Peter Gulia

Thank you for the further help. What if there are 32,000 participants? Instead of a paper list of 32,000 names and amounts, could the schedule of discretionary contributions be a computer’s save of the employer’s accounting records that show, for each individual, her supervisor’s decision with a human resources officer’s approval?

Thank you for the nice help. If an allocation group has only one participant, an allocation formula results in the participant sharing in 100% of the discretionary contribution made for her allocation group. So, the practical control is deciding the discretionary contribution for each group-of-one. Is it enough that an employer decides a contribution by paying it? Or must an employer do some other written act before paying a contribution?

In another BenefitsLink discussion, the originating inquirer described a plan sponsor’s desire to change to a regime under which each participant is a distinct allocation group. Instead of asking about how to make such a change, I ask different questions: (Assume that no nonelective contribution will be a subterfuge for what really is an individual’s § 401(k) cash-or-deferred election.) Does ERISA’s title I or the Internal Revenue Code impose any constraints on a plan sponsor’s opportunity to specify that each participant is a distinct allocation group? For those plan sponsors that use IRS-preapproved documents to state the user’s documents, do the documents available from mainstream providers impose any constraints on a plan sponsor’s opportunity to specify that each participant is a distinct allocation group? Assume an employer has enough practical capacity to decide, allocate, and communicate a distinct contribution for each individual. Are there other reasons a plan sponsor would not want the flexibility to specify that each participant is a distinct allocation group?

About § 401(k)(15)(B)(iii), as added by SECURE § 112(a)(2): Congress might not have considered that their Act sometimes sets up an incentive for an employer to design work patterns so a long-term part-time employee never is credited with enough service to become eligible for any nonelective or matching contribution. For example, an employer might limit a worker to one day a week for no more than 49 weeks in any 12-month period. How few breaks in service a participant has (and so how much vesting service a participant has) might not meaningfully affect the employer’s financial position if the participant’s account has no subaccount attributable to any nonelective or matching contribution.

For long-term part-time employees who become eligible because of § 401(k)(2)(D)(ii), a plan need not provide nonelective or matching contributions. § 401(k)(15)(B)(i)(I). About long-term part-time employees who become eligible because of § 401(k)(2)(D)(ii), an employer may choose coverage and nondiscrimination relief similar to tax law for a plan that covers otherwise excludable employees. § 401(k)(15)(B)(i)(II). This might permit excluding long-term part-time employees from top-heavy vesting and contributions. § 401(k)(15)(B)(ii). But the special nondiscrimination relief ends for an employee who becomes a full-time employee. § 401(k)(15)(B)(iv). Internal Revenue Code § 401(k)(15) (B) Nondiscrimination and top-heavy rules not to apply (i) Nondiscrimination rules In the case of employees who are eligible to participate in the arrangement solely by reason of paragraph (2)(D)(ii)- (I) notwithstanding subsection (a)(4), an employer shall not be required to make nonelective or matching contributions on behalf of such employees even if such contributions are made on behalf of other employees eligible to participate in the arrangement, and (II) an employer may elect to exclude such employees from the application of subsection (a)(4), paragraphs (3), (12), and (13), subsection (m)(2), and section 410(b). (ii) Top-heavy rules An employer may elect to exclude all employees who are eligible to participate in a plan maintained by the employer solely by reason of paragraph (2)(D)(ii) from the application of the vesting and benefit requirements under subsections (b) and (c) of section 416. (iii) Vesting For purposes of determining whether an employee described in clause (i) has a nonforfeitable right to employer contributions (other than contributions described in paragraph (3)(D)(i)) under the arrangement, each 12-month period for which the employee has at least 500 hours of service shall be treated as a year of service, and section 411(a)(6) shall be applied by substituting "at least 500 hours of service" for "more than 500 hours of service" in subparagraph (A) thereof. (iv) Employees who become full-time employees This subparagraph (other than clause (iii)) shall cease to apply to any employee as of the first plan year beginning after the plan year in which the employee meets the requirements of section 410(a)(1)(A)(ii) without regard to paragraph (2)(D)(ii).

I often suggest to a partner or other business owner not having an owners-only plan, and deliberately including at least one employee beyond owners. That way, the plan will be ERISA-governed, which, among other consequences, gets stronger protection against creditors. But a factor pointing in another direction for some is that public availability of a Form 5500 report on a plan’s assets might indirectly reveal a business owner’s stake. For example, if a report shows only two participants, a reader might deduce that the business has only one owner and might infer that about 99% of the plan’s assets is the owner’s account.

If (when there is a long-term part-time employee who must be admitted for elective deferrals) a business owner prefers to maintain a non-ERISA owners-only plan, might it make sense to start a second (ERISA-governed) plan for employees?

457 Answer Book (Wolters Kluwer 8th ed. & Supp.) is updated for the laws you mention. Or call me. In early January, I revised my governmental § 457(b) clients’ plans to follow the “Setting Every Community Up for Retirement Enhancement Act of 2019”, the “Bipartisan American Miners Act of 2019”, and the “Taxpayer Certainty and Disaster Tax Relief Act of 2019”. Also, I then added a provision for future disasters, and it was enough to provide the Coronavirus Aid, Relief, and Economic Security Act’s coronavirus loans and distributions without touching the document again. The Bipartisan Budget Act of 2018’s addition to § 401(k) about hardship distributions does not affect, at least not directly, § 457(b)’s tolerance for an unforeseeable emergency. Section 457(b) does not have its own “remedial amendment” regime. Yet, the recent statutes might allow some delay for a governmental plan. But don’t assume everything is under SECURE’s remedial-amendment date; some provisions are under other divisions of the Further Consolidated Appropriations Act, 2020. For a governmental plan, a State’s law often requires a written plan’s revision much sooner than Federal tax law requires.

The inquiry seems to be not about a rollover but rather a within-IRAs transfer from a Roth IRA insurer to a Roth IRA custodian. I’ll leave for others questions about whether this is feasible under Federal tax law. Whether it is proper for an annuity contract’s insurer to require an insurer’s or custodian’s letter of acceptance for each transfer (rather than one blanket letter for a series of transfers) is governed by the terms of each annuity contract. Those terms might be interpreted under a State’s law of contracts generally, insurance law particularly, and, for a variable annuity contract, Federal and State securities laws.

If something like this happens with not a defined-benefit pension plan but rather a terminated individual-account (defined-contribution) retirement plan: Q1 Would prudently incurred expenses to confirm or clear the OFAC restriction be a proper plan-administration expense, chargeable against the plan’s assets? Q2 If so, is the charge allocable to the individual account of the one participant who is the subject of the OFAC restriction? Q3 Would you reason differently about Q2 if the OFAC listing is an error and the participant never had done anything that could justify any scrutiny?

Following Congress's continuing resolution near September's end, the next showdown-or-shutdown date is December 11. Depending on what then is known or anticipated about results from November's elections, there might then be a tight window of opportunity for legislation. Or, depending on political consequences, some might prefer to wait for the 117th Congress.

If an employee-benefit plan’s sponsor is a corporation and the plan’s governing documents do not restrict who may amend the plan or how she may do it, anything that is the corporation’s act under the law that governs the corporation could be an act that might amend the plan. (Whether a particular act does amend a plan is a further analysis.) Justice O’Connor’s Curtiss-Wright opinion cited treatises’ statements that a human’s authority to act for a corporation may, rather than an express delegation, be inferred or implied. The Supreme Court’s decision remanded the case for fact-finding “into what persons or committees within Curtiss-Wright possessed plan amendment authority, either by express delegation or impliedly[.]” Yet, even an authorized person’s act might not amend a plan. An authorized person might have signed or otherwise adopted a writing made for some other purpose—for example, to make the corporation’s agreement with a particular officer, employee, or other contractor—and neither stated nor intended an amendment of an employee-benefit plan. In some situations (more for health benefits than for retirement benefits), whether an organization’s written promise to a particular individual is (or is not) also an amendment of an employee-benefit plan might matter less than whether the organization wants to meet its promise and (if so) how it might do so. An individual who obtained a particular promise is unlikely to pursue a dispute if the promise is met.

BG5150, thank you for helping us learn. Sometimes, it’s a client that insists on not falling in with an assumed norm that helps us think through a rule. In the 1990s, my work helped an employer/sponsor/administrator design a disclosure regime in which Form 5500 reports, summary plan descriptions, summary annual reports, and other disclosures would show only an address that did not reveal any location of the employer, any of its executives, or anyone known to be associated with the employer. We did this without depriving any participant, beneficiary, or alternate payee of ERISA information rights, and providing the Secretaries of Labor and Treasury a useful means to communicate with the plan’s administrator.

For many situations in which a plan’s administrator strategically decides to file an incomplete report, the situation often already involves an EBSA investigation and a current or predecessor fiduciary’s known breach of the fiduciary’s responsibilities. Likewise, the plan’s administrator already was lawyered-up. For situations not so freighted, John Feldt mentions smart points.

I’ve drafted attachments of a kind you describe. There are circumstances in which filing an otherwise fair Form 5500 report that lacks an independent qualified public accountant’s report is better than filing nothing. And a plan administrator’s honest explanation in its .pdf attachment might be more decent than misleading. Filing this way does not get a pass for long. The Labor department’s computer system might process the incomplete report (and publish it for the public website). But there are further screenings, some automated and some by humans. The Labor department knows there are a substantial number of submissions of these not-done-yet attachments. At least enough so they have regular procedures to detect and follow-up on these submissions. Even without a human, the computer system can scan both the size and content of a .pdf to discern one that likely lacks financial statements. And sampling catches some more. In my experience, the Labor department sees quickly the lack of an IQPA report, and sends an or-else letter about imposing penalties. But if a plan’s administrator is diligent about getting the IQPA’s audit done and files an amended Form 5500 report quickly (ideally, before being caught), EBSA might give some administrative grace.

RTM, thank you for your helpful observations. My third question, which I expressed incompletely, goes to whether a plan administrator’s choice between methods is influenced by what services the plan’s recordkeeper provides or offers. The method described in the Internal Revenue Manual was designed assuming that many claims would be presented through internet communications. Some recordkeepers have software designed to follow the method described in the Internal Revenue Manual. And the software can do so iteratively, not presenting questions that preceding information renders irrelevant. But the summary method the Internal Revenue Manual describes burdens a paper form. Because a blank paper form doesn’t know which hardship reason a claimant selects, one must present all 31 follow-up questions (and for each some space to fill-in an answer). I imagine a plan’s administrator might be more likely to adopt the summary method if the recordkeeper’s software makes it easy to use. But I’d like to know what BenefitsLink people are seeing.

I apologize for confusing you with my use of the word report. Because the annual report ERISA § 103 requires is filed using Form 5500, I sometimes use the word “report”, usually modified by the phrasal adjective “Form 5500” for what most people call a Form 5500. In this forum, I should have used the customary lingo. Still curious: Does the 5500 you describe also omit the administrator’s (rather than the sponsor’s) telephone number? And if so, does the validation treat that as not causing a submission to fail?

If EFAST2-approved software validates the report, might a plan's administrator use that fact to defend, if later questioned, at least a presumption that the administrator could have reasonably believed that the report did not fail to meet a requirement because the report omitted the sponsor's telephone number? Just curious, does the report you describe also omit the administrator's telephone number?

The Internal Revenue Manual describes a method for a plan’s administrator to decide a claim for a hardship distribution using only the participant’s written statements, including some that “summarize” an expense incurred. Under this method, the administrator need not read, nor even immediately collect, a source document that shows the claimed hardship expense. https://www.irs.gov/irm/part4/irm_04-072-002#idm140377115475856 How many of your clients use this method and do not ask for any source document? How many of your clients require a source document? Do your clients’ methods vary with the plan’s recordkeeper?

There is a completely different tax-reporting and tax-withholding regime about non-U.S. payees. The bank, trust company, or insurance company that serves as a directed trustee, custodian, or other payer might help with more information. Also, some recordkeepers have software with coding for these points.

That bigger and smaller plans are different markets, and perhaps in some ways different worlds, is often a reason I read BenefitsLink. My learning about small plans and services for them is indirect. A little bit is from volunteer work for charities. WCC and austin3515 and Bill Presson, thank you for your observations about why a recordkeeper might be reluctant to serve a plan that lacks an advisor.

Just curious, what about situations in which a small-business employer that is a retirement plan’s sponsor and administrator uses no § 3(38) manager, no § 3(21) advisor, and not even a non-fiduciary investment advisor. What if a plan’s sponsor/administrator selects the plan’s investment alternatives (within what’s available on a recordkeeper’s platform) with no guidance from anyone? Is a recordkeeper service for such a plan available in the small-plans markets? And if a recordkeeper is reluctant to offer its service to such a plan, what worries them?

ERISA § 402(b)(3) commands: “Every employee benefit plan shall—provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan[.]” Employee-benefits lawyers understand that compound sentence to allow opportunities for widening or narrowing which people can amend a plan, and what kind of writing is valid or ineffective. A plan’s amendment provision could be broad, such as: “The Plan may be amended by anything that is the act of the Plan Sponsor.” Or narrow, such as: “Only a non-electronic written instrument signed by the Plan Sponsor’s Executive Vice President for Human Capital and witnessed by the Plan Sponsor’s Deputy General Counsel for Employee Benefits can amend the Plan.” Here’s a few of courts’ decisions: Horn v. Berdon, Inc. Defined Benefit Pension Plan, 938 F2d 125, 127, 13 Empl. Benefits Cas. (BL) 2492, 2493 (9th Cir. July 1, 1991) (“[T]there is no requirement that documents claimed to collectively form the employee benefit plan be formally labelled as such.”). Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 18 Empl. Benefits Cas. (BL) 2841 (Mar. 6, 1995) (Stating as little as “[t]he Company” may amend the plan is enough to meet ERISA § 402(b)(3)’s two requirements—that a plan “provide a procedure for amending [the] plan, and [a procedure] for identifying the persons who have authority to amend the plan[.]”). Cerasoli v. Xomed, Inc., 47 F. Supp. 2d 401 (W.D.N.Y. Apr. 30, 1999) (A written plan need not be a single, formal document.). Halbach v. Great-West Life & Annuity Ins. Co., 561 F.3d 872, 46 Empl. Benefits Cas. (BL) 2010 (8th Cir. Apr. 13, 2009) (A letter mailed to participants referred to a summary of material modifications. Those two writings formed an “instrument”. That instrument was sufficient to amend an employee-benefit plan.) Tatum v. R.J. Reynolds Tobacco Co., No. 1:02-cv-00373, 51 Empl. Benefits Cas. (BL) 2028, 2011 WL 2160893 (M.D.N.C. June 1, 2011) (An attempted amendment was void because it was not made according to the plan’s amendment procedure.), further proceedings on other grounds, No. 1:02CV00373, 61 Empl. Benefits Cas. (BL) 2860, Pens. Plan Guide (CCH) ¶ 24019B, 2016 WL 660902 (M.D.N.C. Feb. 18, 2016). To understand whether a writing beyond the thing called a “plan document” amends a plan, a starting point is to read the governing documents of the plan that might or might not have been amended.

Bill Presson, thank you for always teaching us so much. I’m hoping you’ll indulge us with one more lesson. Imagine a profit-sharing plan’s sponsor does not seek to change an allocation’s conditions but wants to change from having only one allocation group to providing an allocation group for each participant. If the plan’s sponsor is unwilling (for whatever reason) to use your new-plan method, what constraints affect the timing of an amendment to an allocation group for each participant? If a participant has accrued into the allocation formula for the current year, must one wait for the next year? Is there any other constraint or restraint on the change?

I am not aware of a specific rule about your question. But consider this reasoning: If, after the military service, the participant returns to work and qualifies for a makeup nonelective contribution, it is determined on the would-have-been as if she had been actively at work. The makeup contribution does not count against nondiscrimination measures for the year in which the makeup contribution is made. To allow relief also in the leaving-for-military year would count the same benefit accrual twice. I understand this introduces some distortion in measures for the leaving-for-military year. But perhaps that’s a cost of needing rules that can’t wait for knowing whether the participant completes the military service, returns to work, and qualifies for the makeup contribution. Consider what would be in the 2019 tests if the participant does not return after the military service.