Peter Gulia

Form 5500 is used for at least two (and sometimes three or four) reporting or disclosure requirements. One of those is Internal Revenue Code § 6058(a)’s command for an information return: Every employer who maintains a pension, annuity, stock bonus, profit-sharing, or other funded plan of deferred compensation described in part I of subchapter D of chapter 1, or the plan administrator (within the meaning of section 414(g)) of the plan, shall file an annual return stating such information as the Secretary may by regulations prescribe with respect to the qualification, financial conditions, and operations of the plan; except that, in the discretion of the Secretary, the employer may be relieved from stating in its return any information which is reported in other returns. https://irc.bloombergtax.com/public/uscode/doc/irc/section_6058 One might read that long sentence, including its “or” phrase, to treat an employer’s duty as met if the plan’s administrator filed a return that meets the requirement. If a plan is not ERISA-governed and has no other need for an administrator to adopt the IRC § 6058 information return, the return might be filed only by an employer, with no signature for an administrator. Let’s not try to defend or explain the agencies’ design of the form and instructions; it’s not what we would have done.

Just as BenefitsLink people say about an employer-sponsored retirement plan, Read The Fabulous Document, one might follow that idea also for an Individual Retirement Account agreement. An IRA agreement’s beneficiary provisions vary with different providers, and sometimes vary even within one provider. But perhaps potentially differing provisions might not matter much if the husband’s might-be beneficiaries (whether contingent or default) are the same children as the wife’s beneficiaries.

PS, if you are an employee of a recordkeeper, third-party administrator, or trust company, you would not alter a 16b indicator (if your company ever touches it all) except as directed under your company’s procedures, which I don’t know. Some never touch a 16b indicator because the customer employer sets that indicator on or off in census uploads or through a plan-sponsor portal to the recordkeeping system. Or if a service provider sets or unsets a 16b indicator, it typically would restrict this to implementing the employer’s written instruction. Further, a service provider might restrict which of its employees may do this. A service provider might use its procedures and controls not only to avoid discretion in the way many retirement-services providers do (even for points of law on which the service provider’s knowledge often is superior to the customer’s knowledge) but also to avoid responsibility for a legal conclusion, especially about a point under securities law (rather than ERISA or the Internal Revenue Code). If you need guidance, you should get it from the right authority in your company.

austin3515, you’re right that dividing plans to evade an ERISA § 103 audit would fit only if all plan, trust, investment, service, and related records logically follow the separateness of the plans. If a collective trust, master trust, or other trust for more than one plan is used, one would want the separateness of the participating plans, and the separate accounting between or among them, to be carefully documented. Further, service agreements with a recordkeeper, a third-party administrator, and other service providers would show separateness of the plans (and each plan’s trusts), and might incur multiple per-plan fees. C.B. Zeller, you’re right to describe one of the many ways two or more plans might together use a trust (or a trust substitute, such as a custodial account or an annuity contract). What matters is whether the documents and accounting show the separateness of the user plans.

Recordkeeping software often uses an indicator to mark a fact or condition that might call for preventing or delaying a transaction that otherwise would be processed or handled routinely. For example, an indicator might flag a participant’s account as one affected by a bankruptcy proceeding or a to-be-evaluated domestic-relations order. Or an indicator might mark an account as one for which the participant’s investment direction requires a delay, special handling, or even an administrator’s pre-clearance approval. Or an indicator might mark an account as one that is a subject of beyond-routine information reports. 16b refers to Securities Exchange Act of 1934 § 16(b) [15 U.S.C. § 78p(b)]. Among other provisions, section 16 requires a securities issuer’s director, officer, or 10%-owner to file (electronically) a Form 4 Statement of Changes of Beneficial Ownership of Securities with the Securities and Exchange Commission by the second business day after nearly any transaction (including under a retirement plan) involving a security of the issuer. Although the reporting requirement applies to the insider, an issuer might facilitate its officers’ reports. Some recordkeepers offer a service of convenience reporting on an individual’s directions or claims that involve employer securities if the employer/administrator marked the individual as the employer’s director, officer, 10%-owner, or other “16b” insider.

Yup, we concur. I've done a Form 5500 report as quickly as the morning after the transaction that made the plan's assets zero.

With the caution that nothing a government speaker says in an association’s conference is law, consider Q&A 14 [pages 17-18] in the attached report from an American Bar Association conference. The inquiring lawyer set up the question and, following the ABA committee’s convention, a proposed answer to make it easy for the Labor department speaker to say an administrator should treat the two plans as, in substance over form, one plan, at least to apply ERISA’s provision on whether to engage an independent qualified public accountant. The government speaker didn’t take up the hint. Instead, the answer says an administrator may follow what the same person, as the plans’ sponsor, specified, even if the purpose is to evade an ERISA § 103 audit. 2009-05-07 Am Bar Assn Joint Committee on Employee Benefits Q&A.pdf

The Form 5500-EZ Instructions support what Bill Presson says: “For a short plan year, file a return by the last day of the 7th month following the end of the short plan year. Modify the heading of the form to show the beginning and ending dates of your short plan year and check box A(4) for a short plan year. If this is also the first or final return filed for the plan, check the appropriate box (box A(1) or A(3)).” https://www.irs.gov/pub/irs-pdf/i5500ez.pdf But for an information return one may choose to file by mailing paper, is there anything that precludes an employer/administrator from filing soon after the plan year ended?

If the sponsor's purpose is to get plans with small-plan counts of participants, should the sponsor make the split effective December 31, 2021 (perhaps after all investment funds price shares and units, and before midnight)?

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.