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Based on how much strength a tax position needs to get the taxpayer an excuse or relief from a tax-reporting penalty, tax practice has developed a special lingo with term-of-art phrases to describe the relative strength of interpretations of tax law. See my table “How strong is this interpretation of tax law?” attached below. One of those term-of-art descriptors—“more likely than not”—applies in generally accepted accounting principles for accounting for income taxes. A less-confident “substantial authority” often lets a taxpayer assert a tax-return position without a particular disclosure that the IRS might view the tax law differently. (Using Belgarath’s illustration, if a practitioner doesn’t nudge her thinking from 50/50 to 51/49, one would write a substantial-authority opinion. That might be enough to omit a particular disclosure from a tax return, but might not be enough to omit an accrual from financial statements.) A practitioner who renders written advice often provides a reasoned opinion that at least alludes to, and often describes, other possible interpretations. Likewise, it’s often useful to present all or some possible interpretations and explain the strengths, weaknesses, and consequences of each choice. This note is about tax advice a practitioner provides to her client that or who is the taxpayer. An opinion or advice that a nonclient third person may read is a different practice. And a lawyer’s advice to an employee-benefit plan’s fiduciary often is burdened by recognizing that an ERISA-governed plan’s fiduciary—and, depending on State law and other circumstances, a governmental plan’s or church plan’s fiduciary—cannot invoke the evidence-law privilege for lawyer-client communications against the participants and beneficiaries of the fiduciary relation. How strong is this interpretation of tax law.pdf

Paul, those are the latest statutory distribution dates not normal retirement, which is defined in the plan but can be no later than age 65 or 5 years of participation.

Belgarath, a lot of opinions in the tax area just say that there is enough basis for the position that the taxpayer who takes the position would not be subject to penalties other than interest if challenged by the IRS and taxpayer loses. But the point here is that the client is willing to take their chances and just wants a back-up in case of an audit to try to avoid IRS penalties, opprobrium within company or profession, etc. It's legal CYA. 50% would be way above what is necessary for an opinion that the taxpayer can file the return and likely not be subject to penalties (there is never any certainty in life). My guess is it's largely the same in areas other than tax as well, e.g. is anyone going to give a 50+% opinion to an AI company that it can use a voice just like some famous person without permission and not be subject to damages? Probably not, but the AI company would want to be able to say that they had checked with their lawyers and been advised it might be OK before doing it. I'm pretty sure that outside a few areas like muni bonds and secured transactions, maybe some securities law provisions, opinions are rarely something where a law firm is effectively saying,"Yeah, go ahead and do X. We're sure you can and if we're wrong we're good for all of your damages." I've written some plan asset reg opinions (VCOC and REOC) where we were able to give nearly complete assurance on the legal issues, but that is the only area I have experience with where it's been near certainty. The rest were around 50% but really impossible to quantify. And that's another issue, i.e. although people do put percentages on tax opinion levels of certainty, it's ultimately more of a subjective art than a mathematical science.

Corrective -11(g) amendment to include commissions for NHCEs with a true up match calculation? That seems to be one way to handle it, there are probably others.

I am having one of those end of the day moments: 401k plan may limit type of compensation from which participants may defer to a reasonable definition of compensation. Definition does not need to pass compensation ratio test. Matching is based on deferal amount, not compensation, so is there an issue if a safe harbor match plan fails the compensarion ratio test?

I agree with Corey. You lose SH and do ADP/ACP testing using gross comp (or some 414(s) compliant definition) as your testing comp. If this was a DB or PS that otherwise had a safe harbor formula but failed nondiscriminatory compensation you would need to general test using a 414(s) comp, and ADP/ACP are the "general test" versions for 401(k) and 401(m).

For clarity, the individual must be fully vested upon attainment of normal retirement age, but it is possible for the plan to define normal retirement age as the later of attainment of an age not later than age 65 (i.e., it could be younger) or the passage of up to 5 years from the employee's commencement of participation in the plan [1.411(a)(7)(b)]. Note that this is NOT an accumulation of either eligibility or vesting years of service, but rather is the passage of time from the commencement of participation. If you want to see this in simpler language from the IRS, click here: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits @Coleboy1, check the plan's definition of normal retirement age to see if there is a time component.

Some of the facts in the original post might raise questions. Many (not all) plans require some period of service before becoming a participant. Often, that period includes a requirement of working at least 1000 hours. Prudence might lead one to make sure the employee in question is actually a participant.

I'd also be concerned that the change to the method used to calculate the safe harbor match would have to be disclosed in an updated safe harbor notice. Which obviously you can't do after the end of the year, so it would be impossible to make this change and retain the safe harbor. The result being that you lose the safe harbor and have to be ADP/ACP tested if you fail the 414(s) test.

Yes, a participant must become 100% vested upon attainment of normal retirement age as defined in the plan.

I like Lou's idea. but wonder...... Is there any thought that because the payroll-period SH match on the commissions would not have been deposited quarterly as is typically required, that somehow the adjustment now also has to include earnings from what would have been those "end of following quarter" deadlines?

Over 20 years ago, I think, I heard someone with more experience than me (then) say that they had received a DL letting a deceased sole proprietor's spouse (who had the sole remaining account as beneficiary) maintain the plan indefinitely as a frozen plan as long as the spouse kept the plan amended for law changes.

Your inquirer seems to have a good impulse. Regarding a pooled-employer plan, an adopting employer has fiduciary responsibility (at least) for its selection and monitoring of not only the pooled plan provider but also all persons that are a named fiduciary of the PEP, including the PEP’s § 3(38) investment manager. An employer should not use its fiduciary discretion about whether to adopt a PEP to cause itself to get compensation as the PEP’s investment manager. To avoid self-dealing, the conflicted fiduciary might engage an independent fiduciary to decide whether the employer should adopt the PEP, meet the conditions of a prohibited-transaction exemption, or avoid the compensation to the extent of the plan assets (or other portion of the fee) attributable to the adopting employer’s subplan. If a part of the solution is avoiding the compensation, the investment manager and the pooled plan provider might resolve and document their arrangements. Further, avoiding self-dealing about the investment manager’s fee is not the only conflict such a conflicted fiduciary needs to manage. This is not advice to anyone.

A cynic might say that a legal opinion is simply a device for putting the lawyer’ malpractice insurance behind a proposed position or course of action that the client wants to take.

The IRS issued Circular 230 to establish whether a taxpayer may rely on written advice for the purpose of avoiding certain tax penalties when the taxpayer takes a certain position position that the IRS ultimately determines is wrong. This sets the standard and framework for legal opinions in certain areas of tax practice. Check it out if you are interested in a deeper dive and can tolerate some fairly technical material. Otherwise, legal opinions are just opinions, all over the place in what they cover and how they are expressed. Sometimes the law and facts are such that a legal opinion gives a clear and definite statement without much explanation. A “reasoned opinion” usually includes a discussion of the law, as applied to the circumstances at hand and provides some conclusion that is not definite. A reason opinion may also include many assumptions that are not tested or verified. The opinion may include some measure of confidence about the conclusion, which reflects the uncertainty about the state of law, such as “more likely than not”. Some legal opinions are an exercise in the art of providing a legal opinion that says nothing that one can rely on. Opinions that a retirement plan is “qualified” tend to fall in this category — in my opinion. But such opinions often follow a certain convention that has a commonly understood meaning in the industry that is worthwhile for certain purposes, but not for establishing whether or not a plan is actually qualified.

Is this for a DB plan termination? If so, and these are (more) excess assets, they should only be allocated to those who got plan termination distributions. If a DC pooled plan termination, then they got 12/31/2022 balance early 2023 and agree they are not part of the plan termination, but (as always) check your document to make sure it doesn't require anything different.

At least in tax-related areas of practice, which includes a fair amount of benefits work, for "formal" legal opinions there is a range of confidence levels (will, should, more likely than not, reasonable position, not frivolous...).

Tom, bankruptcy is Federal. That's right in the constitution. The Federal Bankruptcy Code was amended in 2005 to make clear that a debtor's interest in a qualified retirement plan (401, 403, etc.) is excluded from the debtor's bankruptcy estate, and also rollovers from those plans that are in IRAs. Non-rollover IRAs are exempt up to $1.5 million, indexed annually, so a little more now.