Peter Gulia

RatherBeGolfing, that explanation makes plenty of business sense. The above and liked-to descriptions about how the gibberish arrived suggest some possibility that a source is not the Labor department directly but its EFAST contractor. Or am I imagining too much?

The regulation states: "[T]he summary annual report furnished to participants and beneficiaries of an employee pension benefit plan pursuant to this section shall consist of a completed copy of the form prescribed in paragraph (d)(3) of this section[.]" Even if the source of a text is the Labor department, some practitioners might be reluctant to rely on it if there is no rule or regulation published in the Federal Register.

Neither of the forms published in 29 C.F.R. § 2520.104b-10 includes a notice of the kind described above. https://www.ecfr.gov/cgi-bin/text-idx?SID=ef4e6956d342e1f75a4ff023516b780b&mc=true&node=se29.9.2520_1104b_610&rgn=div8

Tom Poje, thank you for generosity and for your essay, which gives us a reminder about the purpose of the plans we work on -- to help people get more choices about how to live out one's days in this world. AMDG.

Glancing at my old-fashioned paper calendar (and without checking whether ACCO Brands counted correctly), its display for July 1, 2019 shows 182 days elapsed and 183 remaining. Absent a rule or regulation that interprets IRC 72(t)(2)(A)(i), one might imagine a taxpayer arguing that 183 is at least half of 365.

DCRet24, if the participant's account has no illiquid or exotic asset and everything is mainstream investment fund shares or units, and all are readily redeemable (and available for purchase), does it matter how investments are redeemed to raise money or an amount to pay or segregate the alternate payee's portion? After the alternate payee's portion is paid or segregated, could the participant, under the plan's investment and service arrangements, reset his account to whatever investment mix he prefers?

Pension RC, if this participant’s question is whether a distribution (if not rolled over) is or isn’t subject to an additional income tax on a too-early distribution, sorting out what “the date on which the [participant] attains age 59½” means might involve a series of questions: Considering the payer or other service provider that does the Form 1099-R, what measurement rule would it (perhaps by using software) apply, likely using the plan’s records of the distributee’s birthdate and the distribution’s date, to discern whether the distributee had or had not attained age 59½ on the distribution’s date? If a Form 1099-R would code the distribution as an early distribution, is the distributee ready to file his tax return based on a position inconsistent with the Form 1099-R? If the IRS detects a mismatch and asks for the taxpayer’s explanation, how confident would he be in defending his tax-return position?

If the debtor doubts the bankruptcy trustee's position, it's time (or, more likely, past time) for the debtor to lawyer-up.

Is the debtor opposing the bankruptcy trustee's position?

The construct of inviting participating employers to sign onto a common document has been a service feature regarding unfunded deferred compensation plans at least since the 1970s. I obtained IRS letter rulings on 457(b) documents with participating-employer provisions. The IRS was content so long as the construct is limited to eligible employers within the IRC § 457(e)(1) definitions and nothing funds a deferred-compensation promise or removes an eligible employer’s assets from that organization’s creditors. With appropriate provisions, I think it’s sensible to allow as adopters of one written plan all non-governmental tax-exempt organizations in an IRC § 414 group. Beyond perhaps a document efficiency, there is a further practical advantage. A rule to interpret IRC § 457(b) includes this: Treatment as single plan. In any case in which multiple plans are used to avoid or evade the requirements of §§ 1.457-4 through 1.457-10, the Commissioner may apply the rules under §§ 1.457-4 through 1.457-10 as if the plans were a single plan. See also § 1.457-4(c)(3)(v) (requiring an eligible employer to have no more than one normal retirement age for each participant under all of the eligible plans it sponsors), the second sentence of § 1.457-4(e)(2) (treating deferrals under all eligible plans under which an individual participates by virtue of his or her relationship with a single employer as a single plan for purposes of determining excess deferrals), and § 1.457-5 (combining annual deferrals under all eligible plans). 26 C.F.R. § 1.457-3(b). While I read this rule to apply to plans of an eligible employer, it can’t hurt to have provisions that also are logically consistent across an IRC § 414 group. It’s easier to read and manage the provisions if they’re stated in one document. One point to be careful about with non-governmental tax-exempt organizations. A participant’s right to her deferred compensation must be the unfunded obligation of her eligible employer. If a document allows more than one eligible employer, the document should provide each participant’s deferred compensation as the obligation of the particular organization for which the participant performed the service that earned the compensation. And if a participant performs service for more than one organization, the document should specify each organization’s obligation to such a participant. Beyond other consequences, not being clear about each organization’s exact obligations can affect the analysis about whether a deferred compensation promise is an exempt-from-registration security under Federal or State securities laws. If there are practical preferences about using fewer investment arrangements or fewer service agreements (or both), these often can be met if the employers deal with providers that understand the points described above and provide separate accounting. It’s easier if there is a rabbi trustee or custodian between the employer and its investments.

I would not reason that being in an IRC § 414 group with an organization that is an “eligible employer” extends IRC § 457(e)(1)(B) treatment to an organization that is not itself such an eligible employer. IRC § 457(e)(1)(B) states: “For purposes of this section—The term ‘eligible employer’ means—. . . any other organization (other than a governmental unit) exempt from tax under this subtitle.” The reference to “this subtitle” is to subtitle A (income taxes) of the Internal Revenue Code of 1986. The Treasury department’s rule to interpret this subparagraph of IRC § 457 does not extend the concept of an “eligible employer” beyond the tax-exempt organization itself. 26 C.F.R. § 1.457-2(e). See also 26 C.F.R. § 1.457-10(a)(2) (providing tax-treatment rules for situations in which an employer that was an eligible employer becomes no longer such an employer). IRC § 414(b) states: “For purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, all employees of all corporations which are members of a controlled group of corporations . . . shall be treated as employed by a single employer.” IRC § 414(c) states “[F]or purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, under regulations prescribed by the Secretary, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection [414(c)] shall be based on principles similar to the principles which apply in the case of subsection (b).” IRC § 414(m)(1) states: “For purposes of the employee benefit requirements listed in paragraph (4), . . . employees of the members of an affiliated service group shall be treated as employed by a single employer.” IRC § 414(m)(4) states: “For purposes of this subsection [414(m)], the employee benefit requirements listed in this paragraph [4] are—(A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a), and (B) sections 408(k), 408(p), 410, 411, 415, and 416.” IRC § 414(n) states: “For purposes of the requirements listed in paragraph (3), with respect to any person (hereinafter in this subsection referred to as the “recipient”) for whom a leased employee performs services—(A) the leased employee shall be treated as an employee of the recipient, but (B) contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient.” IRC § 414(n)(3) states: “For purposes of this subsection [414(n)], the requirements listed in this paragraph [414(n)(3)] are—(A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a), (B) sections 408(k), 408(p), 410, 411, 415, and 416, and (C) sections 79, 106, 117(d), 125, 127, 129, 132, 137, 274(j), 505, and 4980B.” IRC § 414(o) directs the Secretary of the Treasury to “prescribe such regulations (which may provide rules in addition to the rules contained in subsections (m) and (n)) as may be necessary to prevent the avoidance of any employee benefit requirement listed in subsection (m)(4) or (n)(3) or any requirement under section 457 through the use of—(1) separate organizations, (2) employee leasing, or (3) other arrangements.” Except for § 414(o), none of the quoted § 414 enumerations refers to IRC § 457. And the focus of all five provisions is on “requirements” and not allowing a distinctness of organizations to defeat a restraint that would apply if the organizations linked by the specified commonality are treated as one employer. Subsection 414(o) states the regulations would be “to prevent the avoidance of” specified sets of tax-treatment conditions.

I see subsection (f)'s anti-abuse rule, and I see example 2's illustration that not treating two organizations as one employer could undermine a coverage or non-discrimination provision that otherwise would apply. But if the worry is that less than all the organizations of an employer maintain a select-group 457(b) eligible deferred compensation plan, which tax-law provision are we imagining the non-combination or asymmetry would avoid?

In 2001, Congress recognized that an employer’s contribution to a retirement plan for a household employee is non-deductible if the contribution is not made for a trade or business. See Internal Revenue Code of 1986 (26 U.S.C.) § 4972(c)(6)(B). https://www.govinfo.gov/content/pkg/USCODE-2017-title26/html/USCODE-2017-title26-subtitleD-chap43-sec4972.htm IRC § 414(c) refers to “employees of trades or businesses (whether or not incorporated) which are under common control[.]” If the household employees do no work for a trade or business, there might be no second business to be treated as under common control with the LLC business.

I'm not seeing what question might invoke an affiliated-service-group rule. At least with healthcare employers, it is not uncommon that an employer group includes not only organizations that are tax-exempt but also some that are not. A tax-exempt organization might have a 457(b) eligible deferred compensation plan for a select group of executives and physicians.

The Labor department's webpages includes some that sort the class, expro, and individual exemptions a few different ways, including by topic. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/exemptions On a page about individual exemptions, there are many under the topic heading "Receipt of Fees or Benefits by Parties in Interest". https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/exemptions/granted

Doc Ument, thank you for an interesting analogy. Of course, ERISA (or, if a plan is not ERISA-governed, a State’s law of trusts and other fiduciary relationships) requires a fiduciary to obey documents that govern the fiduciary relationship, at least insofar as a document is not contrary to applicable law. And a plan’s participant or beneficiary has rights to ask a court to compel a fiduciary to obey a governing document, and to make good the plan’s losses that resulted from disobedience. Luke Bailey, thank you for your observation. One reason no one knows exactly how the tax law sorts out is that the corrections programs cover so much. Almost all of what otherwise might become a dispute gets administratively resolved. My research in the Federal courts’ decisions and the Tax Court’s decisions found none in which a plan was disqualified because of a mere failure to follow the written plan without another failure to meet an Internal Revenue Code tax-qualification condition. It seems 26 C.F.R. § 1.401-1, whether in -1(a)(2) or -1(b), is a source for reasoning that an employer must maintain the “definite written program” it established.

jpod, while we might like to think there must be a citation, I haven't yet found it. Thank you for pointing out Marty Slate's article; I'll look. ESOP Guy, thank you for confirming what we saw (and saw missing) in some IRS publications. QP_Guy, the "definitely determinable" idea is some support IF the plan provision an administrator failed to follow is one that could affect the allocation of a profit-sharing contribution. (For this conversation, I'm ignoring pension benefits.) But it doesn't explain why there is a tax-qualification failure if the provision not administered cannot affect an allocation of a contribution. Thank you, everyone, for continuing to help me.

MoJo, thank you for this further analysis.

Mojo and Belgarath, thank you for helping. An administrator’s, trustee’s, or other fiduciary’s failure to administer an ERISA-governed plan “in accordance with the documents and instruments governing the plan” (insofar as those documents are consistent with ERISA’s title I and title IV) is, under ERISA § 404(a)(1)(D), a breach of the fiduciary’s responsibility. That’s so even if what is done otherwise breaches no duty under § 404(a)(1)(A)-(C). But such a fiduciary breach doesn’t explain why a failure to administer a plan according to the written plan is a failure of the Internal Revenue Code § 401(a) conditions for treatment as a tax-qualified plan. While Basch Engineering, Buzzetta Construction, and Ludden recite that a plan must meet the tax-treatment conditions in operation, none of them based its finding on a mere failure to follow the written plan that was not also a failure of a particular tax-qualification condition. I’m thinking about situations in which the only ground for tax-disqualifying the plan is a failure to follow a provision in the plan’s governing document when the provision is not one the Internal Revenue Code requires to be stated in a plan’s document. So far, my reasoning goes like this: Under 26 C.F.R. § 1.401-1(a)(2), a qualified plan must be “a definite written program and arrangement which is communicated to the employees and which is established and maintained by an employer[.]” A failure to administer a plan according to the “definite written program” might mean the employer does not maintain that plan. It would be nice to find a law source that states the point more directly, or at least expressly adopts the reasoning. But maybe there’s nothing to be found. Again, Mojo and Belgarath, thank you for helping.

I assume the law requires operating a plan according to its written plan as a condition for tax-qualified treatment. I'm just looking to find a law source that says so. Thank you for the pointers to the IRS's explanations. But I'm looking for a regulation or something that has the effect of law. And it's not because I doubt the point of law. Rather, I hope to support it with a citation.

A further point to consider if the plan is self-funded. A stop-loss insurance contract might not provide anything for a continuation that is not compelled under the public law (rather than the written plan's provisions) that applies to the employer and its plan. Lacking stop-loss insurance could leave an employer exposed to claims on what might be (through adverse selection, and perhaps other factors) a higher-risk population.

A retirement plan, to tax-qualify under Internal Revenue Code § 401(a), must meet all conditions not only in the written plan but also in actual administration according to that written plan. The Internal Revenue Service’s Employee Plans Compliance Resolution System presumes the point; the Revenue Procedure defines an Operational Failure as one “that arises solely from the failure to follow plan provisions.” Rev. Proc. 2019-19, 2019-19 I.R.B. 1086, 1099 § 5.01(2)(b) (May 6, 2019). (Thank you, C.B. Zeller.) Unlike some other points made in the Revenue Procedure, this one cites no Treasury regulation as support for the point. Writers often say a plan must tax-qualify not only “in form” but also “in operation”. There are Treasury regulations and court decisions that support the in-form point. But I’m not (yet) seeing a regulation, court decision, or other law source that clearly states or supports the in-operation point. I’m hoping BenefitsLink mavens will teach me. Will you please help me?

If January 2020 arrives without the Treasury department having done anything (beyond publishing a proposed rule), is a plan's sponsor/administrator free to not change the plan, and not change its administration? About those changes for which Congress directed the Secretary of the Treasury to make or change a rule but he has not done so, does Congress's Act require a plan's sponsor or administrator to do anything?

Anything new on this in the past eight months?

About QDROphile’s last point: My article “May an employer restrict who can amend the plan?” in the December 2018 issue of Wolters Kluwer’s 401(k) Advisor explains that the Supreme Court interpreted ERISA to treat “The Company may amend the Plan.” as an amendment procedure that meets the command of ERISA § 402(b)(3). What do BenefitsLink mavens think about a TPA inviting a plan’s sponsor to consider whether it wants to add to a preapproved document’s general provision some further details about which people can or can’t amend the plan, and what kind of written act is valid to amend the plan? Or is that impractical for TPAs too?