Peter Gulia

I too say don't appease, at least not for the Form 5500 processing mentioned. My observation was much more general about how defects in government forms and systems push lawyers and other advisors to advise clients about the bad consequences of correct reporting. While a decent advisor doesn't advise a client to make a false or misleading statement, one may give full-picture advice about consequences. It's sad that an advisor sometimes is pushed to render that kind of advice. It's even worse that sometimes a client is pushed to consider incorrect reporting as a way to not suffer bad consequences from a government's broken systems.

I hate (much more than most practitioners) giving in to the weaknesses of governments’ systems. But the problem of government forms and systems being unable to handle correct reporting of proper information has become severe. And it’s a problem of national, State, and local government functions. Some of these problems have real consequences. (But I'll end my rant here.)

Assuming the discontinued plan otherwise is one for which the plan’s administrator must file a Form 5500 report, I’m unaware of an exception that would apply because the count of participants is few, even as few as one. A plan isn’t ended until all counts and amounts are zeroes.

Yes. Thank you very much!

JonC, thank you for your excellent information. If I may ask a little more: Does the wideness or narrowness of a guarantee vary with how much the recordkeeper wants to get or keep the customer? For example, does a mega or large plan get a wide guarantee, while a micro plan is offered only a narrower guarantee (or none)? For a lockout after an address change or other risk-introducing event, how many days elapse or what fact or condition must change to end the lockout?

What does one report on Form 5500 if—with no merger of a plan into another plan—a business acquirer assumes obligations to maintain a plan that had been sponsored and administered by the acquired business? Is it anything more than what thepensionmaven describes, including about item 4? (I’m aware that with most acquisitions the acquirer does not assume the acquiree’s plan. But there must be at least some.) Even if one accepts the chore of tricking the IRS’s defective computer systems, one might be reluctant to do a or b alone because either makes an untruthful statement (and does so under penalties of perjury). If a client chooses to appease the IRS with b, one might add an attachment to explain that the plan is not a new plan and the report is not the first report.

TommyGunn13, thank you for adding your helpful information.

MoJo, thank you for your good and helpful information. I am less confident that recordkeepers’ standard service agreements differ. Many refer to taking “commercially reasonable” steps; but that does little more than invite an expensive argument about what that phrase meant. A few refer to one or more of SPARK’s Industry Best Practices, but those are so wide and conceptual that almost anything could be argued to meet them. I haven’t seen any standard service agreement state obligations in a way that would support independent testing of whether the recordkeeper met or breached its obligation. Perhaps that’s because there is no set of generally recognized standards. And revealing too much about methods weakens their security and control. Although one might want fiduciaries to seek more than EBSA suggests, I suspect many fiduciaries (at least those with smaller plans) can’t meaningfully do even as little as EBSA suggests. Do others have different or further observations?

Plenty of advisors are preaching to retirement plans’ fiduciaries (mostly, employers) that they ought to do something about cybersecurity. Imagine an employer takes heed, and tries to follow EBSA’s Tips for Hiring a Service Provider with Strong Cybersecurity Practices. https://www.dol.gov/sites/dolgov/files/ebsa/key-topics/retirement-benefits/cybersecurity/tips-for-hiring-a-service-provider-with-strong-security-practices.pdf Step 6 is about what a fiduciary should seek to include in (or delete from) a service provider’s contract. It includes a list of five or six provisions a fiduciary should seek. But is this realistic? Imagine a plan’s size limits its negotiation with a recordkeeper to engaging it (on its standard terms) or not. For the points the EBSA guidance mentions, are there meaningful differences in what recordkeepers offer? Or are recordkeepers’ provisions so much in a common mainstream that there’s nothing much an employer would compare?

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.