Peter Gulia

Consider whether a discontinued plan’s administrator (often, the same organization as the plan’s sponsor) might send a revised summary plan description or summary of material modifications in the same delivery as the notice of the final distribution, including its Internal Revenue Code § 402(f) eligible-rollover-distribution notice (if any).

C.B. Zeller, thank you for helping us clarify. A provision of the kind I described often had an exception for an involuntary distribution, including a distribution on normal retirement age or to meet a minimum-distribution provision. But it might fit for a participant-requested distribution. EBECatty, if the participant has not furnished needed information by the time an involuntary distribution is required, a plan’s administrator might have little or no choice but to delay a distribution until the distributee is sufficiently identified. But I would not forfeit the participant’s otherwise non-forfeitable benefit unless doing so is needed to complete a terminated plan’s final administration.

In the 1980s, some plans’ documents set furnishing necessary information as a condition for a distribution. Clauses of that kind described necessary information as whatever the plan’s administrator or trustee needs to apply the plan’s provisions and obey law. Some further described as a non-exhaustive illustration that this includes furnishing one’s name, address, date of birth, and taxpayer identification number. Do IRS-preapproved documents include something like that?

The text you quote is about what information an application for the IRS’s written determination on a § 401(a) plan (or a plan described in § 403(a)(1)) must include if the applicant wants the determination to consider the effect of § 414(n). There is no such written determination one could get for a § 403(b) plan. The answer you point to is consistent with the answer in Q 1:12 of 403(b) Answer Book.

Even if the participant might sue for her benefit, shouldn’t a court readily find that it’s reasonable for a plan’s fiduciaries to require information to the extent needed for the fiduciaries to obey public law?

No one should tax-report using an identification number known to be false. The participant may apply for a U.S. taxpayer identification number. https://www.irs.gov/forms-pubs/about-form-w-7 Internal Revenue Code of 1986 (26 U.S.C.) § 6103 limits the uses of taxpayer information. The administrator or payer should get the distributee’s address, to support tax-information reporting and withholding for taxes, including not only Federal income tax but also State and local income taxes (at least to the extent of jurisdiction over the plan’s trustee or its payer).

Before sorting out tax-information reporting, What evidence must or should a plan’s administrator collect and evaluate to consider whether a claimant is the same person as the participant with a different name and taxpayer identification number?

Even if the pre-approved document has no checkbox or fill-in line for this, a Revenue Procedure mentions “the resignation or replacement of fiduciaries” as an example of an administrative provision an adopting employer may add without losing reliance on the IRS’s opinion letter.

I enjoyed talking with Professor Jon Forman between our presentations to the ERISA Scholars Employee Benefits/Social Insurance Conference. A gentleman, from whom we learned ways much more important than how to make and use law.

The authority is Internal Revenue Code of 1986 § 404(a)(6). http://uscode.house.gov/view.xhtml?req=(title:26%20section:404%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section404)&f=treesort&edition=prelim&num=0&jumpTo=true A Treasury department rule is partially consistent with the statute. 26 C.F.R. § 1.404(a)-1(c) https://ecfr.federalregister.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.404(a)-1

It might work if the participant is subject to a Federal criminal restitution order under the Mandatory Victims Restitution Act of 1996. 18 U.S.C. § 3613 http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title18-section3613&num=0&edition=prelim Such a restitution order gets a payment only if the participant could get the payment. If the employer/administrator pursues this, lawyer-up.

For my learning, writing, and teaching about professional conduct, I’ve thought about how an advisor discerns whether it’s appropriate (or professionally irresponsible) to advise about the probabilities of detection and of enforcement. If my client asks (even in an implied request) for my sense about probabilities of detection and of enforcement, I render candid advice, even if doing so confirms that something is seldom or almost never enforced. But I also tell clients why it’s morally right, and usually business-smart, to obey law, especially if one can do so with little harm or expense to one’s activities. I’ve never had a plan’s administrator ask me about reporting a fidelity-bond coverage amount other than the actual amount. When I was inside counsel to a recordkeeper—one that processed tens of thousands of Form 5500 reports, I advised about internal logic and ordering rules for presenting draft answers on points for which a customer had not completed the recordkeeper’s information request. Doing no research on your question, I imagine it’s unlikely a plan’s administrator would face Federal criminal, EBSA, or IRS enforcement if the only violation is misreporting the fidelity-bond coverage amount. But I have seen EBSA investigations look into a service provider’s business methods for drafting its service recipients’ Form 5500 reports. That a Form 5500 report might show more fidelity-bond coverage than ERISA § 412 requires is not always idle information. There are situations in which the Labor department could use that information to consider whether and how to pursue action on fiduciary breaches and other violations.

Jakyasar, I don’t think you misunderstood. TPApril’s query supposes a situation in which the plan has more coverage than ERISA § 412 requires and more than $500,000 (or, as Belgarath mentions, $1 million for a plan with employer securities, or for a pooled-employer plan). If a fidelity-bond insurance contract provided, as at a relevant date, coverage of 10% of the plan’s first $5 million in plan assets, one would report that coverage amount.

Does this plan’s administration permit a participant to specify her within-a-year elective-deferral salary reductions as a percentage of each pay period’s actual wages, unconstrained by a § 401(a)(17) limit (but subject to stopping or lowering a periodic salary reduction so the sum remains within § 401(a)(17), § 402(g), and other limits and constraints)? For a correction, might one treat an election of 5.00% of $340,000 (if the plan allowed that) as an election of 5.96% of $285,000?

The Form 5500 Instructions tell a filer to “enter the aggregate amount of fidelity bond coverage for all claims.” Some fiduciaries consider it prudent to get more fidelity-bond insurance than ERISA § 412 alone commands. A person who signs a Form 5500 declares, under penalties of perjury and subject to other penalties, that the report “is true, correct, and complete.” A Form 5500 report should show the actual coverage amount.

Thank you, all, for the further observations. Among many challenges in interpreting the rule, we lack a statement of the rule’s purpose. It is not stated in the rule. And neither the August 23, 1977 final rulemaking nor the November 5, 1975 notice of proposed rulemaking states an explanation.

RatherBeGolfing, BG5150, and EBECatty, thank you for your further points. Would your outlook about the one-of-three example be different if the severance is involuntary (employer-initiated) and the employer has no intent to hire another employee?

Having concurred that the IRS’s suggestion didn’t fit the circumstances of C.B. Zeller’s client, let’s consider a related point. While many of us call to mind the IRS’s subregulatory presumption, here’s the actual rule: “Whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined by the Commissioner with regard to all the facts and circumstances in a particular case. Such facts and circumstances include: the exclusion, by reason of a plan amendment or severance by the employer, of a group of employees who have previously been covered by the plan; and plan amendments which adversely affect the rights of employees to vest in benefits under the plan.” 26 C.F.R. § 1.411(d)-2(b)(1) https://ecfr.federalregister.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.411(d)-2] Have you ever argued with the IRS (or advised a client) that a situation was not a partial termination because the small number of participants made the 20% presumption inappropriate? To pick an extreme example, if a plan has three participants, does a severance-from-employment of one of them always result in a partial termination? Is the analysis meaningfully different if the severances are two of ten employees? What reasoning do you use for situations like this?

Thank you for the further information.

C.B. Zeller, thank you for sharing this information with us. Does the IRS letter demand anything? Or does the IRS letter suggest the plan’s administrator evaluate whether there was a partial termination? (Whichever, I recognize an employer/administrator bears frustration and expense in reacting to either kind of letter, and that some of that frustration and expense can burden a third-party administrator.)

Thank you, excellent! And leave it to the lead author of Governmental Plans Answer Book to have the answer.

Does anyone know whether Governor Andrew Cuomo is at risk of forfeiting his New York State pension?

I assume the plan’s administrator denied QDRO treatment for the December 2020 order. The plan’s administrator might ask its lawyer to read, carefully, the contract that transferred pension liabilities to discern how much of the problem from the 1998 domestic-relations order now is the annuity insurer’s headache or risk.

If the advisor is associated with a securities broker-dealer, consider whether you might politely invite the advisor to consider how a never-mind or undo could call into question the advisor’s conduct. (At many broker-dealers, an undo soon after setting up an account would trigger the compliance office’s investigation into whether the advisor had followed sales-practices and disclosure protocols.) About a different path, will the plan’s directed trustee or custodian allow a payment without a written direction or instruction that shows a satisfactory reason for the payment?

BG5150 reminds us of an important caution. If an employer anticipates a meaningful number of employees will become eligible because of § 401(k)(2)(D)(ii), one might—to facilitate efficient coverage and nondiscrimination testing, or for other plan-administration reasons—organize two distinct plans: (1) a plan for those who meet eligibility conditions without any to meet § 401(k)(2)(D)(ii), and (2) another plan for those who are eligible only by meeting eligibility conditions provided to meet § 401(k)(2)(D)(ii). One would design and administer the plans to meet required aggregations and disaggregations, and to rely on only permitted aggregations and disaggregations. Using two plans also might help avoid a need to engage an independent qualified public accountant. Without waiting, a plan’s administrator should consider its disclosure duties to part-time employees who could, with enough service, become eligible. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 10 Empl. Benefits Cas. (BL) 1873, 1880-1881 (Feb. 21, 1989), the Supreme Court, interpreting ERISA § 3(7), held that a participant—to whom ERISA § 104(b)(4) and other provisions set disclosure duties—includes an employee who could in the future fulfill the plan’s eligibility conditions.