Peter Gulia

Wolters Kluwer (parent of CCH and ftwilliam.com) will publish my article as the Q&A feature in 401(k) Advisor’s July issue. WK owns the copyright, and my republication rights don’t kick in until an interval after publication. About your particular question, furnishing a 404a-5 disclosure electronically—whether by a website, or as an email’s attachment—can work if: The participant provided the plan’s administrator an operable electronic address. Or, the employer provided an electronic address for its employee and, after the former employee’s severance, the administrator finds the address still reaches the participant. The administrator sent a (paper) opt-out notice, and the individual did not opt out. If the communication is by website posting, the administrator sent or sends to the electronic address a notice of internet availability. Or, for a communication directly by email, the email includes similar notice elements.

A follow-up on RatherBeGolfing’s explanation about formatting: The 152 pages of the prepublication release became 41 pages in this morning’s Federal Register. Of those 41 pages, only the last three are for rules’ text, and within those about two are for the new rule. But follow RBG’s suggestion and read the explanation of the rulemaking. As I learned when I wrote my article this past weekend, some elements of the new rule are easier to interpret if one reads the agency’s reasoning.

Not all sales effort about a pooled-employer plan is a push; some is a defensive strategy of a service provider that fears losing business to those that offer the new thing. Some employers are attracted—with zero expense savings, or even an expense increase—to a format under which someone else is the plan’s administrator. Please understand I don’t advocate for or against anything. I just describe some observations.

Beyond others’ observations: An Internal Revenue Code § 7525(a) privilege can apply only if the practitioner’s practice is subject to Federal regulation under the Treasury department’s “Circular 230” rules and the practitioner’s advice sought is within her proper scope under those rules. https://uscode.house.gov/view.xhtml?req=(title:26%20section:7525%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section7525)&f=treesort&edition=prelim&num=0&jumpTo=true For some kinds of nonlawyer practitioners, the rules limit what a practitioner is authorized to do. For example, an enrolled actuary is limited to issues involving specified Internal Revenue Code sections, and the range of them is not intuitive. For example, while all of § 401 is covered, none of § 402 is; and for § 403, only § 403(a) is covered. 31 C.F.R. § 10.3(d)(2): Practice as an enrolled actuary is limited to representation with respect to issues involving the following statutory provisions in title 26 of the United States Code: sections 401 (relating to qualification of employee plans), 403(a) (relating to whether an annuity plan meets the requirements of § 404(a)(2)), 404 (relating to deductibility of employer contributions), 405 (relating to qualification of bond purchase plans), 412 (relating to funding requirements for certain employee plans), 413 (relating to application of qualification requirements to collectively bargained plans and to plans maintained by more than one employer), 414 (relating to definitions and special rules with respect to the employee plan area), 419 (relating to treatment of funded welfare benefits), 419A (relating to qualified asset accounts), 420 (relating to transfers of excess pension assets to retiree health accounts), 4971 (relating to excise taxes payable as a result of an accumulated funding deficiency under § 412), 4972 (relating to tax on nondeductible contributions to qualified employer plans), 4976 (relating to taxes with respect to funded welfare benefit plans), 4980 (relating to tax on reversion of qualified plan assets to employer), 6057 (relating to annual registration of plans), 6058 (relating to information required in connection with certain plans of deferred compensation), 6059 (relating to periodic report of actuary), 6652(e) (relating to the failure to file annual registration and other notifications by pension plan), 6652(f) (relating to the failure to file information required in connection with certain plans of deferred compensation), 6692 (relating to the failure to file actuarial report), 7805(b) (relating to the extent to which an Internal Revenue Service ruling or determination letter coming under the statutory provisions listed here will be applied without retroactive effect); and 29 U.S.C. {§} 1083 (relating to the waiver of funding for nonqualified plans).

The investment alternatives described above can work (or can do harm). It depends on the retirement plan’s circumstances; good fiduciaries, including plan administrator, plan trustee, plan investment adviser, investment trustee, and investment manager; good service providers, including (at least) recordkeeper and certified public accountants. Christopher Wilson, I might be in a position to give you useful information if we talk so I rule out client conflicts.

Larry Starr, thank you for your further observation. For some, it would not drain the client's bank account; some lawyers will do the research, interpretation, and written advice without fee.

Consider whether your client might use an anonymous submission to discern whether the IRS would accept the undisclosed applicant's proposal for resolving the defects.

If the records are incomplete, it takes some tolerance and patience to reconstruct a plan’s financial statements. I used the most recent information, which was fuller, and worked backwards—for some elements extrapolating an estimate based on the known amounts. For example, if your knowns are opening and closing balances, contributions, and an absence of distributions, one can interpolate an investment gain or loss. Or if an investment gain is known or sensibly estimated from mutual funds’ published information, one can extrapolate an opening or closing balance. My client had records on contributions. Whatever your client estimates is better than not reporting.

CuseFan, thank you. A showing of reasonable good faith is what the written advice is for. (It’s somewhat similar to how reliance on a tax lawyer’s opinion can excuse a taxpayer from an add-on penalty, but not the underlying tax.) Every written advice about law is limited to sources the advisor could have read before she finished her work. But would a writing need a caveat beyond that one?

I recognize the two “modifications” on page 75 as revisions my law department told Sungard to implement.

In recent weeks, we’ve seen many BenefitsLink discussions about ambiguities and uncertainties in what the Paycheck Protection Program pays for. In other contexts, a businessperson might get a written opinion to show that what one did, if later found to be incorrect, relied on a reasonable interpretation. Applied for this context, one might seek a law firm’s or accounting firm’s written opinion that a borrower’s use of PPP assistance is a reasonable interpretation of the borrower’s documents and the guidance the government had published. Is anyone doing this?

If the plan was ERISA-governed, it had a Form 5500 requirement, however limited, for all years. The delinquent-filer system will take any number of reports. A year ago, a client with my sitting-at-the-computer help filed a quarter-century of reports under one $750 DFVCP payment.

Did this plan ever have a nonelective, matching, or mandatory contribution? Or was it always voluntary salary-reduction-only?

Griswold, I regret I have none of those documents. Prototype documents were in the computer systems, not on paper. And I never had a copy of any of the prototypes. I worked on the formation of CitiStreet, and in 2005 sales that undid the venture. Except for the independent fiduciary business sold back to State Street, the sales were to Aetna/ING (now Voya) and MetLife. Each buyer took delivery of the records for the business line it bought. We were punctilious about delivering all the records, even the contents of my office. CitiStreet Associates LLC was a service provider of many lines of business in different markets and with different sales channels. Not knowing your client, I can’t guess which buyer your client should check with. Also, you might check whether a copyright notice on the piece you have gives you any clue about which document vendor is behind the prototype. I can’t guess it because Copeland/CitiStreet used three prototype licensors.

Beyond other reasons, some recordkeepers believe that even a simple receivables entry inherently involves some interpretation or discretion, which belongs to the plan’s administrator. Even if decision-making is with the plan’s administrator, some recordkeepers worry that presenting a draft might be perceived as advice, which might be the unlawful practice of law or might be an unlawful communication contrary to a CPA law. (I don’t say either fear is right, only that a business might have them.)

There are many possibilities. But the key point is for the TPA to let the pension plan’s administrator evaluate the participant’s claim for a non-annuity distribution and, if it denies the pending claim, further afford the claimant opportunities under the plan's claims procedure.

Pension Admin in Ohio, the plan’s administrator might want its lawyer’s advice about how much diligence the administrator ought to use in deciding whether to believe the participant’s statement. And the administrator might want its lawyer’s advice about how to clarify the record of its handling of the participant’s claim to follow ERISA § 503 [29 U.S.C. § 1133] and the plan’s claims procedures. The administrator also might evaluate the plan’s, its administrator’s, and the employer’s risks. Some of the potential claims against one or more of them might include the spouse’s claim for his or her survivor annuity, and the plan’s claim against its fiduciary for paying an amount the payee was not entitled to. Even if the participant is eager to get a distribution, his claim if the administrator denies the non-annuity distribution might be weak if the plan grants the administrator discretion in finding facts. And the participant might be reluctant to sue because it might expose him to counter-claims and cross-claims (if now he’s telling the truth about never having a spouse). Further, the employer that paid health benefits or a portion of health insurance premiums might want its lawyer’s advice to evaluate claims for what the worker and the not-spouse stole (if the other person was not the participant’s spouse). If a pension plan fiduciary’s reason for allowing a participant’s election without the spouse’s consent is that the consent “may not be obtained because there is no spouse”, that fact must be “established to the satisfaction of [the] plan representative[.]” ERISA § 205(c)(2)(B) [29 U.S.C. § 1055(c)(2)(B)]. The plan’s administrator, in deciding whether the fact is sufficiently “established” must act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent” person experienced in managing a similar defined-benefit pension plan would use. ERISA § 404(a)(1)(B) [29 U.S.C. § 1104(a)(1)(B)]. A cautious person might not take at his word a person who, if he’s telling the truth now, admits he was a fraudster and thief, and committed at least one Federal crime. 18 U.S.C. § 1027 (false statements). Likewise, the participant’s three inconsistent statements about his tax returns suggest a lack of honesty. But what steps to take turn on the particular facts and circumstances and the proper fiduciary’s decision-making. Unless the TPA is the plan’s administrator or claims administrator, the TPA might prefer to limit its involvement to furnishing to the administrator information the administrator does not yet know and otherwise steps not beyond the TPA’s contracted service.

If a participant's account is more than $5,000 and the participant has reached neither her required beginning date nor her normal retirement age, one doubts the plan provides an involuntary distribution.

Kevin C, thank you.

We’re all imagining possibilities for the situation mming described. Mike Preston mentions one I didn’t ask in my questions. I omitted the possibility that a plan might compel an involuntary distribution because a participant attained normal retirement age. In the profit-sharing plans I’ve seen, the only real effect of an ERISA § 3(24) normal retirement age is making an account non-forfeitable if it wasn’t already. Some plan documents recite an entitlement to a distribution at normal retirement age, but also provide that an absence of a claim is deemed an election to continue. BenefitsLink mavens, has anyone seen an IRS-preapproved document that allows a plan sponsor to provide an involuntary distribution on or after normal retirement age but before the IRC § 401(a)(9) required beginning date? This is more than an idle curiosity. I have a client that has participant-friendly reasons for getting participants rolled out of the 401(k) plan before any § 401(a)(9) provision could apply.

Luke, yes. For a distribution that would have been the year’s minimum distribution, the administrator need not: furnish a § 402(f) notice, provide a default direct rollover for a distributee who did not render her instruction, allow the distributee to instruct a direct rollover. The payer withholds for Federal income tax as if the distribution were not an eligible rollover distribution—usually, 10% or according to a proper withholding certificate. This kind of distribution can have different treatments for tax-withholding and for the distributee’s tax return.

Before worrying about what the plan's administration must or may do at a normal retirement age or a required beginning date, consider getting rid of all the plan's life insurance contracts. The plan would offer each insured a limited opportunity to buy the plan's contract at a fair-market-value price. For any contract not bought, the plan's trustee would surrender each contract, getting money for its surrender value.

If the plan is not discontinued, why should the administrator or trustee distribute the participant's account? Doesn't the participant have a right to continue until the participant's required beginning date?

Internal Revenue Code of 1986 (26 U.S.C.) § 402(c)(4) includes this: “If all or any portion of a distribution during 2020 is treated as an eligible rollover distribution but would not be so treated if the minimum distribution requirements under section 401(a)(9) had applied during 2020, such distribution shall not be treated as an eligible rollover distribution for purposes of section 401(a)(31) or [§] 3405(c) or subsection (f) of this section.” https://uscode.house.gov/view.xhtml?req=(title:26%20section:402%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section402)&f=treesort&edition=prelim&num=0&jumpTo=true Section 3405(c) calls for 20% withholding on an eligible rollover distribution. Section 402(c)(4) negates it for what would have been a minimum distribution. Also, such a would-have distribution—if it is not for a hardship, a period of ten years or more, or a life or life expectancy—is an eligible rollover distribution for purposes other than the three the quoted flush language of § 402(c)(4) lists.

I doubt the Labor department would outright suspend an investigation. You might persuade an investigator to allow more delay in producing records. If a requested record is one ERISA commands a plan’s administrator to keep, or that a prudent fiduciary acting with the care ERISA § 404 requires would keep, consider that revealing too much reliance on service providers might lead an investigator to think the administrator is weak. That could result in intensifying the investigation.