Peter Gulia

I’m not saying anything is right. Only that I’ve heard some CPAs argue that a non-attest TPA service was limited enough to not impair the firm’s independence for the attest service of an IQPA audit of the retirement plan’s financial statements. When I heard it, no one was asking for my advice. In my experience, the problem of the same firm seeking to serve as TPA and IQPA happens when the plan’s administrator is unadvised, and its decision-maker does not question the accounting firm’s independence. That problem isn’t helped by the fact that there is no “DOL Regulation”. The 1975 interpretive bulletin reprinted at 29 C.F.R. § 2509.75-9 is not a rule or regulation.

Ken, I meant only that § 410(b) coverage was met about which people are eligible for allocations of elective, nonelective, and matching contributions and what contributions are allocated. (And even that information suffers from telephone effect. The accounting firm that did the testing reported to the parent’s outside counsel, not me, who advised the parent’s inside counsel, who said something to the parent’s HR, who told a subsidiary’s HR, who told one of the subsidiary’s inside assistant counsels, who called me.) G8Rs, thank you for your thought about 26 C.F.R. § 1.401(a)(4)-11(g).

I’ve heard some argue the other service might not impair an auditor’s independence, at least for self-review threats, if the other service is non-discretionary. Here’s a quotation from an AICPA interpretation: 1.295.115 Benefit Plan Administration .01 When a member provides benefit plan administration services to an attest client, self-review and management participation threats to the member’s compliance with the “Independence Rule” [1.200.001] may exist. .02 Notwithstanding the conclusions reached in paragraph .03 of this interpretation, a member should comply with the more restrictive independence provisions of the Employee Retirement Income Security Act (ERISA) of 1974 and DOL regulations when performing audits of employee benefit plans subject to those regulations. .03 If the member applies the “General Requirements for Performing Nonattest Services” interpretation [1.295.040] of the “Independence Rule” [1.200.001], threats would be at an acceptable level and independence would not be impaired. For example, the member may a. communicate summary plan data to a plan trustee. b. advise management regarding the application and impact of provisions in a plan document. c. process certain transactions that have been initiated by plan participations [sic] or approved by the plan administrators using the member’s electronic media, such as an interactive voice response system or Internet connection or other media. Such transactions may include processing investment or benefit elections, changes in contributions to the plan, data entry, participant confirmations, and distributions and loans. d. prepare account valuations for plan participants using data collected through the member’s electronic or other media. e. prepare and transmit participant statements to plan participants based on data collected through the member’s electronic or other media. .04 However, threats to compliance with the “Independence Rule” [1.200.001] would not be at an acceptable level, and could not be reduced to an acceptable level by the application of safeguards, and independence would be impaired if, for example, a member a. makes policy decisions on behalf of management. b. interprets the provisions in a plan document for a plan participant on behalf of management without first obtaining management’s concurrence. c. makes disbursements on behalf of the plan. d. has custody of the plan’s assets. e. serves in a fiduciary capacity, as defined by ERISA. [Prior reference: paragraph .05 of ET section 101] Yet, a plan’s administrator must meet ERISA § 103’s command to engage an independent qualified public accountant, and must do so meeting fiduciary responsibilities under ERISA § 404 and other law. In meeting those responsibilities, it can’t be prudent to get legal advice from a nonlawyer.

Thank you for your excellent analysis and helping me think about this.

Imagine a group of commonly controlled business organizations. All have a § 401(k) plan. None is a safe-harbor plan. The group has no troubles with coverage, ADP, or ACP tests. Some plans allow hardship distributions; some don’t. Imagine that resulted in § 401(a)(4) discrimination in favor of highly-compensated employees. For a year that ended, what may the employers do to cleanse the discrimination defect? If it can’t be done by self-correction, what would the IRS ask for?

It's a bit startling that a plan's sponsor might advantage a Pennsylvania unemployed person by not providing a payout option beyond a single sum.

If you’re crowd-sourcing a survey, here’s some background information about how a pension might affect Pennsylvania’s unemployment benefits. (I have never worked with, and did not check, any of this information.) Here’s the agency’s unofficial explanations: “Pensions: Pension payments may be deductible from UC if (1) your [a] Base-Year [or chargeable] employer has contributed to or maintained the pension plan, and (2) your work during the Base Year increased the amount of, or affected your eligibility for, the pension. (See your Notice of Financial Determination and accompanying insert entitled ‘Explanation of Your Notice of Financial Determination’ for complete information about your Base Year.) If your employer was the only one who contributed to the pension, 100% of the prorated, weekly pension amount is deductible. If you contributed in any amount to the pension, 50% of the prorated, weekly pension amount is deductible. Pensions are deductible from weekly benefits on a dollar-for-dollar basis. The following payments are NOT deductible, however: . . . . A lump-sum pension payment, if you did not have the option of receiving monthly or periodic payments. A lump-sum pension payment that is deposited (rolled over) into an eligible retirement plan, such as an IRA, within 60 days after you received the payment. In other words, you can avoid having your UC benefits reduced if you roll over your pension to save it for retirement. If you roll over only a part of a lump-sum payment, that portion of the lump-sum that is not rolled over is deductible. https://www.uc.pa.gov/unemployment-benefits/handbook/Pages/How-Weekly-Benefits-May-be-Reduced.aspx “Pensions and retirement payments are deducted from UC if a base-year employer maintained or contributed to the pension plan and base-year employment affected the claimant's eligibility for, or increased the amount of, the pension. Fifty percent of the pro-rated, weekly pension amount is deducted if the claimant contributed in any amount to the pension plan. If the pension is entirely employer funded, 100 percent of the pro-rated, weekly pension amount is deducted from UC. Social Security and Railroad Retirement pensions are not deducted from UC benefit payments. A lump-sum pension payment is not deducted from UC, unless the claimant had the option of taking a monthly pension. In addition, a lump-sum pension is not deductible if the claimant ‘rolls over’ the lump-sum into an eligible retirement plan such as an Individual Retirement Account (IRA) within 60 days of receipt.” https://www.uc.pa.gov/unemployment-benefits/Am-I-Eligible/benefit-eligibility/Pages/Miscellaneous.aspx Here’s the statute: Pennsylvania Unemployment Compensation Law § 404 [unofficially compiled at 43 Pa. Stat. Ann. § 804]: https://govt.westlaw.com/pac/Document/N5CD19402BE8711E6996BCDAA9D9C062F?viewType=FullText&originationContext=documenttoc&transitionType=CategoryPageItem&contextData=(sc.Default) And the regulations: 34 Pa. Code § 65.101 to -.108 https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/034/chapter65/s65.101.html&d=reduce 34 Pa. Code § 65.102(k)(3): “If a claimant does not roll over the entire lump sum into an eligible retirement plan, as set forth in paragraph (1), the Department will determine the amount to be deducted from the claimant’s weekly benefit amount by dividing the amount of the lump sum payment that is received by the claimant by the total amount the claimant could have received had the claimant opted to take the entire lump sum available to the claimant. That quotient represents the deductible share of the lump sum pension amount received by the claimant. The claimant’s unreduced monthly pension is the amount the claimant could have received each month had the claimant opted to take periodic payments in lieu of a lump sum. The Department will calculate the deductible portion of that unreduced monthly amount by multiplying it by the quotient representing the deductible share of the lump sum which is received by the claimant. Using the deductible amount of that monthly pension, the Department will compute the prorated weekly deductible amount in accordance with § 65.108.” 34 Pa. Code § 65.105: “Lump-sum retirement payments. (a) When a claimant receives a lump-sum payment in lieu of a periodic pension payment, the prorated weekly pension amount which the employe could have received will be deducted in accordance with § 65.108 (relating to rules of attribution). (b) When a claimant cannot receive periodic pension payments and must take a mandatory lump-sum payment, no pension deduction will be made. (c) When a claimant receives a deductible lump sum payment and transfers only a portion of that payment into an eligible retirement plan within 60 days of receipt, the remainder of the lump sum payment which is not transferred into an eligible retirement plan will be deducted, along with any other deductible pension payments made to the claimant under § 65.102 (relating to application of the deduction) and § 65.108. 34 Pa. Code § 65.108: “Rules of attribution. If a pension, retirement, annuity or other similar periodic payment deductible under section 404(d)(2) of the law (43 P.S. § 804(d)(2)) is received on other than a weekly basis, the amount to be deducted will be prorated as follows: The claimant’s monthly pension is the amount the claimant could have received each month had the claimant opted to take periodic payments in lieu of a lump sum. The Department will use the deductible amount of that monthly pension, convert it to a yearly amount, and divide by 52. If not a multiple of one dollar, the Department will determine the prorated weekly deductible amount of the pension by rounding to the next higher multiple of one dollar. The weekly benefit amount payable to the claimant will be reduced, but not below zero, by the prorated weekly deductible amount of the pension, in accordance with section 404(d)(2) of the law.

Thank you for your observations about the wisdom of stating such a provision. My question is much narrower: Would the IRS recognize that a provision of the kind described does not cause a document to fail to state a tax-qualified plan? I see C.B. Zeller’s point about “definitely determinable”. 26 C.F.R. § 1.401-1(a) calls for “a definite written program” and “a definite formula . . . for distributing the funds accumulated under the plan[.]” 26 C.F.R. § 1.401(a)-1(b) calls for a plan’s benefit to be “definitely determinable[.]” Here’s what should matter about definiteness: When the plan’s administrator must decide whether to approve a claim, will the administrator—by reading the governing document and any text the governing document properly refers to—have enough information to decide whether the plan provides what the claim asks for? (And what should matter for an IRS review would be: Can the document, including the referred-to text, result in a disqualifying provision?) But I’ll answer my own question. For advance written determinations on whether a document states a tax-qualified plan, the IRS does not recognize incorporation by reference except as permitted by a statute, rule, other authority, or the IRS’s administrative grace.

Some plan sponsors would prefer to adopt, once, a provision that allows whatever loans and distributions can be provided without tax-disqualifying the plan. Some would like such a provision to include what becomes allowed under future Acts of Congress. If a sponsor of a prototype or volume-submitter document presented such a provision, would the IRS approve? If a sponsor of a new individually-designed plan presented such a provision, would the IRS approve?

Without seeing the employer’s written plan, we don’t know what conditions it sets. If the plan is no more restrictive than fits Internal Revenue Code § 21(b)(2) and § 129(d)-(e): Might a fee for the childcare provider’s service and availability have been a reimbursable expense when the employee paid it?

Several writers in BenefitsLink discussions have mentioned an idea that a plan provision for a coronavirus-related distribution might be unnecessary if the participant who would take it is severed from employment or otherwise entitled to a distribution. But here’s one further reason why a classification might matter. Some recordkeepers are waiving a processing fee for a coronavirus-related distribution, but not for a normal distribution.

I must have mistakenly whacked some buttons in rendering my post. CARES 2301.pdf x-12R-20.pdf

An IRS interpretation states: “If the Eligible Employer lays off or furloughs its employees and continues the employees’ health care coverage, but does not pay the employees any wages for the time they are not working, the employer may not treat any portion of the health plan expenses as qualified wages for purposes of the Employee Retention Credit because no portion of the health plan expenses would be allocable to wages paid to the employees.” That website display includes: “This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.” https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-amount-of-allocable-qualified-health-plan-expenses-faqs A letter from three members of Congress asks the IRS to interpret differently CARES Act § 2301. https://www.finance.senate.gov/imo/media/doc/050420%20Letter%20to%20Treasury%20on%20ERTC%20health%20benefits.pdf I attach the statute’s § 2301. And the Joint Committee on Taxation explanation. Imagine your client wants to file its tax return with the position the Congressmen suggest, that the credit applies for health plan expenses even if no other wages is paid. Your client tells you it wants your written opinion to help protect against penalties. Your client doesn’t ask for a more-likely-than-not opinion; a substantial-authority opinion would meet the purpose. 26 C.F.R. § 1.6662‐4(d)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=2498c4ede6da62c6daa26b3f833d07b7&mc=true&node=se26.15.1_16662_64&rgn=div8 Could you, acting within your profession’s conduct rules, render the requested opinion? Would you? My queries are not about anything for my law practice. Rather, I’m tooling-up to teach my summer-semester course on Professional Conduct in Tax Practice. (My students include people in law, accounting, and actuarial firms, and some who render tax advice for other businesses.) The New York Times reported on the letter mentioned above, and I hope the story—and your ideas—might illustrate some points about how practitioners manage uncertainty in tax law. I'll be grateful for any ideas you're willing to share.

Beyond the points mentioned above and others: If a plan’s sponsor relies on an IRS-preapproved document, consider that a document’s sponsor might (later) write CARES Act provisions with fewer choices than this plan sponsor seeks to specify. A user may not rely on the IRS opinion letter that accompanies a preapproved document unless the user makes no change beyond those the document or the IRS’s Revenue Procedure allows. A plan’s sponsor might not know today what would be within or beyond some document not yet written.

Thank you, this information helps me.

Even in years with no disaster or public-health emergency, many administrators of employee-benefit plans—whether acting directly, or by some agent—routinely extend a Form 5500 due date from July 31 to October 15. If the Labor department doesn’t grant a coronavirus delay, is there a practical consequence beyond the make-work of completing and sending an extension form? I ask because BenefitsLink writers often school me about gaps in my knowledge or experience.

Yes, thepensionmaven described a TPA firm. And asked for a reference to Circular 230’s return-of-records rule. And later in the discussion described an example about accountants. My post has in it a quotation of an accountancy rule, and a citation of and hyperlink to the particular Circular 230 rule thepensionmaven asked for. My post doesn’t state anything about what a TPA must, may, or should do. Larry Starr explains his firm’s method. I mostly agree that external law does not ordinarily impose a duty to make copies of copies of records already in a client’s possession. Some TPAs need not follow any professional-conduct rules. Some TPAs have a worker who follows the American Retirement Association’s rule, which applies even if the member is not governed by the rules for practice before the Internal Revenue Service. Some TPAs have a worker who wants the TPA to follow a rule for lawyers, accountants, actuaries, or another profession. (Some regulators assert that the profession’s rules apply to whatever a licensee does, even if her work is not of a kind that requires the profession’s license.) Returning to what I imagine might be thepensionmaven’s interest, sometimes a hint about some return-of-records rule—even if the rule might not or does not apply—helps persuade a removed TPA to cooperate in furnishing what the next TPA seeks. Consider too Larry Starr’s observation that a prospect of incurring fees might motivate a client to become less lazy about looking for what it already has.

Beyond the rules for practice before the Internal Revenue Service, a certified public accountant likely is regulated by States’ accountancy laws. For example, here’s a regulation of New Jersey’s State Board of Accountancy. N.J.A.C. § 13:29-3.16 Records a) A licensee or the licensee’s firm shall furnish to the licensee’s client or former client, upon request made within a reasonable time after original issuance of the document in question: 1) A copy of a tax return of the client; 2) A copy of any report, or other document, issued by the licensee to or for such client; 3) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee removed from the client’s premises or received for the client’s account, but the licensee or the licensee’s firm may make and retain copies of such documents when they form the basis for work done by the licensee; and 4) Licensee-prepared client records that would ordinarily constitute part of the client’s books and records, are contained in the licensee’s or his or her firm’s working papers, and are not otherwise available to the client. Copies of such records shall be produced to the client in the same manner, media, and format as the record was created by the licensee. b) A licensee or the licensee’s firm shall not withhold client records for the non-payment of fees for services performed. I picked New Jersey as an example because I remember from my experience in advising CPAs that New Jersey harshly enforces this rule. The Circular 230 rule (if it applies) has more tolerance. 31 C.F.R. § 10.28 https://www.ecfr.gov/cgi-bin/text-idx?SID=2eeaa78d7df8a20eb74ecf9cb721ece2&mc=true&node=se31.1.10_128&rgn=div8

Here's a text of the Senate-passed bill. Paycheck Protection Program and Health Care Enhancement Act bill.pdf

To read the rule Luke Bailey describes: https://www.ecfr.gov/cgi-bin/text-idx?SID=d7e5f18218c1cca961286a6fa1b6f4cf&mc=true&node=se26.20.301_17701_67&rgn=div8

So how long can a super-smart TPA wait?

Just curious, how long can the software makers wait before one must invent an answer to get the recordkeepers' computers ready?

The key to understanding the SECURE provision is that the employment-based retirement plan’s distribution is not a payment of money; it is a distribution of the contract, the one that is no longer the plan’s investment alternative. (The plan should provide, or at least not preclude, a distribution by a delivery of the contract.) Under Internal Revenue Code § 401(a)(38)(A)(ii), a plan doesn’t tax-disqualify because the plan allows “distributions of a lifetime income investment in the form of a qualified plan distribution annuity contract[.]” “If a trust described in section 401(a) and exempt under section 501(a) purchases an annuity contract for an employee and distributes it [the annuity contract] to the employee in a year in which the trust is exempt, and the contract contains a cash surrender value which may be available to an employee by surrendering the contract, such cash surrender value will not be considered income to the employee unless and until the contract is surrendered. . . . .” 26 C.F.R. § 1.402(a)-1(a)(2) https://www.ecfr.gov/cgi-bin/text-idx?SID=85324826c4efd646e65f48bddbb1cf78&mc=true&node=se26.6.1_1402_2a_3_61&rgn=div8 Caution: This discussion is limited to helping employee-benefits practitioners. Anything I post here is not advice to anyone.

Congress granted the Secretary of Labor power to delay due dates, but not to change ERISA § 103’s command to engage an independent qualified public accountant. ERISA § 518 [29 U.S.C. § 1148], amended by CARES Act § 3607.

Gilmore, the practical answers might come from some cautious lawyers in retirement-services businesses, especially big insurance and trust companies. When I was inside counsel, the operations guys often reminded me that anything I said had to be functional across a dozen or more different computer systems (often, with no new or revised programming). And I sometimes considered that even the slightest weakness in my legal reasoning (or just an unfortunate change in a regulator’s, arbitrator’s, or court’s appetite) could be magnified by tens of thousands of plans, with tens of millions of individuals, and hundreds of billions of dollars. Further, a recordkeeper’s counsel has to manage these issues for a context in which all but the biggest plan sponsor/administrators have no lawyer but everyone must pretend that no one gives tax or legal advice to anyone beyond the recordkeeper itself. Those facts of business life lead to doing what can be sourced to the government agency, with little or no room for interpretation. Your originating post suggests your client plans are stuck with what the recordkeepers provide. Don’t be surprised that a recordkeeper might give big-ship answers.