Peter Gulia

There never was a public-law requirement to get the IRS’s determination. Does the service provider say ERISA § 402 (or something else in ERISA’s title I) requires an integrated written plan? Or does it say furnishing an integrated written plan is an obligation or condition under the service agreement. If one is eligible and applies for the IRS’s determination, “a restated document is generally required for an individually designed plan’s determination letter submission.” https://www.irs.gov/retirement-plans/determination-letters-for-individually-designed-retirement-plans-faqs

While I lack expertise on tax law’s coverage and nondiscrimination provisions, one who knows those rules might consider these steps: 1) Define the employer, applying IRC § 414’s provisions and rules implementing or interpreting those provisions. 2) Once the employer is defined, define the to-be-measured workforce. That might include USA citizens and resident aliens, and might exclude nonresident aliens. A plan might exclude a nonresident alien who has no USA-source income. Also, a plan might exclude a nonresident alien “if all of the employee’s earned income from the employer from sources within the United States is exempt from United States income tax under an applicable income tax convention.” 26 C.F.R. § 1.410(b)-6(c)(2). 3) Once the workforce is defined, apply § 401’s and § 410’s rules to discern whether coverage and nondiscrimination conditions are met.

Are all five people partners of the partnership (or members of the limited-liability company)? If so, and if there is no employee, consider whether ERISA’s title I governs the plan. 29 C.F.R.§ 2510.3-3 https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510/section-2510.3-3 If ERISA governs the plan, the employer/administrator likely should want a good service provider to take fiduciary responsibility for, or provide services for, 404a-5, 404c-1, and other disclosures.

Adi, thank you for reminding us about that January 12, 2021 “Best Practices” document, and for giving us something to think about. EBSA suggests considering a death search “[i]f participants are nonresponsive over a period of time[.]” But that suggestion supposes that the plan’s administrator already has classified some number of participants as nonresponsive. An absence of communication from a participant does not necessarily make her unresponsive because the plan might not have required any election, direction, or other choice. Imagine a participant who leaves her employer at age 42. If she does not take a distribution and the plan follows her continuing direction to invest her account in a target-year fund, 30 years might elapse before the next activity that requires the participant’s choice or act. Or imagine a participant who at age 72 chose to receive automated monthly direct-deposits of her minimum-distribution amounts. If she dies but the bank account is not closed and continues to collect the direct-deposits, the plan’s administrator might have seen nothing that called for treating the participant as unresponsive. Further, even if a participant has not responded to the plan’s communication that called for a response, there remain difficult questions about how much of participants’ money a fiduciary should spend on finding whether a participant is alive or dead. And if there is some age beyond which one might presume some greater likelihood that a participant has died, what age should one use? Under the Treasury department’s life-expectancy table, someone who reaches age 72 has another 17.2 years—that is, to 89.2 (but about half will live longer). Someone who reaches age 85 has another 8.1 years—that is, to 93.1 (and again, about half will live longer). (I’m aware these tables oversimplify mortality measures.) Absent a postal-mail or email undeliverable, or a rejection of a payment (or the absence of a response to something that required a response): Does this suggest checking for deaths, if at all, only among the 90-somethings?

RatherBeGolfing, thank you for guiding us. Revenue Ruling 80-155 restates Revenue Rulings 70-125 and 71-27 and (again) recognizes “allowing interim valuations in addition to an annual valuation[.]” Rev. Rul. 80-155, 1980-1 C.B. 84, 1980-24 I.R.B. 11 [CCH Pension Plan Guide Pre-1986 IRS Revenue Rulings ¶ 19,530]. All those rulings interpret 26 C.F.R. § 1.401-1(b)(1)(ii). https://www.ecfr.gov/cgi-bin/text-idx?SID=a5ac655b7ae110a969c04307a5e2bf7e&mc=true&node=se26.6.1_1401_61&rgn=div8. The 1970 ruling suggests that investments ought to be valued at “fair market value on the inventory date[.]” Rev. Rul. 70-125, 1970-1 C.B. 87 [CCH Pension Plan Guide Pre-1986 IRS Revenue Rulings ¶ 18,801]. None of the three rulings, including the 1970 and 1971 superseded rulings, mentions generally accepting accounting principles or fiduciary accounting principles. While doing no less than yearly valuations and allocations, may a tax-qualified plan’s governing document allocate the trust’s net assets after setting a reasonable accounting reserve for plan-administration expenses? If not, may the trust at least account for payables on expenses incurred and recorded by the inventory date? If a plan must zero-out the unspent plan-expenses account (whether because the plan must not allow any reserve, or because the unspent amount exceeds a reasonable reserve), what fiduciary decision should an administrator make if the plan’s incremental expense for performing the allocation would exceed the amount to be allocated? I suppose my questions are motivated by recognizing a practical point: For a plan that for everything else has participant-directed investments and daily allocations, often measured by investment funds’ share accounting, it’s jarring to have a yearly allocation, by a plan-specified formula, of what remains unspent from a plan-expenses account.

CuseFan, I hope routine death searches, which a defined-benefit plan’s administrator might do to guard against overpayments, need not be done for an individual-account (defined-contribution) retirement plan. I mentioned ten or eleven years because a plan might not compel an involuntary distribution to a beneficiary until ten years after the participant’s death. Internal Revenue Code § 401(a)(9)(H). About the idea that someone might find a participant’s papers, retirement plans’ use of electronic communications means many get little to no paper. And it might take a while for an email address to become discontinued and generate a bounce-back. Or an employer might have assigned its former employee an email address the employer does not discontinue. But I hope neither IRS nor EBSA makes it necessary to spend participants’ money on routine death searches. I’d like to think most death benefits get claimed soon enough after a participant’s death.

And has anyone seen an IRS examiner assert that a plan flunked 401(a)(9) because the plan's administrator had done nothing (beyond deciding claims submitted) to detect participants' deaths?

Does a need to zero-out a plan-expenses account result from external law, such as ERISA or the Internal Revenue Code; or is it a term of the plan's agreement with the recordkeeper or other service provider?

Belgarath, thank you for the good help. Anyone with a different experience or perspective?

If a plan has a surplus or reserve in such a plan-expenses account, is it the plan's asset?

The Internal Revenue Manual directs an Employee Plans examiner not to challenge a plan for failing to meet § 401(a)(9) if the plan’s administrator could not locate the distributee after a diligent search that included IRS-specified steps. IRM 4.71.1.4(15)(d) https://www.irs.gov/irm/part4/irm_04-071-001 But that direction does not speak to a situation in which an individual-account (defined-contribution) retirement plan paid no involuntary minimum distribution because the plan’s administrator did not know the participant died. Should the IRS relax strict adherence to § 401(a)(9) if the plan’s administrator shows it followed reasonable procedures to detect participants’ deaths? What should those procedures be? How often does it happen that no one has filed a claim within ten or eleven years after a participant’s death?

The IRS’s instructions that are general to the many kinds of 1099 reports suggest that a payer may report without a taxpayer identification number if the payer made prudent efforts to obtain, but still lacks, the beneficiary’s number. However, check the plan administrator’s or its service provider’s software. In my experience, the software often is designed not to process a distribution if the records lack the distributee’s TIN. I concur with your reluctance to pay or provide an involuntary distribution of a death benefit when the pension plan lacks enough information to tax-report it (at least to the IRS). A lack of information suggests the plan’s administrator might not have correctly decided which person is the rightful beneficiary, or that the rightful beneficiary has not abandoned (and should not be treated as having abandoned) the benefit (unless it’s clear that applicable law commands turning over the rights to the abandoned-property administrator).

Thank you for your kind words. Not knowing which State’s law (or States’ laws) might govern your situation, my observations about abandoned-property law recognized possible and actual differences in the 50+ laws. If a particular law’s abandonment period begins when something is “distributable”, consider courts’ and agencies’ interpretations about what distributable means. Some laws have been interpreted to treat an involuntary distribution as distributable from the required beginning date or other plan-provided date. But those laws also have been interpreted to treat a benefit not subject to an involuntary distribution as distributable when the claim for the benefit is approved and payable or otherwise distributable. Under such an interpretation, a would-be beneficiary’s knowledge that he or she has a benefit might be relevant. Legal research on such a point can be difficult because not all interpretations are in courts’ decisions; some might be in an attorney general’s, treasurer’s, comptroller general’s, or other official’s opinion. Those opinions might not be officially published. And even if officially or commercially published, Westlaw, LexisNexis, Bloomberg, or another publisher might not have editorially linked an opinion to the statute it interprets. Further, an attorney general’s or other lawyer’s interpretation might be unavailable, even under a freedom-of-information law, because the only extant official interpretation was given as privileged legal advice. Even if your client “want[s] to find some way to bring an end to” an unclaimed death benefit, a fiduciary might be reluctant to treat a benefit as abandoned until applicable law commands that result. Further, a governmental plan’s fiduciary might consider impairment-of-contract and due-process issues under U.S. and State constitutions.

With the advice of their lawyers, actuaries, and certified public accountants, a governmental plan’s fiduciaries might consider these (among other) steps: 1) If a claimant asks for the death benefit, follow the plan’s claims procedure and decide whether the claim is correct and complete. 2) If there is no claim, evaluate whether the plan provides an involuntary distribution, whether to meet Internal Revenue Code § 401(a)(9) or otherwise. 3) If no involuntary distribution is provided, wait until the administrator receives a claim. 4) If an involuntary distribution is provided, use prudent steps to identify the rightful beneficiary and to find the beneficiary. (If the involuntary distribution is needed to meet IRC § 401(a)(9), search enough that the Internal Revenue Manual instructs an Employee Plans examiner not to challenge the plan as failing to meet § 401(a)(9).) 5) If those steps do not result in identifying and finding the beneficiary, pay nothing to anyone and continue the benefit. If a defined-benefit pension plan does not have individual accounts, is there a need to account for a forfeiture? Might the fiduciaries maintain the plan’s assets, and pay an outstanding death benefit when a rightful beneficiary submits a proper claim? Some (not the only) cautions: For a governmental plan, ERISA does not preempt a State’s abandoned-property law. Under such a law, a pension plan’s death benefit might not be abandoned until the beneficiary knows that he or she is a beneficiary and, after knowing, ignores the benefit. However, under some States’ laws, measurement of an abandonment period might begin when a benefit became distributable, which might include the portion of a benefit that became distributable involuntarily.

Thanks, everyone, for uncovering a nice story.

Belgarath's find, about the music coming first and the words later for Jim McCartney's 64th birthday, describes another story.

Thank you for a conjecture pointing in another imaginable direction. But recognizing that “When I’m sixty-four” ends every A section and the whole song suggests the authors might have chosen the theme statement first, and rhymed other words to the conclusion. To support or disprove either theory, does anyone know some UK pensions history?

My acappella group sings “When I’m sixty-four” in our charity appearances, especially at a retirement community. I wonder whether Lennon’s and McCartney’s choice of 64 relates to what in the 1960s was a relevant age under England’s law, whether for a State pension or an occupational superannuation scheme. Does anyone have an answer more confident than my hunch?

Recognizing at least the point Luke Bailey describes (and recognizing a possibility of several others): Consider that the charitable organization needs its lawyers’ advice, including an executive-compensation lawyer’s advice. Consider that each executive needs her lawyers’ advice. A payroll-services provider might have good legal-protection and business reasons for limiting its services.

Among other points to consider: If ERISA governs the plan (which might result if there is a non-owner participant, including an eligible employee), the trustee or other fiduciary must maintain the indicia of ownership of the plan’s bitcoin inside the jurisdiction of the district courts of the United States. ERISA § 404(b), 29 U.S.C. § 1104(b). If the retirement plan’s sponsor, administrator, and trustee (with perhaps one human acting in all those roles) seek to maintain the plan as tax-qualified, the trustee might take steps to assure that the trustee, as the plan trust’s trustee, owns the bitcoin. See Internal Revenue Code of 1986 [26 U.S.C.] § 401(a)(2); 26 C.F.R. § 1.401-2, § 1.401(a)-2. Further, the trustee might take steps to assure that the trustee’s ownership of the bitcoin is within the jurisdiction of a State’s court. See 26 C.F.R. § 1.401-1(a)(3). The plan’s administrator and trustee might consider valuation so each Form 5500 report and each actuary’s certificate would report (or refer to) a correct value.

Paul, I can share with you some research (including citations of relevant court decisions) and some practical observations. But this calls for our conversation, not this forum (as wonderful as BenefitsLink is). Please feel free to call me.

Thank you for your nice help. Although in recent years I’ve advised clients on designing IRS-preapproved documents, it’s been a while since I last had responsibility for a submission. When I did, we presented some late-breaking changes after the main submission but before the IRS closed the file before releasing the letter. I imagine the procedure recently is much less flexible.

Many retirement plans, in provisions for an involuntary distribution needed for a plan to meet a tax-qualification condition under Internal Revenue Code § 401(a)(9), define that required beginning date (with some variations) as 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. One suspects many plan sponsors, if not falling in with a form document, might have preferred to provide the latest age or date that does not tax-disqualify the plan for failing to meet § 401(a)(9). For IRS-preapproved documents of the cycle now or soon to be presented to users: Do some change 70½ to 72? Do some avoid stating a specific age, instead referring to § 401(a)(9)(C)? Or does a document not change anything about this point?

And to apply C.B. Zeller’s guidance, you might prefer to see the participant’s birthdate. If one knows only that the participant turned 70½ in 2020, in which year will the participant reach age 72?

If your client doesn't like the field actuary's approach, perhaps the taxpayer might evaluate (with your and other advisors' advice) the advantages and disadvantages of asking for National Office advice. Alternatively, if the taxpayer did not consent to extend the statute of limitations, might delay increase the IRS's risks?