Peter Gulia

Why not do anonymous submissions?

One wonders how quickly an employer pays withheld taxes and other recipients of wage deductions. If it's as quickly as I imagine, what explanation would a fiduciary give for treating a retirement plan worse than other creditors?

Sellarsian, thank you for a helpful explanation. BenefitsLink mavens, does this law make age 70½ the practical normal retirement age?

If the plan is unfunded and the employer did not set aside its property under a rabbi trust, it seems likely the property remains the employer’s property. If the employer owns the property, the employer can volunteer to subject its property to a little restraint. If the participants want tax-deferred treatment, they would want a rabbi trust that does not result in the deferred compensation obligation becoming funded or secured, and does not result in a current economic benefit.

A week ago, American Retirement Association said: “This appears to require a technical correction, unless Treasury and IRS find sufficient statutory authority to clarify in regulations.” https://www.asppa.org/sites/asppa.org/files/PDFs/Comment Letters/20.02.12 ARA Comment Letter to Treasury - SECURE Act guidance.pdf I’m curious: If Congress could think about it, what would be good public policy? Why?

Except for a Native American Tribe and its subdivision, agency, or instrumentality, or a rural cooperative, not many governmental employers maintain a retirement plan with a § 401(k) arrangement. After the Tax Reform Act of 1986 created the Internal Revenue Code of 1986, a State or local governmental employer may maintain a § 401(k) arrangement only if the employer adopted the § 401(k) arrangement before May 6, 1986. Of the many SECURE Act ambiguities on which some hope for guidance, one doubts your question gets near the top of the Treasury department’s list. If a sponsor prefers not to change its plan to allow elective deferrals of long-term part-time employees, the sponsor might want its lawyer’s written advice that the new condition’s non-application is a good-faith interpretation of the statute. Beyond your reasoning that governmental plans have different minimum-participation, coverage, and non-discrimination rules than those that apply for a non-governmental plan, here’s another bit. Unlike other provisions for which Congress provided a different applicability date for governmental plans, SECURE Act § 112(b) provides only one general applicability date.

Am I right in assuming that a sample plan-termination amendment from a document provider gets no IRS letter, and so brings no IRS comfort? (Please understand that my question is not a criticism of document providers; in my experience, they provide useful services, including on many points that are beyond an IRS assurance.)

Some might find that a State’s wage-payment law is one that, in this context, “relate to [the ERISA-governed] employee benefit plan[.]” ERISA § 514(a), 29 U.S.C. § 1144(a). But even if that’s so and ERISA otherwise would preempt a State’s wage-payment law, ERISA’s preemption “shall not apply to any generally applicable criminal law of a State.” ERISA § 514(b)(4), 29 U.S.C. § 1144(b)(4). Many States’ wage-payment laws make a violation a crime.

If the question is what proposed order (whether with or without a signature showing a litigant's acceptance or non-objection) would be adopted by the domestic-relations court, don't you want that guidance from the attorney who engaged you?

Beyond changes to § 401(a)(9)-required distributions (which might be obviated by a typical plan termination’s single-sum final distribution), is there anything in the appropriations act that requires a plan amendment?

FPGuy, thank you for your observation. I've seen recordkeepers preclude direct-deposit for a non-recurring distribution but allow direct-deposit for scheduled monthly payments, especially if the payments are scheduled to continue for life or for 120 months or more. Are other BenefitsLink people seeing service providers take away direct-deposit for periodic payments?

And the State's enabling statute that grants the government instrumentality power to establish and maintain a 457(b) plan might include provisions about which employees may or must be eligible.

FormsRstillmylife, thank you for pointing out Internal Revenue Code § 72(t)(2)(H)(vi)(III). It isn’t practical for a retirement plan’s administrator to inspect a participant’s tax return. But the idea of putting another statement on a claim form makes sense.

About Ellie Lowder’s query, SECURE § 201 amends Internal Revenue Code of 1986 § 401(b). I don’t read it to relieve whatever written-plan condition applies under § 403(b) or § 457(b).

Internal Revenue Code of 1986 § 72(t)(2)(H)(vi)(IV) [added by SECURE § 113(a)] provides: Any qualified birth or adoption distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A). While that sentence (and the absence of other revisions of the tax Code) is not a model of legislative drafting, many practitioners interpret the sentence as allowing what otherwise would be a too-early distribution without tax-disqualifying the plan, contract, or arrangement. Some plan sponsors might never choose a birth-or-adoption distribution (even if all uncertainties and complexities were solved); some might wait; and some want it now. My query assumed a sponsor had amended its plan to add a birth-or-adoption distribution.

RatherBeGolfing, thank you contributing a useful idea.

Is your client considering a presumption of direct-deposit but delivering a payment card for a distributee who identifies no bank account to receive a direct deposit? Is your client's plan ERISA-governed or not? ERISA might preempt some State laws that otherwise might interfere.

Thank you for the observations, and pointing us to an article. Some of us can’t wait for IRS guidance and instead must invent our own guidance. I have clients that provide a qualified birth or adoption distribution, beginning January 1, 2020. I’m evaluating a proposed regime analogized from the IRS’s memo about deciding 401(k) hardship claims without receiving supporting documents. For a birth, a claim would require the claimant to state the child’s name, date of birth, and that the child is the participant’s child. For an adoption, a claim would state how the adoptee is an eligible adoptee and the adoptee’s name, date of birth, and date of adoption. Text that precedes the claim would inform a claimant that she “agrees to preserve source documents [including the birth certificate or adoption order] and to make them available” on the administrator’s request. While I’m responsible for my advice, I value learning what BenefitsLink mavens think. Is a no-substantiation claim good enough?

Imagine an employment-based § 401(k) plan allows—without waiting for age 59½, severance from employment, hardship, or some other distribution-permitting event—a qualified birth or adoption distribution (up to $5,000) within what Internal Revenue Code § 72(t)(2), as added by SECURE § 113, permits. The statute defines such a distribution as one “made during the 1-year period beginning on the date on which a child of the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized.” The statute does not require (and assume the plan does not require) showing an expense attributable to the birth or adoption. The only fact needed to support a participant’s claim is the fact of the birth of the participant’s child, or the participant’s adoption of an eligible adoptee. Assume the plan’s administrator adopts a new claim form, which has check-off boxes for a birth or an adoption, and for an adoption includes the participant’s statement that the adoptee is younger than 18 (or is physically or mentally incapable of self-support) and is not the participant’s spouse’s child. Assume the form includes a strong statement about how a false statement can result in fines, imprisonment, liability for the plan’s expenses, and other legal consequences. If you’re advising the plan’s administrator: Is it enough that a participant states the necessary facts on the plan’s claim form, and signs it? Or do you require a claimant to submit a copy of the birth certificate? (Even if that aberration would frustrate normal processing for a plan that has electronic claims for all kinds of distributions?) Do you require a claimant to attach a copy of the court order or other document that grants the adoption? If a participant’s claim attaches instead a notarized affidavit stating a common-law adoption, would you advise the plan’s administrator to approve or deny the claim?

One wonders whether the plan’s administrator furnished for this account twenty-five ERISA § 105 pension benefit statements for the years ended 1994-2018. And to what address?

(Leaving to others questions about what makes business sense.) Santo Gold, the facts in your query don’t say whether the employer or the plan pays the fees. If the plan pays, you’d want the disclosures to be enough to meet your and the advisor’s conditions under 29 C.F.R. § 2550.408b-2, including its rules about indirect payments. If the advisor is a registered investment adviser, it must disclose (in at least its Form ADV Part 2 brochure and investment-advisory agreement) anything about a person other than the advisee paying the fee, and any indirect collection of the fee. Even if that’s the other guy’s issue, you might prefer to satisfy yourself that the adviser’s disclosures are sound to help you avoid involvement with a fiduciary’s (the plan administrator’s or the adviser’s, if it is a fiduciary) breach. Also, you might want to design the pay-over arrangement so both portions of an amount paid to you have become no longer plan assets before anything is paid to you. Remember, even non-discretionary control of plan assets can make one a fiduciary.

Among other statutes and rules, one might consider this portion from 26 C.F.R.§ 1.409a-3: (ix) Plan terminations and liquidations. A plan may provide for the acceleration of the time and form of a payment, or a payment under such plan may be made, where the acceleration of the payment is made pursuant to a termination and liquidation of the plan in accordance with one of the following: . . . . (C) The service recipient’s termination and liquidation of the plan, provided that— (1) The termination and liquidation does not occur proximate to a downturn in the financial health of the service recipient; (2) The service recipient terminates and liquidates all agreements, methods, programs, and other arrangements sponsored by the service recipient that would be aggregated with any terminated and liquidated agreements, methods, programs, and other arrangements under § 1.409A-1(c) if the same service provider had deferrals of compensation under all of the agreements, methods, programs, and other arrangements that are terminated and liquidated; (3) No payments in liquidation of the plan are made within 12 months of the date the service recipient takes all necessary action to irrevocably terminate and liquidate the plan other than payments that would be payable under the terms of the plan if the action to terminate and liquidate the plan had not occurred; (4) All payments are made within 24 months of the date the service recipient takes all necessary action to irrevocably terminate and liquidate the plan; and (5) The service recipient does not adopt a new plan that would be aggregated with any terminated and liquidated plan under § 1.409A-1(c) if the same service provider participated in both plans, at any time within three years following the date the service recipient takes all necessary action to irrevocably terminate and liquidate the plan. https://www.ecfr.gov/cgi-bin/text-idx?SID=f092b45ea77423218f153cca788c4415&mc=true&node=se26.6.1_1409a_63&rgn=div8

A plan’s administrator or claims administrator might require a hardship claimant to submit source documents with her claim. Or an administrator might follow the IRS’s guidance to its examiners to allow a claim on a “summary” of the hardship claim and the administrator’s notice to a claimant that “[t]he recipient agrees to preserve source documents and to make them available at any time, upon request, to the employer or administrator.” As I read the whole text, the IRS’s non-enforcement guidance to its examiners does not depend on hardship distributees having kept the source documents, but rather on finding that the plan’s administrator did not know that distributees breach that obligation. Because the February 23, 2017 memo expired, here are links to its compilation in the Internal Revenue Manual. Internal Revenue Manual 4.72.2.7.4.1and its Exhibit 4.72.2-1 (Aug. 9, 2019). https://www.irs.gov/irm/part4/irm_04-072-002 https://www.irs.gov/irm/part4/irm_04-072-002#idm140613714794176 About “what are folks doing with this?”, the practical way to get information is to survey recordkeepers (and § 3(16)(A) service providers) about whether they offer a choice of methods, and which method most customers choose or fall in with.

Also, the plan’s administrator might want its lawyer’s advice about exactly which person—administrator, trustee, custodian, recordkeeper, third-party administrator, or another service provider—has responsibility for this tax-reporting decision. And if the reporter wants to finish its work on 2019 1099-R reports within the next eight business days, one imagines the reporter might not wait for further Treasury or IRS guidance.

This hyperlink is to the Labor department’s posting of the exemption, amendments of it, and a clarification. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/exemptions/class Among the constraints on the amount of the loan is that the persons that seek to rely on the exemption bear the burden of proving that the loan’s proceeds are used only to pay the plan’s ordinary operating expenses. That condition might suggest that the loan must be limited in amount and duration based on a prudent estimate of the anticipated expenses. And even if the lender is willing to make an interest-free loan for a long period, the plan’s fiduciaries must act prudently to avoid disadvantageous terms, including the possibility of an obligation to repay in an inopportune amount or at an inopportune time.