Peter Gulia

Best wishes for whatever you choose to do next.

Purplemandinga, no worries. You recognized the idea I observed. I wasn’t offended by your follow-up query to discern the reasoning of the idea. But you also saw I didn’t express a view about whether the idea is legally sufficient. My post was merely an effort to describe one possibility about what someone might have perceived as a “forced” rollover.

Consider asking (quietly) a few accounting firms (preferably with a partner who’s your friend) what provisions the firm would seek in its engagement letter. Doing so might help follow some EBSA guidance: “At a minimum, compliance with [ERISA § 404(a)(1) and § 408(b)(2)] would require that a fiduciary assess the plan’s ability to obtain comparable services at comparable costs either from service providers without having to agree to such [limitations of liability and indemnification] provisions, or from service providers who have provisions that provide greater protection to the plan.” ERISA Advisory Opinion 2002-08A (Aug. 20, 2002), available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2002-08a. Although that opinion is about engaging an actuary, the reasoning should apply similarly for engaging another non-fiduciary professional-services provider. But don’t be surprised if a survey finds many accounting firms seek mediation, arbitration, an exclusive venue, a liability cap, a short time bar on claims, and indemnity (at least if someone furnished incorrect or misleading information to the IQPA). Depending on the client’s bargaining power, some points are negotiable. Also, the plan’s administrator and each individual fiduciary might want its or her lawyer’s advice about the legal effect of each provision.

I don’t know enough to consider what’s believable. Those of my regular clients that are plan sponsors employ tens of thousands of employees, and have capabilities to count a part-time employee’s hours of service. I’ll leave it to others, especially the TPAs who asked for my help, to consider whether there are some 401(k) plan sponsors with some employees on whom the employer doesn’t count hours. Even besides questions about which part-time employees to allow in a 401(k) plan, I remain curious about how much is feasible in charging plan-administration expenses against participants’ and beneficiaries’ accounts.

Not exactly what you describe, but I have seen plan provisions and communications by which a terminating plan’s final distribution results in a default direct rollover to the next employer’s plan if the participant has not by a specified due date after a reasonable time delivered her instruction to be paid money or for a direct rollover to another eligible retirement plan.

Friends, thank you for your thoughts. I see the worries about plan-administration expenses. Those might include per-plan fees, perhaps incurred because an employer divides its workforce into two or more plans so each’s count is small enough that the administrator need not engage an independent qualified public accountant. And it might include per-head fees charged for each individual’s account, no matter how small. Is it feasible to charge those and other plan-administration expenses, including those for notices and other communications, against participants’ and beneficiaries’ accounts? Or am I too unknowledgeable about what services most retirement-services providers offer to small- and mid-size plans? I ask because I’ve heard from other practitioners that some employers lack a practical capability to count hours of service, and might find it easier to allow all employees to make elective deferrals.

Kevin C and EBECatty, thank you for your help. More points to consider?

When the time comes and with some exceptions, a non-governmental § 401(k) plan must (to tax-qualify) permit an employee to make elective deferrals if the employee has at least 500 hours of service a year in at least three consecutive years and has met the plan’s age requirement (for example, 21) by the end of the three-consecutive-year period. A plan need not provide nonelective or matching contributions for such a long-term part-time employee. Relief from nondiscrimination and top-heavy rules applies only regarding “employees who are eligible to participate in the [§ 401(k)] arrangement solely by reason of [§ 401(k)](2)(D)(ii)[.]” I.R.C. (26 U.S.C.) § 401(k)(15)(B)(i); accord § 401(k)(15)(B)(ii). Some employers are considering simplifying a new provision by making all employees, with no age or service condition, eligible for elective deferrals (without providing a nonelective or matching contribution). If an employer in its particular circumstances is not worried about coverage, nondiscrimination, and top-heavy rules: Is there some other reason an employer should consider not extending elective deferrals to all employees?

Luke Bailey, thank you for this helpful information. Since 1994, my Beneficiary Designations chapters in Wolters Kluwer’s Answer Book have included explanations about community property. In this year’s update, I’m adding a Q&A on how much a custodian requires or warns about community-property rights of the spouse who is not the participant or IRA holder.

WinW, as your question suggests, the key question is less about what a State’s court orders and more about whether an ERISA-governed plan’s administrator will treat the order as a domestic relations order and (if a DRO) as a qualified domestic relations order. (I assume the State court does not have personal jurisdiction of the plan, the plan’s administrator, or the plan’s trustee.) Which person is your client? The child? The child’s mother? The child’s father? Another parent? The guardian ad litem? The 401(k) plan’s administrator? The plan’s trustee? Also, is the guardian ad litem an attorney-at-law or not? And were the fees incurred to pursue the child’s right to get child support from a parent other than the child’s mother?

To answer David Rigby's question, assume for my hypo that there was no amendment of any plan document; rather, there was only the plan administrator's finding that the facts and circumstances, as the administrator understood them before directing the distributions, were a partial termination. And assume the administrator made that finding without waiting for calendar plan year 2020 to end. MoJo, thank you. Others' ideas?

Let’s ask ourselves a follow-up question: The Consolidated Appropriations Act, 2021, in its division EE, title II, § 209 provides: “A plan shall not be treated as having a partial termination (within the meaning of 411(d)(3) of the Internal Revenue Code of 1986) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80 percent of the number of active participants covered by the plan on March 13, 2020.” Imagine a situation in which a plan’s administrator in 2020 assumed a partial termination and paid distributions in amounts more than what otherwise would have been the distributees’ nonforfeitable accounts. Imagine that, unlike the situation austin3515 described, there are enough rehires before March 31, 2021 so there was no partial termination in 2020. May the plan’s administrator demand that a distributee return the overpayment? If it may, should the administrator ask? How much does it matter that a distributee might not have known she was overpaid? How much does it matter that the overpayment might have resulted from the administrator’s good-faith belief that there was (or would be) a partial termination? If both payer and payee are innocent, what outcome is fair or equitable?

An exclusion about collective bargaining might apply in fitting circumstances. I.R.C. § 408(k)(2) Participation Requirements — This paragraph is satisfied with respect to a simplified employee pension for a year only if for such year the employer contributes to the simplified employee pension of each employee who— I.R.C. § 408(k)(2)(A) — has attained age 21, I.R.C. § 408(k)(2)(B) — has performed service for the employer during at least 3 of the immediately preceding 5 years, and I.R.C. § 408(k)(2)(C) — received at least $450 in compensation (within the meaning of section 414(q)(4)) from the employer for the year. For purposes of this paragraph, there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3). For purposes of any arrangement described in subsection (k)(6), any employee who is eligible to have employer contributions made on the employee's behalf under such arrangement shall be treated as if such a contribution was made. I.R.C. § 410(b)(3) Exclusion Of Certain Employees — For purposes of this subsection, there shall be excluded from consideration— I.R.C. § 410(b)(3)(A) — employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers[.] To write a plan’s (or several plans’) provisions to sort employees by each collective-bargaining unit and those who are unrepresented, don’t use Form 5305-SEP; instead, use an employee-benefits lawyer coordinating with a labor-relations lawyer. But why use a SEP?

CuseFan, thank you for sharing your thoughts. RatherBeGolfing, fair question, I am asking about ERISA § 404(a)(1) responsibility. Would a prudent fiduciary know that some substantial number of participants do not recognize the security risks? If so, would a prudent fiduciary find that protecting those participants’ interests requires educating them about the risks?

Because someone who uses the care, skill, and caution that would be used by one who is experienced in managing an individual-account retirement plan would be mindful of privacy and security risks (including cybersecurity risks), there is a growing consensus that a plan’s administrator must oversee prudent procedures for managing those risks. For many plans, that means getting a recordkeeper’s contract promise that it uses commercially reasonable privacy and security procedures. But even good procedures might be ineffective if a participant, beneficiary, or alternate payee does not guard carefully her identifying information. If that’s right, does a plan’s fiduciary have a responsibility to educate participants (and other individuals) about those risks? If so, what do you think an employer/fiduciary should do?

Answering your query would require reading the complete set of the plan’s governing documents, might require considering a relevant State’s law, might require considering the church’s internal law, and might require considering other facts and circumstances. Here’s a partial selection of a few points one might consider: Is the plan an individual-account (defined-contribution) plan, or a defined-benefit plan? (Unlike most other § 403(b) plans, church plans have some variations and transition rules that might allow a defined-benefit plan.) If this is a multiple-employer plan, is the whole of the plan’s assets available to provide benefits to any employer’s participants and their beneficiaries? Or is there a separate subplan for each employer? What does the plan’s governing document say about whether a mistaken contribution remains in the plan’s assets, or is returned to the employer? If the document provides a return of a mistaken contribution, do your facts fit the plan’s definition of what is treated as a mistaken contribution? Are there other terms about an employer’s participation in the plan? Perhaps more practically, what does the church plan’s administrator say on whether the employer may get a return?

Thank you for the kind words. There is at least one point in common: None of these custodians requires, as a condition to allowing an IRA holder to name a beneficiary other than the holder’s spouse, delivery to the custodian of the spouse’s consent to the beneficiary designation.

Thanks. With a little (unscientific) web-surfing, I found these: BlackRock Disclaimer for Community and Marital Property States: The Participant’s spouse may have a property interest in the account and the right to dispose of the interest by will. Therefore, any sponsors, issuers, depositories and other persons or entities associated with the investments and the Custodian specifically disclaim any warranty as to the effectiveness of the Participant’s beneficiary designation or as to the ownership of the account after the death of the Participant’s spouse. For additional information, please consult your legal advisor. I consent to the Beneficiary Designation. {block on the form for a spouse’s consent} https://www.blackrock.com/us/individual/literature/forms/ira-application-fillable-version.pdf Capital Group (American Funds) We encourage you to consult an advisor regarding the tax-law and estate planning implications of your beneficiary designation. . . . . Your spouse may need to sign in Section 9. If you wish to customize your designation or need more space, attach a separate page. Spousal consent to beneficiary designation — if required If you are married to the IRA owner and he or she designated a Primary Beneficiary(ies) other than you, please consult your financial advisor about the state-law and tax-law implications of this beneficiary designation, including the need for your consent. I am the spouse of the IRA owner named in Section 2, and I expressly consent to the beneficiary(ies) designated in Section 6 or attached. {signature block} Fidelity Advisor If your IRA contains community property and you do not designate your spouse as primary beneficiary for at least 50% of your IRA, you may want to contact an attorney for further information on the designation. https://institutional.fidelity.com/app/literature/view?itemCode=B-IRAFORMS&renditionType=pdf&pos=contentItem&selectedActivities[0].selectedActivityCode=TBNM&selectedActivities[0].selectedActivityTx=formsandapplications&selectedActivities[1].selectedActivityCode=DEPT&selectedActivities[1].selectedActivityTx=FAPP Franklin Templeton If you are married and designate someone other than your spouse as your primary beneficiary, you may need to obtain your spouse’s consent. You should consult with a legal advisor regarding your beneficiary designation and whether your spouse’s consent is necessary. The Custodian is not responsible for determining whether your spouse’s consent is necessary. https://www.franklintempleton.com/forms-literature/download/RIRA-APP {No block on the form for a spouse’s signature} Invesco {warning, and block on the form for a spouse’s consent} https://www.invesco.com/us-rest/contentdetail?contentId=3868e01e98630410VgnVCM10000046f1bf0aRCRD Schwab If I live in a state with community property statutes and do not designate my spouse as the sole Primary Beneficiary, I represent and warrant that my spouse has consented to such designation. https://www.schwab.com/public/file/P-1770982 TD Ameritrade {IRA applicant “represents and warrants” to the custodian that the spouse consents.} https://www.tdameritrade.com/retail-en_us/resources/pdf/TDA586.pdf Wells Fargo warning, and permits opportunity for a spouse’s signature https://www.wellsfargofunds.com/assets/edocs/form/ira-application-ip.pdf Any BenefitsLink neighbors with a different experience or observation?

For an Individual Retirement Account not held under an ERISA-governed plan: Does any IRA custodian require a spouse’s consent as a condition to the custodian’s willingness to follow a designation that names a beneficiary other than the IRA holder’s spouse? Does any IRA custodian have in its form a spot for recording a spouse’s consent to a beneficiary other than the IRA holder’s spouse? (Even if no public law requires this.) For either question, if you know any, please name names. What I’m looking for is whether an IRA custodian does something, before there is a dispute or claim, to protect the community-property rights of an IRA holder’s spouse (or make it convenient for an IRA holder to show her spouse’s consent to a potential transfer).

Wouldn't you want to? If you don't, you risk that an IRS notice sent to the old address burdens you. Non-response to a notice might burden you with legal procedures and assumed facts that are disadvantageous.

And recognize that the plan, even if discontinued, is not yet terminated.

Thank you for the quick and good help. If a practitioner with your great knowledge and abilities can't think of it, it isn't to be found.

Before 2020, partnership A maintained a single-employer individual-account retirement plan for its employees (including those of its partners who are deemed employees). In 2020, partnership A amended its plan to allow participation by partnership B (for those of its partners who are deemed employees and for employees, if any). Partnership B is a new-formation startup. There is no transfer of assets or liabilities from a plan of B into A’s plan. The two partnerships—while separate artificial persons—are a § 414(m) affiliated service group. The plan’s governing documents specify partnership A as the plan’s sponsor, administrator, and trustee. The documents admit partnership B as a participating employer. Is there anything in Form 5500 that calls for reporting the Employer Identification Number of partnership B?

DMcGovern, no. A plan’s administrator must follow the plan’s governing documents (unless ERISA’s title I requires something else). But an obligation or responsibility of the plan’s administrator does not necessarily follow through to its recordkeeper. A non-fiduciary service provider might not be obligated to perform its service according to the plan’s governing document. Further, a recordkeeper’s contract might permit the recordkeeper not to process a transaction or instruction that does not fit the recordkeeper’s software. A plan’s administrator might consider these points in its selection, monitoring, other oversight, and removal of a recordkeeper.

Even if the plan’s administrator’s reading is a correct or permissible interpretation of the plan’s governing documents, consider that the recordkeeper’s contract might not obligate it to process a transaction or instruction that is outside the way the recordkeeper described the service.