Peter Gulia

My query wasn’t about a hypothetical situation. I have a client that, besides the plan’s website and whatever paper communication the recordkeeper sends when a participant or other individual is entered in the system, is considering whether to put an explanation in the summary plan description. (I am one of several lawyers advising the plan’s sponsor/administrator/trustee.) Infrequency is no impediment because this administrator continually revises its custom SPD, and every November redelivers the restated SPD to all participants. Also, the administrator puts the SPD, 404a-5/404c-1 information, and SAR in the same delivery. I recognize this client’s circumstances are not others’ norm. I haven’t yet formed my advice. BenefitsLink neighbors have given me plenty to think about.

With its lawyer’s advice, a plan’s administrator (or claims administrator) might consider this decision path (not only regarding the Consolidated Appropriations Act, 2021 but also for future disaster distributions): 1. If the statute that provides the disaster distribution includes a provision allowing the administrator to rely on the claimant’s written statement, follow what the statute allows. A claim form might include a warning that making a false statement certified to the administrator or kept as a part of the plan’s records is a Federal crime, the punishment for which is a fine and up to five years’ imprisonment. Some administrators put this on all claim forms. 2. If the plan’s administration regularly uses for hardship distributions a claims procedure that meets conditions so an IRS examiner could not properly demand from the employer/administrator source documents [IRM 4.72.2.7.5.1 (08-26-2020) https://www.irs.gov/irm/part4/irm_04-072-002#idm140377115475856], design a similar procedure with similar warnings and protective conditions for a disaster distribution. Although the recent qualified disaster distribution ends soon (180 days after enactment), a plan’s fiduciary or service provider might anticipate that Congress will enact more disaster provisions or some authority for defining and recognizing disasters generally. If so, it might be worthwhile to put some effort in designing the procedure. 3. If neither #1 nor #2 fits, use a claim form and get further substantiation evidence for the administrator to decide whether the claimant’s facts and circumstances meet the plan’s provision. (If the plan’s provision is unstated in “the” plan document, the provision might be the employer’s decision to do what Congress’s statute allows.)

Thank you, all, for your further help. You really help me fill in gaps in my experiences.

Thank you, all, for your helpful observations. MoJo, I’m not thinking an SPD would communicate anything about what the plan’s administrator, trustee, or any service provider does. Rather, I’m wondering whether an SPD should include participant-level pointers—perhaps simple ones such as taking control of the individual’s electronic account, even if one expects never to use it; not sharing a password; and checking postal mail and email (if any) for a message that suggests an identity was hacked. And if a plan has obtained a service provider’s promise to make whole an account, might an SPD communicate what a participant, beneficiary, or alternate payee must do, or not do, to meet the conditions for that promise? BG5150 and Bird, would your view be different if you were not dependent on someone else’s document-assembly software and the plan had budgeted two hours a year for custom-editing the SPD? Belgarath, what if a plan’s administration has no communication beyond the SPD? EBECatty, you’re right that an in-context communication is great, for those who see it. But what communication would be effective with a participant who has never used the plan’s electronic services and intends never to use it? Such a participant is vulnerable to identity-theft risks, in some ways more so. And everyone, understand that I’m not advocating any view or outlook. Rather, I’m openly seeking your excellent thinking.

I’m wondering whether a 401(k) or other individual-account retirement plan’s summary plan description ought to include a part that explains risks about an individual’s data security, and ways for the individual to help manage those risks? Is it a good idea? Is it a bad idea? What are your reasons for including or omitting such an explanation?

Here’s the rule: https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.104-46. Unless there is a reason other than that rule to audit the retirement plan’s financial statements, might the plan’s administrator revisit the prudence of its selection of the independent qualified public accountant? If not, the plan’s administrator might face a practical task of persuading the audit firm. Often, some evidence that the plan’s administrator considered a lawyer’s advice closes a point of this kind. Even if both the plan and its administrator lack its own counsel, a bank typically has counsel readily available. For example, Federal law requires a national bank that acts in a fiduciary capacity (in its business, rather than regarding employee-benefits plans for the bank’s employees) to retain “legal counsel who is readily available to advise the bank and its fiduciary officers and employees on fiduciary matters[.]” See 12 C.F.R. § 9.5(d). Some States have similar law.

To focus on just the one ruling: http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl4f94/1/doc But check it carefully against the government source Lois Baker furnished. If you have Gary S. Lesser & Lawrence C. Starr, Life Insurance Answer Book (Wolters Kluwer 3d ed. 2002), Revenue Ruling 74-307 is discussed in Qs 4:3, 7:6, and 7:11.

Yes, the earlier discussion was about a terminated plan, and I saw your question is about continuing plans. The rule is ambiguous in either situation. Even for a continuing plan, there are at least three interpretations. To resolve the ambiguity in particular circumstances, a plan’s administrator should use no less care, skill, prudence, and diligence than would be used by a prudent person experienced in managing an employee-benefit plan of the same kind for the exclusive purpose of providing the plan’s benefits. In considering whether to deliver a summary annual report to someone who no longer is a participant but was at some possibly relevant time, a fiduciary might consider whether the plan is or isn’t burdened by an incremental expense for the delivery. And if a plan’s administrator has contracted a service provider to deliver a summary annual report, the administrator might consider what’s feasible within the contracted services.

Here’s an earlier discussion: After, the Supreme Court decided Intel Corp. Investment Policy Committee v. Sulyma, No. 18-1116, 589 U.S. ___, 140 S. Ct. 768, 2020 Empl. Benefits Cas. (BL) 69188, 2020 U.S. LEXIS 1367, 2020 WL 908881 (Feb. 26, 2020). The Court held that merely receiving a communication does not mean the recipient has knowledge of the information in it. Rather, to get ERISA § 413(2)’s shorter statute of limitations, a defendant must prove the plaintiff’s actual knowledge. The protection a plan’s fiduciaries might get by “over-delivering” a summary annual report is now much less. Here’s the ambiguous rule: https://www.ecfr.gov/cgi-bin/text-idx?SID=0ef9bcffad94c1b0a2d036c698113b2f&mc=true&node=se29.9.2520_1104b_610&rgn=div8

C.B. Zeller, thank you for reminding us about another discussion, and for your answers. Larry Starr’s observations might have been influenced by the unusual situation presented. And if his view was general, it might reflect his clients’ plans, which typically do not provide participant-directed investment, and his firm’s services. The IRS’s without-source-documents method can work if the plan’s administrator and its service providers carefully meet all conditions of the regulations and that method. Others’ thoughts? Is there a downside to limiting hardship distributions to no more than two in a year?

Adding to Pam Shoup’s questions: Why would a plan’s administrator not use the IRS’s method for not receiving source documents and instead relying on the participant’s written statement (made under penalties of perjury)? The hardship self-certification method now is in the Internal Revenue Manual. IRM 4.72.2.7.5.1 (08-26-2020) https://www.irs.gov/irm/part4/irm_04-072-002#idm140377115475856 Under that method, an IRS examiner must not ask for source documents unless: 1) the notice to participants or the claim “is incomplete or inconsistent on its face”; or 2) some participants received at least three hardship distributions in a plan year, there is no “adequate explanation for the multiple distributions”, and the examiner’s manager approves the request for further information. If a plan’s administrator and its recordkeeper or TPA design the software correctly, #1 would never happen (except for a paper claim, and then only if the claims administrator is careless). And #2 seems unlikely unless abuses are bad enough that the examiner is motivated to do the extra work of getting her manager’s approval. Further, may a plan limit hardship distributions to no more than two in a year?

And if the plan administrator's or claims administrator's interpretation treats a previously incurred medical expense as no longer deemed immediate and heavy because the expense was incurred some months ago, is that something a summary plan description must or should describe?

I’d welcome BenefitsLink commenters’ thoughts about these questions: If a plan limits a hardship to an expense incurred no earlier than the past six (or other number of) months, is such a limit a provision a summary plan description must describe? If not, is it a restriction on a benefit that an SPD must describe? How practical would it be to do this disclosure if the plan’s administrator uses a summary plan description computer-generated by the recordkeeper’s plan-documents software?

If there is an ambiguity: An employer might consider also checking with some others: · the COBRA administrator, if the plan’s administrator engaged one; · the health insurer, to the extent (if any) the continuation coverage would be provided through health insurance; · the stop-loss insurer if, regarding a self-funded plan, the employer bought that insurance. Not checking with them could leave an employer exposed to financial consequences that result from offering continuation coverage to someone another decision-maker considers ineligible. Likewise, an employer might consider informing a continuee that the continuee is responsible to pay whatever portion of the continuation premium the U.S. Treasury does not provide.

austin3515, what you describe is mainstream: an employer puts withholding taxes before any other wage reduction or deduction; and within employee benefits, many employers put health before retirement. My example showed enough employer-paid wages to allow, after withholding taxes, health and retirement reductions. But a mix with less in payment-card tips and more in currency tips could make a wage reduction for a 401(k) elective deferral impossible (at least from that paycheck), and perhaps impractical (even if an employer would accrue a wage reduction until a paycheck supports it, if that ever happens). (I suspect you’re right about what seems practical.) If (whether to pursue your prospective client, or sate your curiosity) you want to learn the real-world practicalities, ask someone who manages payroll for a big restaurant group or for an employer similar to your prospective client.

A § 401(k) deferral measured on the reported wages is feasible if the portion paid by the employer is enough. Imagine a tipped employee’s workweek is five shifts of six hours each. Imagine tips in the week is $400 on payment cards and $600 in currency. Imagine the employer allocates none of the credit or payment processing fees to the server. The employer-paid wage is ($2.13 x 30) + $400 = $463.90 Imagine the tipped employee reports to the employer $300 from the $600 in currency tips. Following this, assume the wages the employer will report to tax authorities is $763.90. Employer-paid wages $463.90 FICA taxes - 58.44 7.65% Federal income tax - 88.13 15% (for illustration) of $587.51 State and local income taxes - 29.38 5% (for illustration) of $587.51 Unemployment taxes - 53.47 7% (for illustration) Health insurance - 75.00 to show RBG’s point 401(k) elective deferral - 76.39 10% of reported wages Net pay $ 83.09 While someone who knows hospitality businesses can explain how these overly simplified assumptions depart from reality, the key is that withholding for taxes is based on a wage more than (if there are tips beyond payment-card tips) the employer-paid wages. The mix of payment-card and currency tips changes over time and by particular work settings.

And EBSA's Field Assistance Bulletin No. 2021-01 (Jan. 12, 2021) interprets relevant law to allow a transferring plan’s administrator to “pay [the PBGC’s] fee from the transferred account, unless the plan terms prohibit such payment.” https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/guidance/field-assistance-bulletins/2021-01.pdf

The PBGC provides (if the distributee’s benefit is more than the ERISA § 203(e) amount [$5,000]) a joint-and-survivor annuity, unless the distributee elects, with the spouse’s consent, a different form of distribution. Pages 60812-60813, 60828-60829 https://www.govinfo.gov/content/pkg/FR-2017-12-22/pdf/2017-27515.pdf For the forms and instructions, https://www.pbgc.gov/prac/missing-participants-program.

Consider that a tipped employee’s compensation might comprise three elements: (1) a base wage, which might be as little as $2.13 per hour; (2) credit-card tips, which might be adjusted by a portion of credit-card processing fees; and (3) tips paid in currency. Recognizing practical difficulties, a plan’s administrator might design its communications and forms to explain exactly which portion of compensation a 401(k) election operates on. It won’t be total compensation because that amount will be an unknown when the 401(k) election must be made (and might remain an unknown until W-2 wages is reported). Further, with some employers and pay practices (and with some deemed currency tips), it might be impractical for a 401(k) election to operate as a percentage of credit-card tips. Considering the variability in a tipped employee’s compensation, some employers prefer that the 401(k) elections specify a dollar amount, rather than a percentage of any measure of compensation. I’m unaware of a publication on this point.

You are seeing the tax-law issue. The IRS’s view was that a cash-or-deferred election can apply only regarding compensation not yet “currently available” to the employee. And the IRS viewed the cash tips as, if not actually or constructively received, at least available.

In the 1990s, another lawyer and I worked on a plan for a company with several national restaurant chains. The IRS reviewer would not approve anything that would allow an employee to make a cash-or-deferred election on the portion of her wages from cash tips. But an employee might consider a wage reduction that’s a big percentage (perhaps up to 100%) of her net wages, after tax withholding, paid by the employer rather than collected as cash tips. But sometimes that net wage after tax withholding is $0.00. The practical challenges vary with the restaurant. If many customers use only payment cards and no currency, the employer might control those payments. But if many pay tips in currency, more is beyond the employer’s control. I don’t know whether the tax law, or the IRS’s views, have changed since I worked on this issue. And here’s a BenefitsLink discussion:

Stating everything about retirement savings in one document can, in the right circumstances, get efficiencies and convenience. But even more important, it can help an employer avoid outright errors in expressing the plans’ provisions. And looking to one document can improve a governmental employer’s administration of its plans. Which methods, including about documenting plans, make sense turns on the particular facts and circumstances of the plans’ provisions, investment alternatives, service providers, and the employer/administrator.

Without expressing any view about the IRS starting or discontinuing a regime for determination letters: Isn’t it sad that a change sets up an incentive for an employer to use a set of inconvenient-to-read documents instead of stating provisions in one document?

I have written documents that state in one document multiple plans and related trusts (or trust substitutes), including for plans under Internal Revenue Code sections 401(a), 401(k), 403(b), 415(m), and 457(b). This can work with careful attention to accounting for: · each trust, and each subtrust; · each kind of plan; · within each plan, each benefit structure; · each source of salary-reduction, matching, nonelective, rollover, and transfer contributions; · each kind of loan, distribution, transfer, or other payout. Using one document for multiple plans might face difficulties with investment issuers and intermediaries. Those difficulties don’t arise or are readily resolved if those businesses trust the plans’ counsel.

That's the general idea. And perhaps all are highly-compensated (or none is highly-compensated).