Peter Gulia

Before one considers whether a conservator, guardian, custodian, agent, or other fiduciary has or lacks authority to act for the minor, one might consider whether the beneficiary has any power to name a beneficiary. A retirement plan’s governing document might control and restrict rights to name a beneficiary. Whatever right (if any) a participant has to name beneficiaries might end with the participant’s death. Likewise, a contingent beneficiary might be the person the participant’s beneficiary designation named or, to the extent the participant’s designation is invalid, ineffective, or unstated, the person who or that results from following the plan’s governing document.

If a plan’s final administration pays in 2021 each beneficiary a single sum of his or her separate-share account balance, none of that final distribution need count as a minimum-distribution amount. There is no need to use a life-expectancy factor to compute a minimum-distribution amount unless: (1) a designated beneficiary is an eligible designated beneficiary; (2) the plan permits an eligible designated beneficiary to elect a provision grounded on § 401(a)(9)(B)(iii); and (3) the beneficiary elected to apply that provision. Those circumstances are unlikely, especially for a discontinued plan in its final administration.

Unless your client’s plan’s provisions are more restrictive than IRC § 401(a)(9) requires, consider whether a beneficiary might delay until 2030.

We don’t know the provisions of your client’s plan, what distribution (if any) began before the participant’s death, and, if such a distribution began, what form it is or was. Further: Is your client’s plan a defined-benefit plan or an individual-account (defined-contribution) plan? Is it a governmental plan? A church plan? A collectively-bargained plan? Might the plan (considering the particular plan’s provisions in the particular circumstances) not require a distribution in 2021? Might it be enough that a deceased participant’s remaining benefit is distributed by the end of the tenth calendar year that follows the year of the participant’s death? If none of the designated beneficiaries is an eligible designated beneficiary, might it be unnecessary to apply a rule about a life expectancy, and so unnecessary to use a beneficiary’s date of birth? If the plan and the circumstances make it relevant, consider Internal Revenue Code of 1986 (26 U.S.C.) § 401(a)(9)(H). https://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=tru

What does your retirement plan’s governing document provide? As many BenefitsLink mavens say, RTFD—Read The Fabulous Document. A plan might exclude “employees who are nonresident aliens and who receive no earned income . . . from the employer which constitutes income from sources within the United States[.]” See Internal Revenue Code of 1986 (26 U.S.C.) § 410(b)(3)(C). If your plan provides such an exclusion, the plan’s administrator might consider—for each otherwise eligible employee—the answers to three questions: Is this employee a U.S. citizen? (One who resides in the Republic of the Philippines might be a U.S. citizen.) Is this alien a U.S. resident? (Even one who resides elsewhere might also be a U.S. resident.) Is this non-resident alien’s wages from the employer U.S.-source income? The United States’ Federal tax law, some of which refers to U.S. nationality and immigration law, provides plenty of details on these and related questions.

There are many modes and canons of interpretation a lawyer might consider. Among these, consider the whole-text canon and the presumption of consistent usage within a text, especially for a public-law statute. If different sections within a statute (or in rules interpreting or implementing different portions of a statute) use a common word and use it, at least partially, without reference to a special definition, one might presume the word ought to have some logically consistent meaning across the whole of the statute. If C’s shares in corporation X had been C’s capital asset, does anything in the Internal Revenue Code of 1986 (unofficially compiled as title 26 of the United States Code), or a rule or regulation under it, require C somehow in her tax return to report or treat the redemption as a disposition of the capital asset? Does C have a capital gain, or a capital loss? If X was (in 2020) a subchapter S corporation, did anything in its tax-information reporting show the change in shareholders? If X is (in 2021) a subchapter S corporation, how will it apportion the income passed through to the remaining shareholders—to A and B 50/50? If an unrelated purchaser buys X (not as purchases of assets from X, but rather as a purchase of all X corporation shares), would A and B (but not C) get the price the purchaser pays for the shares? Following out possible consequences of X’s redemption of C’s shares might show that, whatever the legal form, the redemption might have been, economically, C’s disposition (and perhaps, in some senses, A’s and B’s acquisitions). A presumption of consistent usage might be persuasive if other aspects about possible interpretations are in equipoise (or if this presumption outweighs other aids to interpretation).

MoJo, thank you for your kind words. And yes, while he did no tax dodge, the compensations were worlds better than money.

Five years old is when I began support work in my father’s accounting practice. He taught me numbers, from 000001 to 999999, before the elementary school taught me any. Alas, neither 401(k) nor any IRA then existed; and my wages was $0.00.

shERPA, thank you for your helpful observations. BenefitsLink mavens, I imagine many TPAs think "it's not my place"; but does this issue ever get to "if you see something, say something"?

Many small-business 401(k) plans allow an owner’s young children as participants. To support contributions, the child must be capable of, and actually perform, real work that is useful to the business. Likewise, the business must pay no more than reasonable compensation for that work. Sometimes, the facts call into question how real the child’s job or pay is. For example, some might wonder whether a six-year-old (who presumably attends school during about 80% of a year) does enough work to earn $24,000, or even $20,000, in a year’s wages. Which facts are bad enough that you would suggest a client needs advice about whether the IRS would see the child’s wages as a sham? If the business does no advertising (or uses none in which a model’s image would appear), is there an age that is too young for an owner’s child to be a worker?

An ERISA § 502(c)(7) penalty [$141 for 2020 or $143 for 2021] is one the Secretary of Labor might assess. Perhaps the failure you describe might never come to the Labor department’s attention. Consider advising the plan’s administrator to use extra care in responding to anything any participant asks for. An EBSA investigation or inquiry is much less likely if no one is unhappy or displeased. Failing to furnish a required blackout notice breaches a plan administrator’s fiduciary responsibility. A fiduciary is personally liable to make good losses that result from the fiduciary's breach. Some lawyers believe a participant, beneficiary, or alternate payee could assert he or she would have made different investment directions had he or she received the proper notice. See, by analogy, King v. National Human Res. Comm., 218 F.3d 719 (7th Cir. 2000). Even if a complaint plausibly states such a claim, it might be difficult to prove causation, and to show the amount to be restored to the plan. Further, ERISA § 413’s statute of repose or statute of limitations might end such an exposure.

Problems about a worker lacking enough wages to support all contributions are challenging. Often, the health, welfare, retirement, other employee-benefits, and fringe-benefits plans’ documents don’t tell an employer/administrator what to do. Here’s a link to an earlier BenefitsLink discussion https://benefitslink.com/boards/index.php?/topic/38395-401k-elective-deferral-hierarchy/

Or if the situation Sue B describes is a subchapter S corporation and its shareholder-employee, a retirement plan contribution might be a percentage of the employee’s W-2 wages, even if the corporation has (and passes through to its shareholder) a loss for the year.

https://ecfr.federalregister.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.410(a)-7

This certified public accountant might want his lawyer’s advice about whether he is a filer of a tax return he transmitted as an agent of his client, the person who makes the tax return.

If the plan is ERISA-governed: ERISA § 404 [29 U.S.C. § 1104] Fiduciary duties (a) Prudent man standard of care (1) {A} fiduciary shall discharge his duties with respect to a plan . . . . . .; and (D) 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. Whenever the plan’s administrator must decide which portion of a participant’s benefit is nonforfeitable, the administrator might first apply the document’s provisions. If that finds a nonforfeitable percentage less than 100%, the administrator would alternatively count vesting service and a nonforfeitable percentage under the minimum provisions ERISA §§ 201-210 require.

An earlier BenefitsLink discussion: https://benefitslink.com/boards/index.php?/topic/64990-stop-my-loan-payments/

Without seeing the whole of the governing document, one might only guess at how pieces of the puzzle fit (or don’t). For example, how many months of vesting service are needed to get one year of vesting service? Even if the plan’s provisions count neither hours nor elapsed time, might the plan’s provisions have some logic related to the equivalency provided by 29 C.F.R. § 2530.200b-3(e)(1)(iv)? https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-3 That equivalency credits 190 hours of service for each month for which the employee would be credited with as little as one hour of service. Perhaps the quoted provision might work if six months of vesting service is enough to get one year of vesting service?

Not in the July 26 Bulletin No. 2021-30.

Sometimes, it’s an employer/administrator’s strategic choice, especially if the circumstances involve an uncertain tax position or uncertainty about how relevant facts support a tax treatment. In some circumstances, filing a Schedule A could affect the application of a statute of limitations. And in some circumstances, having filed a Schedule A might support an argument or defense that a taxpayer had acted in good faith, or that a relevant fact had been disclosed to the IRS.

The instructions state: “Filers of Form 5500-EZ are not required to file schedules or attachments related to Form 5500 with the 2020 Form 5500-EZ.” https://www.irs.gov/pub/irs-pdf/i5500ez.pdf The instructions leave open that a filer is permitted to file Schedule A.

Beyond EBECatty’s apt caution: Even if no law requires furnishing the requested information, the plan’s administrator might want its lawyer’s advice about whether there are strategic advantages to furnishing the information.

What does your plan's governing document say about what kind of writing or signature is sufficient? What does your plan-administration procedure say about what kind of writing or signature is sufficient?

Friday's release was too late to be edited and published in yesterday's Bulletin No. 2021-29. Check next week.

Thanks again. That’s true not only about services offered but also legal positions. A business organization might, across its subsidiaries, have three or more answers—with differences that cannot be explained away—on the same question of law. Even within one subsidiary, there might be differing answers by several lines of business.