“I am known as a ‘fireman,’” says Jeffrey Mamorsky, co-chair of the global benefits and compensation practice at law firm Greenberg Traurig LLP in New York City. “Clients know that if they have serious problems, they can call me.”
Mamorsky understands how the laws and regulations governing retirement plans can seem overwhelming to employers at times. “I’ve been doing this since 1967 and was involved in the ERISA [Employee Retirement Income Security Act] drafting process, representing large employers as counsel to the ERISA Industry Committee,” he says.
“We were partly responsible for the draconian fiduciary rules, because we were concerned the legislation would mandate independent trustees and had to convince Congress we were putting such strict rules in place to mitigate and manage the potential conflict of interest of employers serving as plan fiduciaries.”
A rise in participant lawsuits, the increased scrutiny that accompanied fee disclosure and the volatile stock market of recent years have led more sponsors to turn to ERISA attorneys, sources say. Usually it is an urgent need to solve a problem that leads plan sponsors to first contact law firm Baker & McKenzie LLP, says Christopher Guldberg, a Chicago-based partner. “They are reaching out to us.
They think something happened, and they want to talk to us and ‘get off the ledge,’” he says. “It’s one of those things: If you think you need an ERISA attorney, you probably do. It’s a highly technical area, and when you get past the day-to-day running of plans, it can get scary quickly.”
To add a further challenge, the Internal Revenue Service (IRS) has announced it will end much of its determination letter program as of this coming January, eliminating a means for many sponsors to ensure compliance with the Internal Revenue Code (IRC). “The IRS has indicated that it will move away from issuing determination letters for non-prototype [or individually designed] plans,” says Jason Ehrenberg, partner at law firm Bailey & Ehrenberg PLLC in Washington, D.C. “It seems that, going forward, the IRS expects ensuring compliance to be more of a matter between employers and their attorneys, not employers and the IRS.”
Several situations in particular prompt plan sponsors to call an ERISA attorney. These involve:
• Fixing plan operational errors. Employers sometimes hesitate to hire an ERISA attorney, either because of the cost or because they believe they know enough about the pertinent laws and regulations to address their problem themselves, says Jeffrey Robertson, a partner at law firm Barran Liebman LLP in Portland, Oregon. He compares sponsors trying to resolve their own plan operational issues with homeowners trying to repair their own plumbing. “Just like with a home-improvement project, if I’m a sponsor, I don’t know what I don’t know,” he says. A sponsor that tries to do its own repair may find out later that the “fix” created issues in another area of plan operations, he says.Story Continued Below
When do employers typically seek an ERISA attorney’s help with an operational problem? Lisa Barton, a partner at law firm Morgan Lewis in Boston, often works with sponsors that need help navigating the IRS Self-Correction Program (SCP) or the more rigorous Voluntary Correction Program (VCP) for resolving operational issues. An employer may have enrolled employees but failed to inform its payroll department to start their deferrals. Or a plan may have given an incorrect match to some participants.
Asked how an ERISA attorney helps resolve operational problems, lawyer Christopher Rylands says the first step is to dig through records and figure out what went wrong. “In almost any situation involving the government, it wants an explanation of what happened, and not just, ‘We were asleep at the switch,’” says Rylands, a partner at law firm Bryan Cave LLP in Atlanta. “The second step is coaching the sponsor through the [SCP or VCP] filing process and helping it do the filing itself.
We help it think about how to present [the filing] to the government: Sometimes the facts are complex, and you want to be careful about how you explain them.”
An experienced ERISA attorney likely has seen similar operational issues in the past with other clients and understands how to find the root of the problem, Robertson says. “Where lawyers have a lot of value is in culling a huge amount of information into a workable amount—and not getting lost in the weeds of information,” he says.
Additionally, an attorney who has worked with clients on similar operational issues probably has a good feel for what steps the IRS wants sponsors to take, Barton notes. “We can say, ‘We think the IRS might handle it this way.’ We can help give employers some predictability to the corrections process.”
• Undergoing a government audit or investigation. Sponsors receiving a notice of an IRS audit or a Department of Labor (DOL) investigation usually will consult with an attorney, sources say. How to navigate the process required for each differs, Rylands says.
“IRS audits are very different than DOL investigations,” Rylands says. “With the IRS, as they go through the process, they’re pretty candid about what they find. As long as it’s a standard audit, it’s a fairly cooperative process. But the DOL will never tell you what it’s investigating or what its theory is; you always have to piece that together from the documents it requests. With the DOL, many times, it’s trying to read the tea leaves. It’s not until it closes out the investigation or issues a demand letter that you know what [it was looking for].”
Amid the uncertainty of an IRS audit or DOL investigation, an attorney helps a plan sponsor determine how to reply, Rylands says. “The biggest thing is to make sure your presentation is organized in exactly the format the government has requested.
You definitely do not want to give [the auditors] a reason to pursue an issue. The more questions they have to ask, the more likely they are to find something,” he says. “And particularly with the DOL, [the auditors] like to do interviews with the relevant personnel at the employer. So, for the people who are going to be interviewed, we coach them through—‘Here is what we think they’re going to ask’—and help them craft responses.”
Plan sponsors are often unsure how to adequately answer an IRS auditor’s questions, says Ary Rosenbaum, ERISA attorney at The Rosenbaum Law Firm P.C. in Garden City, New York. He once saw a sponsor make an extraneous comment about a plan amendment that then led an auditor to question whether that amendment had been done correctly. “Sometimes a plan sponsor will say something inadvertently, and the auditor could take it the wrong way,” he says.
• Undertaking plan-design changes and plan amendments. For most prototype plans, if the sponsor makes a basic plan-design change, “it’s probably not a big risk to not involve your attorney,” Barton says. “But if you’re making significant changes, such as changing the definition of compensation for a safe harbor plan, you may want to involve an attorney, to ensure that the steps you’re taking don’t inadvertently take the plan out of the safe harbor status.”
Sponsors of individually designed plans generally work with an attorney on plan amendments, while sponsors utilizing a provider’s prototype plan design often do not. But some of the latter will still want an attorney to double-check that if a provider gave them an amendment, it filled in the form correctly, Robertson says.
“If you get a prototype amendment and the provider has pre-checked off certain boxes, it’s important for you to understand, ‘Did the provider check the right boxes for our plan?’” he says. “When they look at prototype amendments, it’s not uncommon for employers to say, ‘That’s not what I wanted.’ And the impact of a mistake is far greater than the dollars a sponsor would need to pay for an attorney to make sure the mistake does not occur.”
• Proactively reviewing governance and compliance. While sponsors usually contact an ERISA attorney when a problem arises, some do it to prevent problems. “Don’t call an ERISA attorney just when the plan is in trouble,” Rosenbaum recommends. Just like in medicine, preventative care forestalls bigger headaches down the line, “like the DOL knocking on your door and asking why the Form 5500 has not been done,” he says.
“Problems can be nipped in the bud, before they get to the point of the DOL or IRS being involved. You can proactively put processes in place to avoid those problems.”
Mamorsky and his Greenberg Traurig colleagues have spent considerable time coaching employers on proper plan governance under ERISA, for example how to set up appropriate delegation procedures and prudent processes for fiduciary duties. “Under ERISA, prudence is process, process, process, process,” he says. “So you need to document operational compliance with all ERISA and IRS rules.”
As 401(k) participant lawsuits have increased, Guldberg has noticed growing sponsor interest over the past couple of years in addressing big-picture fiduciary-structure issues. “[Sponsors] have started to take a hard look and say, ‘Well, who are my fiduciaries?’” he says. “We can help a committee map through: How do you want to run the plan, and is that really reflected in the plan documents? An ERISA attorney has the ability to really drill down into the plan documents and also to interview the client about what it is doing day to day, then to tell it how that lines up with the plan documents.” For example, the review could find that a human resources (HR) staffer has been performing a fiduciary function that the plan documents say a committee should do.
Some sponsors taking a proactive approach utilize ERISA attorneys to periodically do a “mock audit” of their plan. “The attorneys come in and do what the government would do,” Ehrenberg says, referring to an IRS audit. “That’s a way to spot and correct issues before they become problematic.”
Mamorsky sees much value in sponsors performing regular self-audits of their plan. He recommends doing an annual compliance check on all aspects of plan operations, as well as reviewing whether monitoring of a plan’s service providers has been adequate and determining if the plan’s investment policy statement (IPS) needs updating.
“What we do is train a company’s internal staff the first year on how to do the audit,” he says. “Then they do it every year after that, and we review it.”