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Peter Gulia

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Peter Gulia last won the day on February 25

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  1. A recordkeeper recently presented to my client (a plan’s sponsor, administrator, and trustee) the recordkeeper’s draft of a “SECURE 1.0/CARES Interim Amendment”. Some choices are filled-in with the recordkeeper’s presumptions. Other choices are deliberately uncompleted, but specify a default if no box is marked. While recognizing that this amendment need not be done until December 31, 2025, the recordkeeper suggests completing and signing it now. Here’s my question: Is there any disadvantage in waiting until the last few months of 2025 to do this amendment? Is there any advantage (beyond removing the risk of forgetting) in doing it now? What opportunities are gained or lost by waiting or acting now? (If it matters, this client never uses the recordkeeper’s draft of a summary plan description or a summary of material modifications.) BenefitsLink neighbors, I welcome your ideas. While I’m not a procrastinator when it comes to plan amendments (I delivered other clients’ SECURE 2019 amendments in early January 2020), I recognize that I don’t know enough about the practicalities involved.)
  2. If it helps you, the details are in the Internal Revenue Service's government-shutdown plan: https://home.treasury.gov/system/files/266/IRS-FY24LapsePlan.pdf Examinations cease during a lapse in appropriations.
  3. If neither an appropriation nor a continuing resolution is enacted by March 8, the Treasury department’s government-shutdown plan takes effect. That includes no work on writing regulations or nonrule guidance. That further slows guidance on SECURE 2022, SECURE 2019, and open projects unrelated to either SECURE Act. Also, a shutdown affects IRS customer service.
  4. Another financial-planning choice is an age 70½ (not 75 or 73) IRA holder’s opportunity to direct the IRA’s custodian to pay a qualified charitable distribution directly to a charitable organization and exclude up to $105,000 [2024] from a year’s gross income. I.R.C. (26 U.S.C.) § 408(d)(8). Because that tax rule is particular to IRAs (not employment-based retirement plans), a 69-year-old might leave in an IRA some balance for anticipated charitable donations. (Or an employment-based plan’s participant who has not reached her required beginning date might yearly rollover amounts into an IRA for the next year’s-worth of anticipated charitable donations.) For some people (especially those whose tax returns use a standard deduction rather than itemized deductions), qualified charitable distributions can be a tax-efficient way to make one’s charitable donations.
  5. A person who has claimed some portion of the IRA’s death benefit but has no custodian’s or court’s decision that she is entitled to a benefit might be unlikely to file a tax return self-declaring a tax on not having received a distribution by her required beginning date.
  6. It is a matter of the employer recognizing (or not) a DRO regarding the unfunded plan. There are many unfunded deferred compensation plans that include provisions for recognizing plan-approved domestic-relations orders. When I was inside counsel to a big retirement-services provider, our suggested plan documents included PADRO provisions. (I invented and published the moniker to set up a distinct specially defined term regarding plans not governed by ERISA § 206(d)(3).) I don’t remember a customer asking to delete the PADRO provisions. And the customers usually were advised by AmLaw 100 or AmLaw 200 law firms. As EBECatty explains and in my experience, whether an unfunded plan’s sponsor includes or omits PADRO provisions often varies with the nature of the employer, the kind of plan, whether the employer invests to meet the obligations, the investments (if any), and whether a service provider offers or omits a service for reviewing domestic-relations order and implementing those that are approved.
  7. Although it is not a rule or regulation, the bulletin is republished in the electronic and print editions of the Code of Federal Regulations. https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.95-1
  8. If a worker has no elective deferral, no matching contribution, no account balance, and otherwise could not be the distributee of a distribution to be tax-reported, there might be no current need for her taxpayer identification number (whether SSN or ITIN). Not only in retirement plan services but also in many aspects of commerce, we should want to lessen overuse of Social Security Numbers. But many of us have little or no power to make, or even influence, those business choices. AlbanyConsultant, while the response might be disappointing to you and frustrating to your new client and its workers, it’s fair for a service provider to set terms under which it is willing or unwilling to provide its services. Even for a billion-dollar plan, sometimes a service provider has no better explanation than “that’s just the only way we do the service.” If your or the recordkeeper’s service includes a feature for an eligible employee to submit her “enrollment” and elective-deferral instruction electronically to the service provider (rather than to the employer), consider explaining, if truthful, that not having a taxpayer identification number already on record could deprive an employee of her opportunity to use the electronic-enrollment feature. A participant who has no elective deferral today might want one tomorrow. And some employers and employees prefer an electronic enrollment over a paper enrollment.
  9. Before 2002, a § 457(b) plan participant’s deferred compensation was income subject to Federal income tax “for the taxable year in which such compensation . . . is paid or otherwise made available to the participant[.]” I.R.C. § 457(a), as in effect for 2001. Many § 457(b) plans were designed so a participant who had a severance from employment or other distribution-allowing event (for example, age 70½) was not entitled to a payout until after the end of a period in which the participant would elect, irrevocably, when the deferred compensation is to be paid. Absent an election to defer (with all future payments specified or determinable), a plan’s default might provide yearly or monthly installment payments over a few years, or the default might be a single-sum payment. Everything was designed so no compensation would be available sooner than it was scheduled to be paid. (Some plans allowed no choice, and specified a payout schedule.) Economic Growth and Tax Relief Reconciliation Act of 2001 § 649 removed a governmental § 457(b) plan’s need for those irrevocable-election provisions. Yet, a plan-design need to avoid a made-available trap continues for a plan of a nongovernmental tax-exempt organization. Compare I.R.C. § 457(a)(1)(A) with § 457(a)(1)(B) https://irc.bloombergtax.com/public/uscode/doc/irc/section_457. If a nongovernmental tax-exempt organization’s plan allows an election to defer, even a participant who severs from employment in her 40s or younger must make her irrevocable election about whether and how long to defer. That choice might have serious consequences for a payment obligation that is unfunded and unsecured. Not every tax-exempt organization is sure to be creditworthy for decades or even years to come.
  10. If the wife’s corporation and the husband’s sole-proprietor business no longer are commonly controlled and otherwise are not parts of one employer under the several subsections of Internal Revenue Code § 414, is there any impediment to a spin-off plan taking on the obligations to the wife and getting a fair portion of the transferor plan’s assets?
  11. Among the challenges about arrangements of the kind ESOP Guy describes is that businesspeople communicate expectations in ways that evade detection by a banking, insurance, or securities business’s compliance, internal-controls, and supervision systems.
  12. I too suspect that many are unaware that one has a fiduciary responsibility to the retirement plan; of those who know they are a fiduciary, many don’t see the conflict; and very few get real advice.
  13. CuseFan, there can be circumstances in which fees might relate to shared or coordinated services, with an experienced fiduciary’s prudent attention to protective conditions and reasoned accounting. But in the situation your opening post describes, wouldn’t a good fiduciary ask the service provider whether it would charge the employer a regular fee for the payroll service, and lower the fee charged to the retirement plan? Does the service provider’s offer of “free” payroll services suggest that the retirement plan’s fiduciary might not have selected or negotiated the best deal the plan could obtain? (Whether with the same provider, or by selecting a different provider?) When one fee otherwise would burden the employer and another fee burdens the plan, shouldn’t whatever combined fee lowering is available favor the entity the ERISA-governed fiduciary owes its exclusive-purpose loyalty to? And shouldn’t the retirement plan’s assets not benefit an entity about which the plan fiduciary might, even indirectly, have a compromising interest that could interfere with the plan fiduciary’s unimpeded decision-making for the plan’s benefit? Observe that the conflict might be less (but not completely removed) if the employer pays the retirement plan’s fees from the employer’s assets, with nothing charged to the plan. I concur with your observation that one might not call out a seeming breach, at least not without having collected and analyzed the facts. (Even if I saw an obvious breach, I wouldn’t say anything other than to my client.) Knowing that many plan fiduciaries do not get a lawyer’s advice (even when the retirement plan properly could pay that fee) motivated my question: What percentage of small-business employers innocently do not know that it is improper to allow a retirement plan to subsidize a lowered expense for some other service?
  14. BenefitsLink neighbors, using our experience and observations, let’s ask this question: _____% of small-business employers innocently do not know that it is improper to allow a retirement plan to subsidize a lowered expense for some other service. _____% know it is improper, but allow it anyhow. Your thoughts?
  15. Meeting § 457(b)-(e)’s application of § 401(a)(9) is not an exclusive explanation of a provision that refers to the April 1 after a severance. For example: In the 1980s, many § 457(b) plans were designed to allow a period—often, 60 days after the severance (or 60 days after the end of the year in which the severance occurred) for a participant’s election to defer payment to her specified date. Absent an election, a plan provided payment on the first of the month after the end of the election period. Some plans set provisions of this kind in terms of calendar dates. You’re right that Internal Revenue Code § 457 does not preclude provisions more limiting than those needed to state a § 457(b) eligible deferred compensation plan. For a governmental plan, church plan, or other plan for which ERISA does not supersede and preempt State law, a plan’s sponsor might consider relevant States’ laws. For a governmental § 457(b) plan, providing an involuntary distribution sooner than is needed to meet a condition for tax treatment as an eligible plan is unusual. For a nongovernmental § 457(b) plan, providing a distribution after severance from employment, with little or no choice to defer longer, is somewhat less unusual.
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