or more participants or beneficiaries.
  • Many simple day-to-day questions can be answered by reading the plan itself, or by consulting a Human Resources or Employee Benefits individual within the company. Some trickier, non-legal questions may be answered by the benefits consultant.  However, any question that is legal in nature – including questions of entitlement to benefits, breaks in service, changes in employment status, missing participants, unclear or non-existent beneficiary designations, fiduciary misconduct, or anything novel or out of the ordinary should be directed to the ERISA attorney.  “Internet surfing” is never a substitute for a qualified ERISA attorney who is familiar with you, your business and the terms of your 401(k) plan.
• Attend and offer advise during the plan’s administrative committee and/or investment committee meetings.
  • This can range from simply taking and later editing meeting minutes to answering “on the spot” legal questions that arise during meeting discussions.
• Review “qualified domestic relations orders” (“QDROs”).
  • Today, some benefits consultants or other firms have taken it upon themselves to review and approve QDROs. Any determination made by such an entity should be confirmed by a skilled ERISA attorney, as many purported QDROs have ambiguous provisions addressing, for example, the timing and form of benefits to be paid to an alternate payee.  Also, an ERISA attorney should be familiar with current QDRO case law that might have an impact on the particular domestic relations order you are dealing with.
• Review or, in rare cases, perform non-discrimination testing for the plan (see above under “Typical Benefits Consultant Roles and Functions”).
• Help to prevent or correct, if necessary, any “prohibited transaction” issues that might arise with respect to the plan.
• If the plan has employer stock as an investment option, advise and assist in compliance with applicable Federal and state securities laws, including preparation of prospectuses.

• Assist with plan mergers, asset transfers, and other 401(k) issues associated with mergers and acquisitions, spin-offs, and related business transactions.

• The ERISA attorney will often work with a team of lawyers, including the corporate attorneys involved in the underlying transaction, to perform “due diligence” prior to consummation of the business transaction.
• Following the transaction, any plan merger or other plan-related issues will generally be handled by the ERISA attorney – often the same ERISA attorney that was involved in the “due diligence” review.

• Assist in resolving collective bargaining issues, or with Union negotiations that directly relate to a 401(k) plan or retirement benefits thereunder.
• Assist with 401(k) plans in plan sponsor bankruptcy situations.
  • Here, the ERISA attorney would generally work alongside a bankruptcy expert, or the firm’s bankruptcy department, if applicable.
• Assist with the partial or total termination of a 401(k) plan.
  • The focus for the ERISA attorney is on the legal and compliance side of issues involving final plan distributions, wrapping up of plan business, drafting or review of employee communications and final governmental filings, and other termination matters involving the plan or its participants and beneficiaries. As previously pointed out, the benefits consultant and ERISA attorney will need to work very closely together to help assure a smooth termination and liquidation of plan assets.