Peter Gulia

Mojo and RatherBeGolfing, I’m imagining that an employer uses the email addresses for something that fits the new rule’s call for an employment-related purpose other than communicating about the retirement plan. Here’s an example I suggested in the other discussion: Imagine an employer tells its employees that human-resources and safety announcements will be sent to employees’ employer-provided email addresses. Do you think that’s enough?

Thanks. What about keeping the email address constant, but managing which blast distribution lists and system privileges the address is included in?

I don't doubt that it's possible for a computer alone to detect the issue by looking at tax-return data. We might learn how carefully the IRS designs the new forms, and how adept the IRS's processing is.

Another BenefitsLink discussion includes some observations about how much or how little help the new Default Electronic Disclosure rule offers if an employer/administrator lacks email addresses for the portion of participants who are severed from employment. A 2002 rule allows electronic delivery if, with other conditions, the employee/participant can access the communications using an email system the employee uses as “an integral part” of the employee’s work for the employer. Under Wednesday’s new rule, there is no such “integral part” condition and an employer-provided electronic address can be enough to invoke the new regime if the employer assigns the address for some employment-related purpose beyond the retirement plan’s communications. A retirement plan’s administrator may continue to rely on such an address (if there is no bounce-back or other operability defect) after a participant’s severance from employment. If an employer/administrator seeks to grow the population of (future) former employees who can remain in the new electronic regime, should an employer assign an email address for every employee? (Imagine an employer tells its employees that human-resources and safety announcements will be sent to employees’ employer-provided email addresses.) What do BenefitsLink people think about whether that way is practical or impractical?

As a partial answer to RBG’s recent question, one doubts the IRS has software to screen for these issues by looking at tax-return data. One imagines the IRS would not spot these issues until a return is called out for a human’s reading.

About what would have been the agency’s best or better interpretation of ERISA, people might (and, in comments on the proposed rule, did) disagree. The final rule is clear that a notice of internet availability cannot be on paper. To be codified 29 C.F.R. § 2520.104b-31(d)(4)(i) (“A notice of internet availability must: Be furnished electronically[.]”), 85 Federal Register 31884, 31923 (May 27, 2020). The preamble states the Assistant Secretary’s reasoning: “The Department did not, however, adopt certain commenters’ suggestion that plan administrators should be able to furnish the [notice of internet availability] in paper form. One of the goals in adopting this safe harbor is to advance the use of electronic tools to enhance the effectiveness of, and reduce the costs associated with, ERISA disclosures. The Department maintains that it is important for covered individuals to receive an initial notice, on paper, alerting them that disclosures will be furnished using different procedures. But after that, the safe harbor will create consistency by requiring plan administrators to communicate electronically. As to ensuring the receipt of notices, the rule includes a specific provision in paragraph (f)(4) requiring that action be taken in response to invalid or inoperable electronic addresses. Accordingly, paragraph (d)(4)(i) of the final rule adopts the proposal’s requirement that an NOIA must be furnished electronically to the address referred to in paragraph (b) of the safe harbor.” 85 Federal Register 31884, 31894 (May 27, 2020). The new rule’s preamble, on its first page, describes the 2002 and 2020 safe-harbor rules as not the “exclusive means” of furnishing something. A plan’s administrator might defend other methods as “measures reasonably calculated to ensure actual receipt of the material by plan participants, beneficiaries and other specified individuals.” 29 C.F.R. § 2520.104b-1(b)(1).

If this is an unfunded § 457(b) plan for a select-group employee of a non-governmental non-church tax-exempt organization, the plan likely is governed by ERISA’s title I, but without subtitle B’s part 4 (Fiduciary Responsibility)—ERISA §§ 401-414, 29 U.S.C. §§ 1101-1114. The employer’s unfunded obligation to its employee is as provided by the contract between them. If there is ambiguity in what that contract (including a plan document, if it governs), one construes and interprets the contract according to the common law of contracts. That law includes reasoning for interpreting ambiguous texts. If ERISA governs, it preempts States’ laws. However, if the plan document or contract itself includes a choice-of-law provision, such a provision might have some effect, at least for what interpretation methods a court would use for a dispute about an ambiguous text. As your query observes, for an unfunded plan a bookkeeping account is no more than a measure of the employer’s obligation to pay deferred wages to its employee or former employee. It seems your client’s question is primarily about contract interpretation. I have negotiated both sides of these questions, depending on whether my client was the employer or the employee.

In the Labor department’s design, that the notice of internet availability is electronic supports the administrator’s responsibility in testing that a participant’s electronic address remains valid and operable. If there is a bounce-back and the administrator does not promptly cure it or replace it with another electronic address, one must treat the individual as if she opted out. Tomorrow, not every former employee will have an email address an administrator may use. But in time it’s feasible to set things up so most will. The new rule’s big give is an administrator’s opportunity to rely on an electronic address the participant never asked anything to be sent to. An employer may provide an electronic address for its employee. An employer-provided electronic address can be enough to invoke the electronic regime if the employer assigns the address for some employment-related purpose beyond the retirement plan’s communications. (Imagine an employer tells its employees that human-resources and safety announcements will be sent to employees’ employer-provided email addresses.) Once such an employer-provided address is set up, a retirement plan’s administrator may use the address even after the employment ends. After a participant’s severance from employment, an administrator must check that an employer-provided electronic address still enables receipt of the plan’s communications. For the Labor department to find that something posted to a website is “furnished” to a particular individual, the rulemaking needed something to make it reasonable to believe the individual is an internet user. If one could send a paper notice of the availability of a website disclosure to someone not known to have a functioning electronic address, an administrator might lack evidence that the individual can practically see a website. While this law change might be more incremental than some might like, it’s a big step.

Even if there is a dodge in this rollover and income spread, is it something the IRS should put resources on? A taxpayer could get an income spread by conversions to Roth over a few years. Is the difference between a $33,333 conversion in each of 2020, 2021, and 2022, and one $100,000 rollover in 2020 with income recognized over three years a big deal? (Yes, I see it enables a taxpayer to buy some securities’ shares while prices are lower than they were or later might be.) Is this difference so wide that the IRS should pursue it?

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.