Peter Gulia

Some background in another BenefitsLink discussion. https://benefitslink.com/boards/index.php?/topic/65752-deadline-to-file-5500-forms/&tab=comments#comment-302139

That’s what I’ve been doing. Despite the Securities and Exchange Commission’s order allowing a delay, my investment-adviser clients filed Form ADV before March 30, the unextended due date. And my plan-sponsor clients signed restatements that had been due this month. Another reason to keep working (if the practitioner and the client can): The sooner a Form 5500 report is filed, the sooner an ERISA or Internal Revenue Code statute-of-repose or statute-of-limitations period begins to run.

Perhaps it’s feasible to do something sensible without needing to answer a question of law about what qualifies under a particular State’s or city’s order. Even when one qualifies to allow regular operations at a place of business, many recordkeepers and third-party administrators tell people to work from home. The key exceptions I’ve heard about are sending in: a technician to make sure computer servers, firewalls, and virtual private networks function; someone to retrieve postal mail that wasn’t rerouted, and scan the items that require immediate action.

The Secretary of Labor has some authority to delay a due date by up to one year. ERISA § 518 now allows this not only for “a terroristic or military action” (added after the 9/11 attacks) but also for “a public health emergency[.]” That change was enacted Friday afternoon, March 27.

I’ll tell a client it is a non-exempt prohibited transaction and might be a fiduciary’s breach, but that neither the borrowing participant nor either government agency will pursue enforcement.

A person cannot serve as a qualified termination administrator unless it is a bank, trust company, insurance company, or other business the U.S. Treasury department approves to serve as an IRA custodian. And such an organization cannot serve unless it already “holds assets of the plan that is considered abandoned[.]” https://www.ecfr.gov/cgi-bin/text-idx?SID=49516c01643ab98ff9f663ca7cab4a9e&mc=true&node=se29.9.2578_11&rgn=div8 A typical TPA doesn’t meet that QTA definition. There are other kinds of appointments of a wind-up administrator, including appointment by: a plan fiduciary, if anyone with authority will act; a bankruptcy trustee, if there is a bankruptcy proceeding; a court, if someone petitions the court. For such an appointment, a TPA might serve. My originating query was not about seeking a wind-up administrator. I sought information to help me estimate how many of the plans that might become abandoned after the coronavirus emergency will lack a QTA’s service. I asked not because I think a QTA’s service is desirable, but recognizing it is the only service that is self-appointing.

CARES Act § 2202(b) revises or relieves Internal Revenue Code of 1986 § 72(p) to allow a participant loan up to 100% (instead of 50%) of a vested account. But I see nothing that relaxes the conditions of a prohibited-transaction exemption under ERISA § 408(b)(1) or IRC § 4975(d)(1). Both those exemptions require that a loan be “adequately secured”. The Labor department’s rule (which governs for IRC § 4975 too) requires adequate security and provides “[n]o more than 50% of the present value of a participant’s vested accrued benefit may be considered by a plan as security for the outstanding balance of all plan loans made to that participant[.]” 29 C.F.R. § 2550.408b-1(f)(2)(i). What should a practitioner say about whether to apply or ignore that 50% condition to a participant’s claim for a loan that otherwise would be proper?

Further, the soon-to-be statute's text includes this: "The administrator of an eligible retirement plan may rely on an employee's certification that the employee satisfies the conditions of subparagraph (A)(ii) in determining whether any distribution is a coronavirus-related distribution."

Another sad effect of the top-heavy rule can be to dissuade a business from creating a retirement plan, or dissuade a service provider from taking on a small-business plan as a customer. Before the safe-harbor regimes, I had service-provider clients that would not offer services if a prospect’s small size suggested a risk that a plan could be or become top-heavy. One did some math and made up a hard rule to refuse a plan with fewer than 12 eligible employees. The sales executives made these decisions. Why? They were tired of complaints from business owners who said they were surprised by a need for a top-heavy minimum contribution. “Why didn’t anyone tell me . . .?” Even when we reminded a complainer that we had presented a distinct plain-language warning about the top-heavy risk, the response always was “you know I never read anything.” And it was too difficult to prove the oral warning we required a sales rep to deliver. We found no warning would be enough to protect the business. Nuisance settlements with, and wasted time on, complainers ate away at the already small margin in that line of business. Instead, we screened out prospective customers.

I have not considered this question, and have not read the relevant law. But: Absent a provision of applicable law or in the plan’s governing document, perhaps a plan’s administrator should apply or interpret a plan’s definition of compensation so that pay for a leave required under the Families First Coronavirus Response Act is compensation to the same extent that pay for a somewhat similar leave not required under that Act is compensation. An administrator might be reluctant to treat a payment of wages as a fringe benefit within the meaning of the plan’s compensation definition if the benefit is not of a kind described in Internal Revenue Code of 1986 § 132 or some analogous fringe benefit.

But a cash-balance defined-benefit plan might provide a single-sum distribution?

It is not yet final because the Senate-passed bill now needs action in the House of Representatives. That H.R. 748 includes: a participant loan up to 100% or $100,000, for 180 days from enactment [§ 2202(b)]; a repayment delay for one year for a loan with a due date from enactment to December 31, 2020 [§ 2202(b)]; a coronavirus-related distribution, with a choice to spread income over three years, and a three-year opportunity for a recontribution or rollover [§ 2202(a)]; no direction for a change in the Treasury department’s hardship rule; a waiver of a 2020 minimum distribution from an individual-account (defined-contribution) retirement plan [§ 2203(a)] an update of IRC § 402(c)(4): “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.” [§ 2203(b)] As with most law changes, a plan may (but need not) provide relaxed provisions. For tax law, the legislation would set delayed remedial-amendment periods [§ 2202(c); § 2203(c)]. ERISA § 518 grants the Secretary of Labor some authority to delay a due date by up to one year. CARES § 3607 would allow this not only for “a terroristic or military action” but also for “a public health emergency[.]” For a minimum required contribution under ERISA § 303(a) and IRC § 430(a) that otherwise would be due in 2020, the due date would be January 1, 2021, and the amount would be increased with interest. [§ 3608(a)] For ERISA § 206(g) and IRC § 436, a plan sponsor may treat the plan’s adjusted funding target attainment percentage for the last plan year ending before January 1, 2020 as the AFTAP for plan years that include calendar 2020. [§ 3608(b)] What’s not in the bill? The bill does not change pension funding requirements (for most employers), Pension Benefit Guaranty Corporation premiums, or anything about multiemployer pension plans. There is no Federal provision about remote notarial acts. (This might matter if a participant’s election against a survivor annuity requires the spouse’s consent. For some States’ efforts, see https://benefitslink.com/boards/index.php?/topic/65731-spousal-consent-in-the-time-of-social-distancing/&tab=comments#comment-301951)

Last year's tax legislation too had some minimum-distribution changes that apply only for an individual-account (defined-contribution) retirement plan. Do the legislative drafters assume a defined-benefit plan lacks non-annuity payments?

Further, there might be opposition from a Member of the House of Representatives.

Whether a plan’s administrator relies on or refuses a qualified election, spouse’s consent, and notarial act is in the administrator’s discretion. About whether someone tries creative means to do a notarial act: National S. 3533 A bill to authorize and establish minimum standards for electronic and remote notarizations that occur in or affect interstate commerce, to require any Federal court located in a State to recognize notarizations performed by a notary public commissioned by another State when the notarization occurs in or affects interstate commerce, and to require any State to recognize notarizations performed by a notary public commissioned by another State when the notarization occurs in or affects interstate commerce or when the notarization was performed under or relates to a public act, record, or judicial proceeding of the State in which the notary public was commissioned. As of 03/25/2020 text has not been received for S. 3533. https://www.congress.gov/bill/116th-congress/senate-bill/3533/text This idea is not in the pending coronavirus bill. States Executive orders: Connecticut https://portal.ct.gov/-/media/Office-of-the-Governor/Executive-Orders/Lamont-Executive-Orders/Executive-Order-No-7K.pdf New York https://www.governor.ny.gov/sites/governor.ny.gov/files/atoms/files/EO%20202.7.pdf No one knows whether anyone would rely on such a notarial act. Proposed legislation: New Jersey https://ils-content.s3.amazonaws.com/COVID-19/NJ+bill+for+remote+notary.pdf

Here's a text of the draft bill. But there is still haggling over some provisions. Coronavirus-Stimulus-Bill.pdf

Let me give an example: My client has a service agreement with a recordkeeper. The agreement obligates the recordkeeper to provide a specified number of workers at the client’s location. That location is not one under any government-ordered shutdown. It’s not strictly impossible for the recordkeeper to perform its service obligation. The recordkeeper requested my client’s assent to provide the workers by technology presence, rather than face-to-face presence. The assent made it unnecessary for either party to consider impracticability or force majeure issues.

You're right; it's no more than an indirect sense. But the list of 6,271 plans and the list of trust or insurance companies that have taken on a QTA administration, including many that are big recordkeepers, affiliates of them, or directed trustees arranged with them, suggests that many are willing for at least some of the abandoned plans.

Yes, it's about the public-health emergency. My observation, so far, is that service providers and service recipients are cooperating nicely, making it unnecessary to evaluate questions of law.

Two hours in, they're still speechifying.

I'll answer my own question: https://www.askebsa.dol.gov/abandonedplansearch/

The Senate now is readying to act on H.R. 748, into which the coronavirus stimulus legislation would go.

Will anyone please share information on which recordkeepers and directed trustees are willing to serve as an abandoned plan’s qualified termination administrator, and which are unwilling?

If you're willing to begin work with a few-days-old placeholder rather than the legislation likelier to emerge, here's a link to the McConnell bill. https://www.congress.gov/bill/116th-congress/senate-bill/3548/text

Is anyone aware of a retirement-services provider using impossibility or a contract’s force majeure clause as a reason not to do something that otherwise would be a service obligation?