Peter Gulia

The Consolidated Appropriations Act, 2021 (if enacted) amends, retroactively, the CARES Act to allow a § 401(a)-qualified money-purchase plan to provide a coronavirus-related distribution. Coronavirus-related distribution from money-purchase plan.pdf

Today’s Consolidated Appropriations Act, 2021 treats a situation in 2020 as not a partial termination “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.” Temporary rule preventing partial plan termination.pdf

Nice guess, but the focus is on the plan rather than an employer. Here’s a clue from the soon-to-be statute’s text. The heading for amended I.R.C. § 401(a)(36)(B) reads: “Certain employees in the building and construction industry.”

Here’s a brain-teaser for the super-smart BenefitsLink mavens. A section of today’s Consolidated Appropriations Act, 2021 amends Internal Revenue Code of 1986 § 401(a)(36) to allow a § 401(a)-qualified plan to provide a distribution to a worker not yet separated from employment as soon as age 55. But that change applies only for “a multiemployer plan . . . with respect to individuals who were participants in such plan on or before April 30, 2013, if—(i) the trust to which [the before-separation provision] applies was in existence before January 1, 1970, and (ii) before December 31, 2011, at a time when the plan provided that distributions may be made to an employee who has attained age 55 and who is not separated from employment at the time of such distribution, the plan received at least [one] written determination from the Internal Revenue Service that the trust to which [IRC § 401(a)(36)(A)-(B)] applies constituted a qualified trust under [IRC § 401].” Which unnamed plan gets this tax law?

To help you prepare to ask your lawyer for advice (or to ask the plan’s administrator to instruct you), you might read: ERISA Advisory Opinion 2013-03A (July 3, 2013) (Principal Life Insurance Company). https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/2013-03a.pdf That interpretation includes EBSA’s view that, even if an arrangement involves no set-aside, a contract right to have some amount “applied to plan expenses” could be the plan’s asset. A plan’s administrator should not rely on the investment or service provider’s description that an arrangement is not plan assets. (1) It can’t be prudent to rely on legal advice from a person that denies that it provides legal advice. (2) It is imprudent for a retirement plan’s fiduciary to rely, without further steps, on advice from a person that has an interest (other than the plan’s interest) about the subject for the advice. Further, if something is plan assets, the plan’s administrator might want its lawyer’s advice about how to allocate the plan trust’s assets. This might involve careful readings of the plan, its trust, and the plan-expenses arrangement. Not every plan-expenses arrangement has the same terms, and (even within IRS-preapproved documents) governing documents can state different provisions about how to account for and use an arrangement.

Concur. A corporation other than a 501(c)(3) charity or for public schools cannot maintain a 403(b) plan, unless the corporation is an employer of a minister, and then only for the minister.

https://ecfr.federalregister.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-2

Thanks. Has anyone seen the Employee Benefits Security Administration or the Internal Revenue Service pursue enforcement for a too-low loan interest rate? If so, what was the agency’s explanation about why the rate was too low?

I don't know why the software shows in bold a text I hadn't set that way.

For a loan to a participant to meet an exemption from prohibited-transaction consequences (under both ERISA’s title I and Internal Revenue Code § 4975), the loan must “earn a reasonable rate of interest[.]” 29 C.F.R. § 2550.408b-1(a)(1)(iv). Further, the rule states: “A loan will be considered to bear a reasonable rate of interest if such loan provides the plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances.” 29 C.F.R. § 2550.408b-1(a)(1)(iv). The rule includes three examples of facts and circumstances that do not result in a reasonable interest rate. Some fiduciaries adopt a procedure for setting a loan interest rate based on a “prime” interest rate, with an increase of zero, 100, or 200 basis points. This might be based on an IRS employee’s remarks that burden no one, not even the IRS. Without reopening that discussion, here’s my question: Has anyone seen the Employee Benefits Security Administration or the Internal Revenue Service pursue enforcement for a too-low loan interest rate? If so, what was the agency’s explanation about why the rate was too low?

If you’re hoping for comments about strengths and weaknesses in challenging the former employer’s decisions, BenefitsLink people might want to know whether the former employer is a government (for example, a public-schools district), a church or church-controlled, or a charitable organization that is neither governmental nor church-controlled. And recognizing some possibility that State law might matter, in which State does the former employer have its principal office? (That question is a proxy measure that might help uncover a law or choice about which State’s law might govern the former employer’s retirement plan.)

The current § 415 rules do not predate § 403(b)(7) accounts. Rather, the confusing text results from some legal drafters’ style or usage, often unfortunate, that assumes a reader’s awareness (sometimes with no signal) of all terms that have been specially defined. For agency rules to implement and interpret IRC § 415, the April 7, 2007 rules replaced the January 7, 1981 rules. https://www.govinfo.gov/content/pkg/FR-2007-04-05/pdf/E7-5750.pdf Congress enacted § 403(b)(7) on September 2, 1974, effective as of January 1, 1974. At least the 2007 revisors might have considered it unnecessary it to state explicitly that § 1.415(j)-1(e)’s reference to “a section 403(b) annuity contract” includes all the individual’s § 403(b) contracts. Internal Revenue Code § 403(b)(5) states: “If for any taxable year of the employee this subsection applies to 2 or more annuity contracts purchased by the employer, such contracts shall be treated as one contract.” And § 403(b)(7)(A) begins: “For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401(f)(2) shall be treated as amounts contributed by him [the employer] for an annuity contract[.]” Likewise, the agency rules include this: “Section 403(b) and § 1.403(b)-3(a) only apply to amounts held in an annuity contract (as defined in § 1.403(b)-2), including a custodial account that is treated as an annuity contract under paragraph (d) of this section, or a retirement income account that is treated as an annuity contract under § 1.403(b)-9.” 26 C.F.R. § 1.403(b)-8(a). Some Treasury department lawyers worked on the § 415 rules (published April 7, 2007) and the § 403(b) rules (published July 26, 2007) around the same time. https://www.govinfo.gov/content/pkg/FR-2007-07-26/pdf/07-3649.pdf About the statement to be attached to the individual’s tax return, I don’t advise anyone; but a lawyer or certified public account might evaluate this: My limitation year for § 403(b) contracts is each year ended with August. A change must comply with 26 C.F.R. § 1.415(j)-1(d).

With no observation about what relevant law might provide: If the plan’s administrator considers furnishing a notice to less than all participants and other directing persons: Before the change date, is the to-be-replaced fund available to participants who have not yet invested in it, including those who do not yet use anything with the vendor that uses the to-be-replaced fund? After the change date, is the new fund available to participants who do not yet use anything with the vendor that uses the to-be-replaced fund?

Luke Bailey and BobbyV, thank you for your further observations.

An employer might elect, “subject to such terms and conditions as the Secretary may prescribe”, “to maintain the simplified employee pension on the basis of the employer’s taxable year.” Internal Revenue Code of 1986 (26 U.S.C.) § 408(k)(7)(C)(ii).

C.B. Zeller and Bird, thank you for your observations. Any others?

Imagine an individual-account (defined-contribution) retirement plan that does not provide participant-directed investment. Imagine the participants range from 18-year-olds to workers in their 90s. If you were the plan’s trustee or investment manager with complete authority and responsibility to decide the plan’s investment policy, what would you do? Would you decide an asset allocation grounded on some average of the participants’ ages? Is there another method you might use to balance the potentially differing interests of younger and older participants? Is there some other way—without changing the plan’s provisions—to manage this fiduciary challenge?

What RatherBeGolfing said. (RBG, thank you for explaining a point I didn’t describe.) Also, a judge’s finding that a complaint alleges enough facts to support a claim on which the court could grant relief does not tell a reader that every alleged fact is relevant; rather, it finds only that the complaint includes allegations needed to support the claim the judge finds is sufficiently asserted. The most Judge Sorokin observes about how the plan’s omission of participant-directed investment relates to the asserted fiduciary breach is that participants’ potentially differing interests might have been something the fiduciaries ought to have considered in deciding investments for the one portfolio that commonly affected all participants’ accounts. And that observation is not needed to support the finding that the complaint asserted a fiduciary breach.

QDROphile opens our eyes to some points this discussion had not considered. It’s better that an ERISA-governed plan’s QDRO procedure does not unnecessarily call for a “hold” ERISA doesn’t require. (I’ve held that view since 1984.) Changing a procedure a divorcing spouse expected or, worse, might have relied on is troublesome. Among other ways, it could result in lawyering or litigation expense. And it risks that a court might render an incorrect decision. (Some of the nonsense PWBA/EBSA published heightens those risks.) Even if I’m right about how a Federal court should apply the statute (and should ignore unpersuasive subregulatory interpretations and other courts’ incorrectly reasoned decisions), it’s smart to consider that judges don’t always get everything right. For the situation BG5150 describes, changing an unfortunate QDRO procedure, despite risks, would be about affording a terminated plan’s administrator a choice to act so a “hold” anticipating a domestic-relations order doesn’t delay a distribution that completes a plan’s termination. A risk that someone challenges a change in a QDRO procedure might be moderate because, as QDROphile describes, would-be plaintiffs make choices about whether to challenge a plan administrator’s act or decision. I don’t know the facts and circumstances of the plan BG5150 describes, and shouldn’t guess which is the worse set of expenses and risks.

I don't know why the software crosses out a normal text.

I look to ERISA § 402 because it presumes an employee-benefit plan was expressed in writing, and that a written plan “provide a procedure for amending [the] plan[.]” ERISA § 402(b)(3). If a QDRO procedure is stated in the plan’s governing document, one would follow whatever that document calls for to make a proper amendment. If a QDRO procedure is stated by a distinct document, one might see to it that an amendment of the QDRO-procedure document is made by the person that was, following ERISA § 402, properly granted authority to make or amend a document of that kind, and, if that person is an artificial person, by a human with authority to act for the artificial person. Except for a participant’s interest in something that ERISA or a plan’s governing document makes non-forfeitable or accrued and not to be cut back, I don’t see anything in ERISA that precludes a change because a non-participant has an expectation.

For a plan not ERISA-governed, I might consider a State’s statutory and common law of contracts. (For a governmental plan, I’d consider interpretations of the U.S. and State constitutions.) But with limited exceptions that don’t relate to a plan’s terms, ERISA preempts a State law that “relates to” an ERISA-governed employee-benefit plan. ERISA § 514. I look to ERISA § 402 because it presumes an employee-benefit plan was expressed in writing, and that a written plan “provide a procedure for amending [the] plan[.]” ERISA § 402(b)(3). If a QDRO procedure is stated in the plan’s governing document, one would follow whatever that document calls for to make a proper amendment. If a QDRO procedure is stated by a distinct document, one might see to it that an amendment of the QDRO-procedure document is made by the person that was, following ERISA § 402, properly granted authority to make or amend a document of that kind, and, if that person is an artificial person, by a human with authority to act for the artificial person. Except for a participant’s interest in something that ERISA or a plan’s governing document makes non-forfeitable or accrued and not to be cut back, I don’t see anything in ERISA that precludes a change because a non-participant has an expectation.

For a plan not ERISA-governed, I might consider a State’s statutory and common law of contracts. (For a governmental plan, I’d consider interpretations of the U.S. and State constitutions.) But with limited exceptions that don’t relate to a plan’s terms, ERISA preempts a State law that “relates to” an ERISA-governed employee-benefit plan. ERISA § 514. I look to ERISA § 402 because it presumes an employee-benefit plan was expressed in writing, and that a written plan “provide a procedure for amending [the] plan[.]” ERISA § 402(b)(3). If a QDRO procedure is stated in the plan’s governing document, one would follow whatever that document calls for to make a proper amendment. If a QDRO procedure is stated by a distinct document, one might see to it that an amendment of the QDRO-procedure document is made by the person that was, following ERISA § 402, properly granted authority to make or amend a document of that kind, and, if that person is an artificial person, by a human with authority to act for the artificial person. Except for a participant’s interest in something that ERISA or a plan’s governing document makes non-forfeitable or accrued and not to be cut back, I don’t see anything in ERISA that precludes a change because a non-participant has an expectation.

Assuming an otherwise valid amendment of the QDRO procedure, I doubt that ERISA § 402 provides a non-participant, even less one who is not yet a proposed alternate payee, a vested right in the administrator not changing its procedure.

No, I’m not holding back the information. I’ve never had a client who wanted to arrange the insurance. In the 1980s, I heard about a Bermuda insurer that offered this insurance. But I don’t remember the insurer’s name, if I ever knew it. Professional and business publications I’ve seen describe the idea, but don’t name insurers.