Scriveners’ Errors, Drafting Errors, Operational Failures, Retroactive Amendments, Reformations, ERISA, and the Tax Qualification of Pension Plan Trusts, Part II
Tax Management Weekly Report, Vol. 31, No. 3, p. 75, 2012
13 Pages Posted: 18 Jan 2012 Last revised: 13 Nov 2014
Date Written: January 16, 2012
Part II focuses on how the courts do and should resolve assertions that benefit entitlements are not determined by the “unambiguous” terms of an ERISA plan’s governing documents other than equitable estoppel claims, which make benefit-like claims based on misbehavior of plan representatives. Such assertions by plan fiduciaries to reduce benefits that accrued under the terms of the plan’s governing documents are often described as a request to apply the “scrivener’s doctrine.” If the court accepts such application, the acceptance raises operational failure issues because prior to the court decision, the plan presumably failed to follow the superseded terms of the governing documents.
The Revenue Procedure presenting the EPCRS should remind plan sponsors and administrators that the Service lacks the authority to equitably reform pension plans to reduce accrued plan benefits. Court approval is required for such reductions, and it is questionable whether such approval should ever be available. Plan sponsors lack authority under ERISA to seek equitable reformations. ERISA fiduciaries may only act for the exclusive purpose of providing benefits to participants and their beneficiaries pursuant to the terms of the plan governing documents. Thus, no one, who would desire such reformation, has the authority to seek such a reformation. Nevertheless, such approval has been granted by the Seventh Circuit and has been considered by other circuits without any discussion of this issue. Part II also summaries how the Service may use its resources more effectively to encourage employers to provide tax qualified plan benefits, and thereby have pension plans satisfy the ERISA requirements that are similar to tax-qualification ones. First, reduce the barriers for plan administrators and sponsors who wish to correct operational failures, such as by providing one-stop shopping to users of the Service’s compliance programs, presenting more pre-approved correction methods, encouraging retroactive correction amendments that do not diminish accrued benefits, and providing that such amendments will not cause pre-approved plans to be treated as individually designed, and reminding users that a court decision that a plan has violated the plan’s governing documents means that there was an operational failure, which may have not been fully corrected by the decision. Second, reduce the barriers for the Service to discover operational failures and monitor their correction, such as by requiring plan administrators and sponsors to disclose (1) operational failures pertaining to benefit payments, and (2) their use of self-correction methods.
Keywords: Pension, Tax-Qualified, Compliance, ERISA, IRS, Scrivener, Operational Failures, Tax Filings, Drafting Errors, Retroactive, Equitable, Reformation
JEL Classification: G23, H20, H24, H29, J32, J33, K34, K49, M52
Suggested Citation: Suggested Citation