Peter Gulia

Unless the real property is burdened by an assessment, attachment, covenant, lien, levy, tax, or other liability, wouldn’t the property have a value at least slightly more than $0.00? Or if there really is no buyer: Does the plan’s governing document permit (or at least not preclude) a distribution of property other than money? If the document precludes such a distribution, is it feasible to amend the document? If the plan distributes the real property, the Form 1099-R would report the trustee’s or administrator’s good-faith and prudent estimate of the distributed property’s fair-market value. A retirement plan should not donate its property, except, arguably, for property that has a negative value, and then only if, among other conditions, the transfer likely would succeed in getting rid of the plan’s liability.

These hyperlinks to BenefitsLink posts might help you find more information. https://benefitslink.com/news/index.cgi/view/20211104-168474 https://benefitslink.com/news/index.cgi/view/20211102-168431 https://benefitslink.com/news/index.cgi/view/20211029-168386

A bank or broker-dealer might be correct in asking for information on all trustees. Further, even if you might learn the banking and securities laws and rules involved and might find that a particular bank or broker-dealer asks for more information than the minimum public law requires, knowing that information likely wouldn’t help. In applying know-your-customer and anti-money-laundering laws and rules, each bank or broker-dealer designs its own policies and procedures. A procedure might require obtaining information about each human who has some authority or control over the account to be opened or continued.

If the seven-business-days variation does not apply, an amount withheld from a participant’s wages for her contribution or loan repayment is plan assets “as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer’s general assets.” 29 C.F.R. § 2510.3 102(a)(1) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510/section-2510.3-102#p-2510.3-102(a)(1).

G8Rs, thank you for your reminder about § 601 (title VI) of division O of the Further Consolidated Appropriations Act, 2020. The only ERISA title I provision it mentions is ERISA § 204(g). Even if SECURE’s § 601(a)(1) might treat a retirement plan “as being [or having been] operated [during the remedial-amendment period] in accordance with the terms of the plan [as amended by the end of the remedial-amendment period]”, I do not read § 601 to excuse an ERISA-governed plan’s fiduciary from ERISA § 404(a)(1)(D)’s command to administer the plan according to the documents that govern the plan. A plan’s administrator decides today’s claim, right, obligation, or other question considering documents that exist today. A fiduciary can’t consider a document that does not yet exist. However, SECURE’s § 601(a)(1) might support (in some circumstances) an interpretation of existing documents. I recognize it’s sometimes fussy to worry about following ERISA § 404(a)(1)(D). For example, if a plan’s administrator delays an individual-account retirement plan’s involuntary distribution until after age 72 (rather than 70½), it’s unlikely doing so deprives a participant of a benefit she could have obtained. There might be no loss that results from a fiduciary’s breach of its duty to administer the plan according to the documents that govern the plan. Likewise, there might be no one who asserts that the fiduciary breached. Nonetheless, a careful fiduciary observes its duty to follow the provisions the plan’s sponsor made. For some, that’s so even when the risk of liability is none. ESOP Guy, I too prefer not to procrastinate. I prefer to write a plan’s restatement promptly after Congress enacts the statute, and before the plan’s change takes effect. For clients using documents I wrote, I completed full plan restatements for all provisions of December 20, 2019’s SECURE Act in the first few days of January 2020. But for a client that uses IRS-preapproved documents: “An Adopting Employer may rely on an Opinion Letter only if the requirements of this section 7 are met and the employer’s plan is identical (as described in section 8.03) to a Pre-approved Plan with a currently valid Opinion Letter. Thus, the employer must not have added any terms to the Pre-approved Plan[,] and must not have modified or deleted any terms of the plan other than by choosing options permitted under the plan or by amending the document as permitted under section 8.03.” Rev. Proc. 2017–41, 2017-29 I.R.B. 92 (July 17, 2017), at § 7.03(4) https://www.irs.gov/irb/2017-29_IRB#RP-2017-41 or https://www.irs.gov/pub/irs-irbs/irb17-29.pdf. Even for an obviously not tax-disqualifying change, a practitioner might be reluctant to advise a plan’s sponsor to adopt an amendment unless one advises her client that the change might defeat reliance on the IRS’s preapproval letter, or that the change is within one of the seven kinds of changes that don’t defeat reliance, such as an “[a]mendment[] to the administrative provisions in the plan (such as provisions relating to investments, plan claims procedures, and employer contact information)[.]” Rev. Proc. 2017–41, at § 8.03(7). (I’d be at least reluctant to advise that replacing 70½ with 72, or replacing a narrative definition for required beginning date with a reference to Internal Revenue Code § 401(a)(9)(C), is a change to what the IRS calls an administrative provision.) If a plan’s sponsor did not amend the plan (perhaps because the sponsor feared an amendment might defeat reliance on the IRS’s preapproval letter, or perhaps because no one suggested a change), the plan’s administrator might find an ambiguity in an IRS-preapproved document’s use of 70½, and might interpret such a document’s definition for a required beginning date to state the provision that results if the plan’s sponsor intended no more than a provision that minimally meets the tax-qualification condition of Internal Revenue Code § 401(a)(9).

If the plan is ERISA-governed, no. ERISA § 408(b)(1) “exempts from the prohibitions of section 406(a), 406(b)(1) and 406(b)(2) loans by a plan to parties in interest who are participants or beneficiaries of the plan” only if, with further conditions, “such loans [a]re available to all such participants and beneficiaries on a reasonably equivalent basis[.]” 29 C.F.R. § 2550.408b 1(a)(1)(i) (emphasis added) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.408b-1#p-2550.408b-1(a)(1)(i) Otherwise, a participant loan is a nonexempt prohibited transaction.

The webpage now states: "If the highest contribution percentage for a key employee is less than 3%, non-key employees receive the highest percentage for a key employee instead of 3%." And the webpage now notes “Page Last Reviewed or Updated: 16-Nov-2021”.

rocknrolls2, thanks. Another part of the problem is that an employer/administrator might use, without editing (and even without reading), a summary plan description the plan-documents package’s software generated, and such an SPD might refer to age 70½. But the software a recordkeeper or third-party administrator uses to perform its services an employer/administrator relies on to administer the plan might refer to age 72. For an employer/administrator that relies on a service provider, there might be no expression of the employer’s or the administrator’s intent that is more than tacitly accepting a service provider’s expressions, which might be logically inconsistent.

CuseFan, thank you for helping. To qualify for Internal Revenue Code § 401(a)’s tax treatment, § 401(b), the Treasury department’s interpretations of it, the Internal Revenue Service’s further extensions and implementations of it, and Congress’s off-Code enactments for other remedial-amendment periods set up some tax-law tolerance for administering a plan other than according to the plan’s governing documents if that administration will become consistent with a later amendment’s ratifying effect. But that concept doesn’t help a fiduciary follow ERISA’s title I. ERISA § 404(a)(1)(D) commands: “[A] fiduciary shall discharge his duties with respect to a plan . . . in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title [I] and title IV.” While tax law might allow a plan’s sponsor to ratify, for tax treatment, administration that was contrary to the plan’s governing documents, ERISA’s title I has no related concept. Rather, a fiduciary must administer a plan according to the documents that govern the plan, not a document that might be made later. Yet at least one solution falls in with what you suggest. If the governing documents grant discretion to interpret the plan, the administrator might interpret the text to refer not to a specified age, but rather to whatever Internal Revenue Code § 401(a)(9)(C) calls for as a condition of tax-qualified treatment at each time the administrator must apply the plan’s provisions. In short, an administrator would read 70½ to mean 72.

If the plan has only yearly valuations each September 30, isn't a December 31 balance the same as the preceding September 30 balance?

Here’s a hyperlink to the August 2 bulletin in which that Revenue Procedure was published. https://www.irs.gov/pub/irs-irbs/irb21-31.pdf

Although it does nothing for situations of the kind BG5150 described, some new relief might help when one must interpret new law for which there is yet no official guidance. The Internal Revenue Service announced new policies about “[s]ignificant FAQs on newly enacted tax legislation[.]” Among them: Notwithstanding the non-precedential nature of FAQs, a taxpayer’s reasonable reliance on an FAQ (even one that is subsequently updated or modified) is relevant and will be considered in determining whether certain penalties apply. Taxpayers who show that they relied in good faith on an FAQ and that their reliance was reasonable based on all the facts and circumstances will have a valid reasonable cause defense and will not be subject to a negligence penalty or other accuracy-related penalty to the extent that reliance results in an underpayment of tax. See Treas. Reg. § 1.6664-4(b) for more information. In addition, FAQs that are published in a Fact Sheet that is linked to an IRS news release are considered authority for purposes of the exception to accuracy-related penalties that applies when there is substantial authority for the treatment of an item on a return. See Treas. Reg. § 1.6662-4(d) for more information. But that relief about a penalty applies only if the Treasury department and its Internal Revenue Service published no authority beyond the FAQs (at least none about the point for which the taxpayer says it relied on an FAQ). The new policy seems aimed as situations in which the only authority is Congress’s statute, and the only executive agency guidance is the FAQs. https://www.irs.gov/newsroom/irs-updates-process-for-frequently-asked-questions-on-new-tax-legislation-and-addresses-reliance-concerns https://www.irs.gov/newsroom/general-overview-of-taxpayer-reliance-on-guidance-published-in-the-internal-revenue-bulletin-and-faqs

Does your client’s plan still require a minimum distribution after age 70½ (not 72)? In BenefitsLink discussions, many commenters observe that a plan’s administrator must obey the plan’s governing documents, even if a document’s provision is more restrictive than what’s needed for the plan to tax-qualify. Imagine this not-so-hypothetical. A § 401(a) plan’s sponsor completed its cycle 3 restatement, using its third-party administrator’s current IRS-preapproved documents package. Those documents state the plan’s minimum-distribution provisions with no update for the SECURE Act. And instead of specifying the required beginning date by reference to Internal Revenue Code § 401(a)(9)(C), the basic plan document’s definitions section states: “‘Required Beginning Date’ means April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70½ or the calendar year in which the Participant retires[.]” Although the adoption agreement allows a user some choices about the required beginning date, all those choices refer to age 70½. Nothing in the documents package suggests one must or may read 70½ as 72. Assume the plan’s sponsor has made no governing document beyond using the IRS-preapproved documents package. Imagine a severed-from-employment participant had her 70th birthday on June 1, 2021. Must the plan’s administrator begin her distribution by April 1, 2022? Or may the administrator interpret the plan not to compel a distribution until April 1, 2024? Would you (or could you) interpret the plan’s governing documents so the required beginning date is no sooner than as needed to meet Internal Revenue Code § 401(a)(9)(C), and so turning on age 72? If you might, what is your reasoning about why that’s a reasonable interpretation of the plan’s governing documents?

If the absorbed organization discontinues and terminates its 401(k) plan, no severance-from-employment is needed, and the plan pays its final distribution as an involuntary distribution (even to those participants who have not reached any retirement age). A single-sum final distribution paid or payable in money should be eligible for a rollover into any eligible retirement plan, including a 403(b) plan. No alternative defined contribution plan. A distribution may not be made under paragraph (d)(1)(iii) of this section [plan termination] if the employer establishes or maintains an alternative defined contribution plan. For purposes of the preceding sentence, the definition of the term “employer” contained in § 1.401(k)-6 [which further cross-refers to § 1.410(b)-9, which includes aggregations under sections 414(b), (c), (m), and (o)] is applied as of the date of plan termination, and a plan is an alternative defined contribution plan only if it is a defined contribution plan that exists at any time during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan. However, if at all times during the 24-month period beginning 12 months before the date of plan termination, fewer than 2% of the employees who were eligible under the defined contribution plan that includes the cash[-]or[-]deferred arrangement as of the date of plan termination are eligible under the other defined contribution plan, the other plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not treated as an alternative defined contribution plan if it is an employee stock ownership plan as defined in section 4975(e)(7) or 409(a), a simplified employee pension as defined in section 408(k), a SIMPLE IRA plan as defined in section 408(p), a plan or contract that satisfies the requirements of section 403(b), or a plan that is described in section 457(b) or (f). 26 C.F.R. § 1.401(k) 1(d)(4)(i) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(k)-1#p-1.401(k)-1(d)(4)(i). In a situation of the kind described, some charities and practitioners might consider designing and documenting both plans so the default on a non-instructing participant’s involuntary final distribution is a rollover into the absorbing organization’s 403(b) plan. See 26 C.F.R. § 1.401(a)(31)-1/Q&A-7 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(31)-1. Although that is not a merger, it can have some practical effects that achieve an employer’s goal of maintaining one individual-account retirement plan. Some participants choose against a rollover, and some choose a rollover to a retirement plan other than the default. But I’ve seen situations in which 80% to 99% of the terminating plan’s amounts became rollover contributions (not a merger or transfer) to the “suggested” plan.

The portion you quoted (from the caution paragraph that ends the left column on page 5) is an explanation about 26 C.F.R. § 1.415(f)-1(a)(2)&(3). The IRS Publication also explains the rule of 26 C.F.R. § 1.415(f)-1(f), which my post illustrated. That’s on the same page in the second of three columns in the paragraph with the heading “Participation in a qualified plan”. While both those non-authoritative Publication bits are efforts to explain (loosely) the rule, it’s much easier (and much more informative) to read the actual rule (for which I furnished a hyperlink).

Yup, it reads like 1970s badly patched computer code.

Luke Bailey, thank you for your good help. No, this was not a trick question. I was editing a summary plan description. Within what’s feasible recognizing ERISA’s many legal and practical constraints, I strive to meet § 102(a)’s goal of an explanation that would “be understood” by an ordinary reader who puts in an ordinary effort. I wrote the SPD’s explanation of when a nonspouse beneficiary must receive the death distribution in one sentence. Because I seldom think about a plan’s provisions to meet Internal Revenue Code § 401(a)(9), I wanted to check that I wasn’t missing something. You confirmed what I was thinking.

About an “incidental” rule, consider Revenue Ruling 61-164, 1961-2 Cumulative Bulletin 58.

Internal Revenue Code of 1986 (26 U.S.C.) § 401(b)(2) provides: If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year. http://uscode.house.gov/view.xhtml?req=(title:26%20section:401%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section401)&f=treesort&edition=prelim&num=0&jumpTo=true

SECURE’s revision of Internal Revenue Code § 401(a)(9) distinguishes between an eligible designated beneficiary (a beneficiary who is: the decedent’s spouse, disabled, a chronically ill individual, no more than ten years younger than the decedent, or the participant’s child “who has not reached majority”) and a designated beneficiary who is not so classified. Imagine a § 401(a) plan provides that every kind of distribution is paid only as a single sum. And that a retirement distribution or death distribution is paid only as a single sum of the entire account. Assume the plan’s governing document does not otherwise require a beneficiary to take a distribution any sooner than is necessary to meet § 401(a)(9) to tax-qualify. With those provisions, is there any plan-administration purpose for which the plan’s administrator needs to know whether a beneficiary is an eligible designated beneficiary? Or must either kind of designated beneficiary get the death distribution by the end of the tenth calendar year that follows the year of the participant’s death?

C.B. Zeller’s point is in 26 C.F.R. § 1.415(f)-1(a)(2)&(3). And see 26 C.F.R. § 1.415(f)-1(f) for some wrinkles about § 403(b) contracts. For example, a § 415(c) limit counts annual additions to a § 403(b) contract and annual additions under a § 401(a) plan of an unaffiliated business the individual controls (more than 50%). An example is a physician who is an employee of a charitable hospital and is the shareholder of her separate professional corporation for another medical practice. Or a professor who is a university’s employee and is the member or proprietor of her consulting business. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(f)-1

The exemption’s condition II(e) requires that “the amount received by the plan as consideration for the sale is at least equal to the amount necessary to put the plan in the same cash position as it would have been had [the plan] retained the contract [and] surrendered it[.]” https://www.govinfo.gov/content/pkg/FR-2002-09-03/pdf/02-22376.pdf A delivery of property other than money is not an amount. Even if a transaction might get an exemption from prohibited-transaction consequences, that does not relieve a fiduciary from any other responsibility. The plan’s acquisition of IBM shares might be a fiduciary’s breach.

At least for an individual-account retirement plan and for a non-owner participant, a participant subject to an involuntary minimum distribution (after the later of when the participant attains age 72 or retires) presumably ended employment and likely attained the plan’s normal retirement age. Such a participant likely is entitled to a distribution. Following C.B. Zeller’s note, isn’t the real question whether the plan’s provisions allow such a participant to take an amount less than her whole balance, or instead require that a voluntary distribution be a single sum of the entire account? And aren’t the answers to many questions found in the realm of RTFD—Read The Fabulous Document?

Another wrinkle: Sometimes people describe a source of potential coverage as health insurance when it is not. I have a credit-card-sized piece of plastic that bears a Blue Cross logo. Almost anyone who isn’t an employee-benefits practitioner calls it an insurance card. But if I read the reverse side’s fine print, that text warns: “Your health benefits are funded entirely by your employer. QCC Insurance Company provides administrative and claims payment services only.” Whatever State law or rule governs an insurer’s health insurance contract might not govern an ERISA-governed employee-benefit plan, at least not if the plan uses no health insurance contract (and no precedential court decision interprets ERISA to apply an insurance-law or model coordination-of-benefits rule in meaningfully similar circumstances). Courts’ decisions vary on questions about how to construe or interpret a governing document’s text, and about whether to infer, import, or invent a coordination-of-benefits provision.

About a § 403(b)(7) custodial account: The agency’s rule distinguishes between amounts attributable to elective deferrals and those that are not. Compare 26 C.F.R.§ 1.403(b)-6(c) with -6(d). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-6 Further, -(d)(2) provides: “[A] hardship distribution is limited to the aggregate dollar amount of the participant's section 403(b) elective deferrals under the contract (and may not include any income thereon), reduced by the aggregate dollar amount of the distributions previously made to the participant from the contract.” Different rules could apply regarding a § 403(b) annuity contract or a § 403(b)(9) retirement income account.