Outside counsel – When Should I Call? – Ask The Lawyer. “My recordkeeper already filled out this adoption agreement. The first page says that I should consult legal counsel, but do you really think you need to look at it?”
I was asked this question recently by a client who was adopting a new plan and was trying to keep legal expenses down. I explained that I often see potentially expensive mistakes in these agreements or find that language that would protect the plan fiduciaries is missing. It would be a lot more expensive to consult me after an IRS auditor is on the premises or a lawsuit is being threatened than to have me look at things before they are finalized.
My client was understandably confused because the prototype provider spoke as if it was a one-stop shop for benefits. As is customary, it never drew my client’s attention to all of the disclaimers in its forms until the draft adoption agreement came with the note: “This plan is a legal document that should be reviewed by your attorney. We can’t give you legal advice.”
People who are not lawyers should not be advising about legal issues, but all too often they step over the line and give wrong or incomplete advice without realizing it. In fact, the employee benefits field has become so complicated that even a general practice or general tax lawyer may not have the required experience and expertise to give good advice about benefits issues. Two areas where I often see mistakes on these agreements are wrong answers to the question whether the employer is part of a controlled group (which could mean non-discrimination testing is not done correctly, a potential disaster in the making) and failure to list any committee that has been appointed a named fiduciary (and not the employer) as the plan administrator. Employees of vendors should be better trained on these questions, but they aren’t.
It doesn’t make sense for clients to consult me about ordinary recordkeeping and testing matters, but here is a list of issues that call for legal advice from an expert at the earliest possible time:
• Service agreements with vendors, trustees and investment advisors. These are negotiable, and you have no leverage after they are signed.
• Correcting plan errors. Is self-correction an option that can save you from an expensive voluntary correction application?
• Plan adoption agreements and amendments.
• Summary plan descriptions, safe harbor notices, and other required communications. These need to satisfy regulations prescribing their content or penalties might be assessed. Mistakes in these documents can also lead to participant lawsuits.
• Participant benefit disputes that might be headed to court. A lawyer can help you create the right record and advise whether the claim is likely to be a winner in court.
• Handling plans in mergers and acquisitions.
• Plan governance. Proper delegation of responsibilities can limit liability exposure.
• Prohibited transactions. Does an exemption permit a transaction with a related party? How do you unwind a prohibited transaction?
In the long run, trying to handle those issues without input from a benefits lawyer can be the decision that really busts the legal services budget.
by Carol Buckman, Erisa Attorney
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