Peter Gulia

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?

Internal Revenue Code § 45E provides a tax credit for a portion of a small employer’s (up to 100 employees) qualifying expenses to establish or administer a new retirement plan. About what’s new: An employer cannot qualify for this credit if, during the three-taxable-year period that immediately precedes the first taxable year for which the credit otherwise could be allowed, the employer or any member of any controlled group that includes the employer (or any predecessor of either) established or maintained a qualified employer plan for which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan for which the credit otherwise could be allowed. How does this work with a multiple-employer plan—whether an association retirement plan, some other “closed” MEP, an “open” MEP, or a pooled-employer plan? For this credit, does it matter that the plan is not a startup? Or is it enough that the employer’s participation under the plan is the first time the employer provided any retirement plan for its employees?

Thank you for the kind words. Using our skills to put a sensible interpretation on an ambiguous statute is why clients pay us.

I have no sample form of agreement to offer you. For such a § 302(c)(9) trust, I imagine one might look to § 5(b) of the Labor Management Cooperation Act of 1978, at least to consider the trust’s proper purposes. And if ERISA does not govern the trust (and so does not preempt State law), one might look to a relevant State’s trust code and other law to consider which provisions are mandatory, and which default provisions a trust agreement may negate or change—after considering provisions labor-relations law commands or otherwise requires.

An administrator of an ERISA-governed plan must obey the plan’s provisions (unless the plan states a provision ERISA’s title I forbids, or fails to state a provision ERISA’s title I commands). In doing so, an administrator ignores a participant’s separation agreement, even if made a part of a court’s order, unless the order is a qualified domestic relations order. Even if a plan might provide that a separation agreement undoes a participant’s beneficiary designation, a separation agreement without a divorce does not change a person’s status as a spouse, who later might have a surviving spouse’s survivor-annuity or other rights under the plan’s provision that meet ERISA § 205. For what happens after an ERISA-governed plan has paid its benefit, some courts’ decisions recognize a disappointed person’s remedies under State law. But the plan’s administrator need not be involved in those disputes.

Thanks. And for a participant whose benefit became non-forfeitable long before normal retirement age, how many plans do not allow a distribution, even after severance-from-employment or age 59½ (or both), until the participant attains normal retirement age?

From my experiences with many individual-account retirement plans, I remember no situation in which attaining the plan’s normal retirement age entitled a participant to vesting or a distribution to which she was not otherwise entitled under the plan. But such a situation is possible. How often does it happen? In what kinds of circumstances? Are there kinds of employers or occupations for which it’s more likely to happen? Are there kinds of plan designs in which it’s more likely to happen?

And beyond others’ suggestions and observations: Has anyone submitted a claim for a benefit? If not and the plan’s terms do not compel an involuntary distribution (whether because of a small account balance, for a required minimum distribution, or under another provision), the plan’s administrator might prefer not to solve a question that is not yet raised. And when it is time to decide, did the marriage end before the decedent’s death, or is the husband the decedent’s surviving spouse? If he is a surviving spouse, what rights does the plan provide?