Peter Gulia

30Rock, imagine some further possibilities: The workers of the transferred business still are the seller’s employees, are leased to the buyer’s new subsidiary, and expenses allocable to those workers are paid by the buyer’s new subsidiary (or the buyer parent or an affiliate). Or, the workers of the transferred business are the buyer’s new subsidiary’s employees, and the buyer’s new subsidiary is a participating employer under the seller’s plan, maybe for a transition period (even if that might result in a multiple-employer plan). Or, another of many ways to allocate economic and accounting consequences between the seller and the buyer. You might get more information when each plan’s administrator reads all the documents, not only all documents governing the plan it administers but also all documents about the deal between the seller and buyer, including related agreements. This is not advice to anyone.

I don’t know what EPCRS or anything of tax law suggests for a situation like this. Might the employer that paid purported contributions ask the receiving plan’s administrator and trustee to recognize the employer’s mistake of fact? Might the employer’s assumption that the employer’s employees could accrue further benefits under a retirement plan of which the employer was not a participating employer be a mistake of fact? Also, might the receiving plan’s administrator’s acceptance of the purported contributions be a breach of that administrator’s fiduciary responsibility? One imagines the receiving plan’s administrator knew, or had it used ERISA § 404(a)(1)(B) prudence would have known, that the payer was not a participating employer (and that the payer’s employee were not eligible for accruals attributable to amounts paid by a nonparticipating employer). If there was a mistake, ERISA’s title I does “not prohibit the return of [a mistaken] contribution to the employer within one year after the payment of the contribution[.]” ERISA § 403(c)(2)(A)(i). The receiving plan would return to the nonparticipating employer the amounts mistakenly paid in, each adjusted for investment loss but not for investment gain. The receiving plan’s net-breakage gain might be allocated to the receiving plan’s account for plan-administration expenses. The employer would pay its affected employees the wages due for the amounts that were not elective deferrals. Next January, the employer would report correctly W-2 wages paid in 2026. The employer would pay each affected employee an interest or time-value-of-money amount on the wages not timely paid, or, if the greater, the amounts each applicable State wage-payment law provides. About the amounts paid for what was not a matching contribution under the mistakenly-receiving plan, the employer might use that money toward any nonelective or matching contribution obligation (if any) the employer has under a retirement plan of which the employer is a participating employer. This is not advice to anyone.

Here’s my follow-up: If a working partner is a less-than-5%-owner “with respect to the plan year ending in the calendar year in which the [deemed] employee attains the applicable age [73 or 75]” (and, to simplify our questions, is a less-than-5%-owner on every day of that year), does this means she is forever a not-5%-owner—even if her capital interest or profits interest later becomes more than 5%? 26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii). Does a fortuity that a working partner’s capital interest and profits interest both are no more than 5.0000% for one measurement year mean that no § 401(a)(9) minimum distribution is required until the partner stops working?

Unless a plan sponsor’s consultant is such a big player in the recordkeeper’s business that the firm gets special access (my firm doesn't have that pull with either Empower or Voya), an inside lawyer or other expert won’t take a call not introduced by a sales executive (or an existing customer's relationship manager). So, one would start with the recordkeeper's sales manager for the plan sponsor’s region. One way to get a salesperson to bump a question to the expert is to say, quickly, that you want to not waste the salesperson’s time and effort on a prospect that couldn’t pan out. For example, a salesperson shouldn’t waste her time on a government-sector proposal if the prospect might be nongovernmental and the recordkeeper does not offer services for a small organization’s even smaller select-group § 457(b) plan. Or, even if the recordkeeper has capabilities and offers for both business lines, a proposal is generated from or for a particular business line. So, it might be in a salesperson's interest to get help on a classification question.

That alone doesn’t resolve the classification question. That a State’s statute created an organization does not by itself mean the organization is a government’s agency or instrumentality. And that an organization is distinct from the State or a political subdivision does not by itself mean the organization isn’t a government’s agency or instrumentality. To discern this, one would read the creating or enabling statute and other law to consider the organization’s powers and other facts and circumstances. And would consider how these relate to IRS interpretations about what is or isn’t a government’s agency or instrumentality. This is not advice to anyone. If the organization’s executive is unsure about whether the organization is governmental, your acquaintance might consider reaching out to Empower or Voya. While each would deny that it provides tax or other legal advice, either has inside lawyers and other businesspeople with knowledge and practical experience to help sort out whether an employer is § 457(e)(1)(A) or § 457(e)(1)(B). Another way to get some partial information about governmental or not is to ask whether the organization is required or permitted to participate to participate in a State employees’ retirement system. Or, if the State maintains a § 457(b) plan that admits governmental employers beyond the State itself, ask that plan’s executive or service provider whether the plan would admit the organization as a participating employer. That plan’s counsel, inside or outside, might do the legal analysis. Consider also that a State’s § 457(b) plan might have purchasing power a “tiny” organization lacks. (In my 42 years’ experience with governmental plans, I’ve seen many super-micro employers’ workers enjoy pricing that can be had only with a mega plan’s purchasing power.) Alternatively, being denied participation under a State’s plan might be a partial clue that the organization might not be governmental.

Even if a nonexempt prohibited transaction has been corrected, the plan’s administrator’s Form 5500 report should disclose the transaction, at least to the extent Form 5500’s instructions call for. A statute-of-limitations period for a disqualified person’s excise tax does not begin to run until an excise tax return is filed. Unless the recordkeeper also is a law firm that stands behind its legal advice, an employer or plan administrator gets no reasonable-cause relief for relying on the recordkeeper’s advice. Yet, an employer or plan administrator might consider whether to use (or omit) an IRS or EBSA correction procedure. This is not advice to anyone.

Is the employer a State, a State’s political subdivision (for example, a county, city, town, village, borough, or other municipality), a State’s agency, a State’s instrumentality, or a political subdivision’s agency or instrumentality? [I.R.C. § 457(e)(1)(A)] Or, is the employer a tax-exempt organization (other than a governmental unit)? [I.R.C. § 457(e)(1)(B)] Some service providers have capabilities for one kind or the other, but not for both.

For a third-party administrator, some hard questions in designing a records-retention (and records-destruction) plan are about considering public-law record-retention requirements imposed on the plan’s administrator or the plan’s trustee, and deciding the extent to which the TPA wants to serve as a backup to help the plan’s administrator or trustee meet one’s duties. (Some TPAs perceive that one’s service recipients often are inept in meeting a fiduciary’s records-retention duties, and will be thankful when the TPA has preserved a record the plan’s administrator or trustee ought to have kept.) Another factor might be keeping a record until it no longer could be needed to disprove a not yet time-barred breach-of-contract or tort claim against the TPA. Or, discarding a record so its discovery could not be used to help prove a claim against the TPA. Tightening-up might include rewriting a TPA’s service agreement to narrow obligations, and widen a responsible plan fiduciary’s permissions granted to the TPA. This is not advice to anyone.

Thank you for the always wise reminder that a starting point for thinking about an employee benefit, fringe benefit, or convenience is whether it helps the employer attract or keep workers.

Artie M., I suspect we share some observations. In designing an ERISA-governed plan’s provisions, a plan sponsor need not be burdened by a fiduciary responsibility to decide in the plan’s participants’, beneficiaries’, and alternate payees’ interests. (When the plan sponsor is a business organization, a decision-maker might have some responsibility to the organization’s shareholders, partners, members, or other owners of capital interests or profits interests. When the plan sponsor is a charitable organization, a decision-maker might have some responsibility to the organization’s charitable purposes. Either kind of organization interests can be in tension with participant interests.) One doubts an ERISA-governed plan’s fiduciary has an ERISA-imposed duty to inform the plan sponsor about the fiduciary’s perception that a different plan design would help participants. But ERISA might not preclude a fiduciary from volunteering information to the plan sponsor, if the fiduciary can do so without incurring an expense that burdens the plan. If a plan’s administrator seeks to discern whether the plan’s loan provision is or isn’t “operating as [the plan sponsor] intended”, the administrator would first need to know what the plan sponsor intended (or now intends). Some plan sponsors don’t want a participant-loan provision that “function[s] more like a revolving credit facility than a retirement savings vehicle.” But some plan sponsors don’t object to, or even welcome, a participant-loan provision that some or many participants use to borrow, even frequently, against one’s retirement plan right. And some plan sponsors do not worry about a plan-administration burden if much of the work is within the recordkeeper’s services obligated under its contract, especially if paid for with fees, direct or indirect, from the plan’s assets, not from the employer. In my experience, many employer paymasters prefer—if the plan allows participant-loan repayments collected from an employee’s wages—restricting a participant loan to one at a time. If I advise an ERISA-governed plan’s sponsor (sometimes I advise only a plan’s administrator, and not the plan sponsor), I might suggest that the plan sponsor decide all details of the participant-loan provision, specify these in settlor plan documents, and not grant any discretionary authority to the plan’s administrator. Even if only one human is the decision-maker for the plan sponsor and for the plan’s administrator, I advise that it matters to set clear distinctions between plan-design decisions and plan-fiduciary decisions. But my way of thinking about plan-design choices might be awkward for many employers. A set of IRS-preapproved documents might call for some provisions about a participant loan to be set not by the base plan document and not by the adoption agreement but rather by a loan “policy” or loan “procedure”, often with ambiguity about whether the person that decides those provisions might be responsible as the plan’s fiduciary for those decisions. Some plan sponsors and some plan administrators lack a lawyer’s advice, and might not fully consider the consequences of settlor-or-fiduciary distinctions. Artie M., your suggestion about a best practice makes sense if the committee is a plan-sponsor committee or is a shared sponsor-and-fiduciary committee. Also, it can make sense for a fiduciary committee that has some discretionary power to set some of the participant-loan provision’s terms, or that volunteers to present information to the plan sponsor. My thoughts above are about an ERISA-governed individual-account retirement plan that requires participant-directed investment, and provides a loan to a participant is a participant-directed investment that affects only the borrower’s account. Different ways of thinking often apply for a church plan, if it has not elected to be ERISA-governed, or for a governmental plan. This is not advice to anyone.

Brenda Wren, does allowing multiple loans somehow allow a participant to exploit a weakness in Internal Revenue Code § 72(p)’s loan limit? Or, is using a next loan first to pay off the preceding loan’s outstanding amount, with an amount not so consumed paid to the participant, similar to the effect of multiple loans?

Please help me learn something about plan design. Wouldn’t it be simpler to provide that a participant may have only one outstanding loan at a time? That each next loan must first repay the whole outstanding amount of the preceding loan. Is there a plan-design reason (beyond inattention) for a plan sponsor not to provide this? I confess to not having done the arithmetic about participant loan limits. Am I ignorant about how participants use loans? Am I ignorant about how recordkeepers account for participant loans?

Assume an employer lacks money to make employer-provided contributions to Trump accounts. Assume the employer, in its circumstances, does not fear any effect about coverage or nondiscrimination for any retirement plan, health plan, other employee-benefit plan, or fringe-benefit plan. Should an employer provide the convenience of an employee’s voluntary payroll-deduction contributions to Trump accounts? Why or why not? Should an employer provide information about Trump accounts? Is it best for an employer deliberately to do nothing about Trump accounts? Your thoughts?

From context in your query, I'm guessing the investment adviser did not accept, or has restored to the plan trust, the mistaken amount. Consider crediting to each participant's, beneficiary's, and alternate payee's individual account the amount the account was incorrectly charged, with reasonable interest (or, if greater, the investment adviser's gain allocable to having had the use of the mistaken amount). After all corrections are complete, the plan's administrator should evaluate its procedures and controls, particularly about how the administrator did not instruct the recordkeeper about the change in investment-adviser fees. After discerning the weakness, the administrator might tighten the procedures and document that change. (But the administrator should not write a procedure it won't follow.) This is not advice to anyone.

I too have seen a range of different ways to document a plan's discontinuance, termination, and final distribution. But the key is for a decision-maker to get advice from an adviser responsible to the decision-maker.

Here’s the rule Paul I mentions: 26 C.F.R. § 1.401-10 https://www.ecfr.gov/current/title-26/section-1.401-10.

Does this help? “In the case of an employee of two or more corporations which are members of a controlled group of corporations (as defined in section 414(b) as modified by section 415(h)), the term compensation for such employee includes compensation from all employers that are members of the group, regardless of whether the employee’s particular employer has a qualified plan. This special rule is also applicable to an employee of two or more trades or businesses (whether or not incorporated) that are under common control (as defined in section 414(c) as modified by section 415(h)), to an employee of two or more members of an affiliated service group as defined in section 414(m), and to an employee of two or more members of any group of employers who must be aggregated and treated as one employer pursuant to section 414(o).” 26 C.F.R. § 1.415(c)-2(g)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-2#p-1.415(c)-2(g)(2).

Beyond others’ observations: Many recordkeepers and TPAs warn that the service provider does not give tax or other legal advice, or at least warn that a service recipient should not rely on the provider’s advice. While many people look on the warnings as boilerplate one ignores, when things go wrong courts have held that a not-advice warning negates a claim that incorrect or incomplete advice was a breach of contract or negligence. This is not advice to anyone.

The Labor department has published at least 30 individual exemptions for a contribution made by a delivery of property other than money, most often securities. https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/granted#In%20Kind%20Contributions%20to%20Plans Many applications are withdrawn or never submitted because the party-in-interest finds that the expense of persuading the Labor department is disproportionate to the value that might be had by contributing property other than money.

In the Code of Federal Regulations’ title 29, part 549 is four rules about whether a plan is a “bona fide profit-sharing plan or trust” to meet Fair Labor Standards Act of 1938 § 7(e)(3)(b). Here’s the first of those four sections: 29 C.F.R. § 549.0 https://www.ecfr.gov/current/title-29/section-549.0. It’s about not counting a profit-sharing bonus in an employee’s “regular rate of pay”, which matters to determine overtime wages. This is not advice to anyone.

Many systems for processing a distribution and its tax-reporting and tax withholding function routinely with an entry of, instead of a Social Security Number, an Individual Taxpayer Identification Number. https://www.irs.gov/forms-pubs/about-form-w-7

Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993) (The Court construed ERISA title II’s parallel text, Internal Revenue Code § 4975(f)(3), as extending, but not limiting, the reach of § 4975(c)(1)(A) [ERISA § 406(a)(1)(A)] to include as such a prohibited sale or exchange a contribution of encumbered property, even if that contribution is not used to meet a funding obligation. The Court held a contribution of property other than money—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—was a prohibited transaction.) The Labor department’s Pension and Welfare Benefits Administration further interpreted this in Interpretive bulletin [94-3] relating to in-kind contributions to employee benefit plans (Dec. 21, 1994), 59 Fed. Reg. 66736 (Dec. 28, 1994), reprinted in 29 C.F.R. § 2509.94-3, https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.94-3

If the health plan is “self-funded”, an employer that offers more than the plan (including applicable law) provides does so at the employer’s financial risk. A stop-loss insurance contract typically responds only to claims that not only are beyond the attachment point but also are within the plan’s coverage, typically limiting continuation coverage to no more than applicable law commands. This is not advice to anyone.

Beyond QDROphile’s good teaching: Consider also that an ERISA-governed plan’s fiduciary must act as a prudent and experienced fiduciary would act in deciding what expenses to incur, and how to allocate them among the plan’s participants and beneficiaries. Interpleader is not without expense, sometimes substantial, because a court may require the interpleader plaintiff to develop fully the entire factual record, and to brief every issue, despite an assertion that the plan is a mere stakeholder. If a judge finds that the administrator pursued the interpleader without first diligently following the plan’s claims procedure and carefully and thoroughly evaluating the claims, the court might deny the interpleader petition’s request that the administrator’s attorneys’ fees and expenses be charged against the interpleaded account. And if a court finds an expense was unreasonable, what reasoning would support a fiduciary’s finding that the expense was prudent to incur and is prudent to charge against other participants’ and beneficiaries’ accounts? This is not advice to anyone.

What text in the beneficiary designation makes it ambiguous about whether one brother or both gets a benefit?