Peter Gulia

Which matters call for participant-directed voting of an ESOP’s shares (if the shares are not publicly traded) sometimes might vary according to a relevant State law. IRC § 409(e)(3) Requirement for other employers If the employer does not have a registration-type class of securities, the plan meets the requirements of this paragraph only if each participant or beneficiary in the plan is entitled to direct the plan as to the manner in which voting rights under securities of the employer which are allocated to the account of such participant or beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as the Secretary may prescribe in regulations. IRS Publication 6392 explains an IRS view that there might be nothing to pass through for directed voting if relevant State law does not provide for shareholders to vote on a matter. https://www.irs.gov/pub/irs-pdf/p6392.pdf States’ laws vary about which decisions require a vote of a corporation’s shareholders.

It’s not obvious that the CPA described in ratherbereading’s example violated a professional-conduct rule. Not knowing the scope of the CPA’s engagement, it’s possible—even if the employer paid wages for no work—that the CPA correctly performed her engagement.

Let’s see whether we understand the situation. An accountant, a service provider to the employer (?), is worried that the retirement plan’s administrator does not meet its responsibility to deliver communications. A TPA, a non-fiduciary (?) service provider to the plan’s administrator, is perhaps less worried (or recognizes some practical limits of a TPA’s role), but is thoughtfully considering solutions. If the plan’s administrator finds the administrator might not meet its responsibility: Might the administrator consider engaging a § 3(16)(A) service provider to perform a specified set of plan-administration functions the named administrator prefers not to perform? Might the administrator consider engaging the TPA for a contract service to deliver communications the administrator otherwise might forget to deliver?

Not that I'm advocating or suggesting anything, but: Aside from provisions about not compelling a distribution until the participant has reached normal retirement age, is there anything in ERISA or the Internal Revenue Code that restrains a plan’s provision that sets the plan’s required beginning date earlier than IRC § 401(a)(9)’s condition for tax treatment?

While there's a range of what a governing document could provide, it seems unlikely an IRS-preapproved document for an individual-account retirement plan would count a 409A deferral within the plan's measure of benefit compensation.

Here’s a list of forms that do not require a preparer to have a PTIN: https://www.irs.gov/tax-professionals/frequently-asked-questions-do-i-need-a-ptin Observe that Form 5330 is not on this list, which means a preparer of the form must have a PTIN. Preparing a return when the preparer lacks a current PTIN could result IRC § 6695 penalties, including the penalty of $50 for each failure to include an identifying number on the return (or claim). Also, the IRS Office of Professional Responsibility might pursue enforcement actions. Those could include (for bad cases) asking a Federal court to enjoin the violator from preparing tax returns.

Beyond considering prohibited-transactions exemptions and other fiduciary issues, both the corporation's fiduciaries and the plan's fiduciaries might consider whether it is prudent to check whether there might be other lenders ready to provide financing on equally favorable, or even more favorable, terms.

Although what Congress wrote is awkward (in many ways), it seems a qualified birth or adoption distribution, if the plan provides it, can be an exception from a distribution restriction that is a condition for a plan’s Federal income tax treatment. While rocknrolls2 fairly quoted the portion for a 401(k) arrangement, the whole sentence is: 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). Also, the statute includes: If a distribution to an individual would (without regard to clause (ii) [limiting an individual’s aggregate amount to $5,000]) be a qualified birth or adoption distribution, a plan shall not be treated as failing to meet any requirement of this title [title 26 of the United States Code, which is the unofficial compilation of the Internal Revenue Code of 1986] merely because the plan treats the distribution as a qualified birth or adoption distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $5,000. Many practitioners interpret those sentences and related text to permit a plan to provide a qualified birth or adoption distribution as a kind of distribution that does not tax-disqualify a plan for allowing a too-early distribution. As Larry Starr said, a birth-or-adoption distribution is not a plan’s benefit until the plan (somehow) provides such a distribution. As Mike Preston suggests, some administrators might write a summary of material modifications (or a revised summary plan description) to describe a plan provision that—even if not yet in a document to be amended later under a remedial-amendment period (including one provided by § 601 of the SECURE division of the appropriations Act)—is somehow a provision the plan’s sponsor sufficiently adopted that the plan’s administrator may communicate the provision. At least for an ERISA-governed plan, an administrator might want the plan’s sponsor to make some writing—even if not one people call a plan document—to help comply with ERISA’s § 402(a)(1), which requires that a plan “be established and maintained pursuant to a written instrument.”; § 402(b)(4), which requires that a plan “specify the basis on which payments are made . . . from the plan.”; and § 404(a)(1), which commands a fiduciary, including an administrator, to “discharge [the fiduciary’s] duties with respect to a plan . . . in accordance with the documents and instruments governing the plan[.]” (I recognize that for many plans the sponsor and the administrator are closely related or even the same person. Yet, recognizing the distinct roles can be helpful in thinking through the steps.) An ERISA-governed plan’s fiduciary must administer a retirement plan according to the documents that govern the plan, not a document that might be made later. Even if a sponsor’s writing lacks the style and formalities of what some might think of as the “official” plan documents, the sponsor’s writing might be a document that governs the plan (until a plan amendment supersedes it).

As Bird mentions, the appropriations Act increases a limit, but does not otherwise change the credit’s conditions. Those look to a whole employer and having had no “qualified employer plan” in the three years before the year for which the employer would take the credit. Here’s the text of Internal Revenue Code of 1986 (26 U.S.C.) § 45E as it applies “to taxable years beginning after December 31, 2019.” § 45E. Small employer pension plan startup costs (a) General rule For purposes of section 38, in the case of an eligible employer, the small employer pension plan startup cost credit determined under this section for any taxable year is an amount equal to 50 percent of the qualified startup costs paid or incurred by the taxpayer during the taxable year. (b) Dollar limitation The amount of the credit determined under this section for any taxable year shall not exceed— (1) for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of— (A) $500, or (B) the lesser of- (i) $250 for each employee of the eligible employer who is not a highly compensated employee (as defined in section 414(q)) and who is eligible to participate in the eligible employer plan maintained by the eligible employer, or (ii) $5,000, and (2) zero for any other taxable year. (c) Eligible employer For purposes of this section— (1) In general The term “eligible employer” has the meaning given such term by section 408(p)(2)(C)(i). (2) Requirement for new qualified employer plans Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan. (d) Other definitions For purposes of this section— (1) Qualified startup costs (A) In general The term “qualified startup costs” means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with— (i) the establishment or administration of an eligible employer plan, or (ii) the retirement-related education of employees with respect to such plan. (B) Plan must have at least 1 participant Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee. (2) Eligible employer plan The term “eligible employer plan” means a qualified employer plan within the meaning of section 4972(d). (3) First credit year The term “first credit year” means— (A) the taxable year which includes the date that the eligible employer plan to which such costs relate becomes effective, or (B) at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A). (e) Special rules For purposes of this section— (1) Aggregation rules All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (o) of section 414, shall be treated as one person. All eligible employer plans shall be treated as 1 eligible employer plan. (2) Disallowance of deduction No deduction shall be allowed for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to the credit determined under subsection (a). (3) Election not to claim credit This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.

(iii) Timing of self-employed individual's cash or deferred election. For purposes of paragraph (a)(3)(iv) of this section, a partner's compensation is deemed currently available on the last day of the partnership taxable year and a sole proprietor's compensation is deemed currently available on the last day of the individual's taxable year. Accordingly, a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year. See §1.401(k)-2(a)(4)(ii) for the rules regarding when these contributions are treated as allocated. (iv) Special rule for certain payments to self-employed individuals. For purposes of sections 401(k) and 401(m), the earned income of a self-employed individual for a taxable year constitutes payment for services during that year. Thus, for example, if a partnership provides for cash advance payments during the taxable year to be made to a partner based on the value of the partner's services prior to the date of payment (and which do not exceed a reasonable estimate of the partner's earned income for the taxable year), a contribution of a portion of these payments to a profit sharing plan in accordance with an election to defer the portion of the advance payments does not fail to be made pursuant to a cash or deferred election within the meaning of paragraph (a)(3)(iii) of this section merely because the contribution is made before the amount of the partner's earned income is finally determined and reported. However, see §1.401(k)-2(a)(4)(ii) for rules on when earned income is treated as received. https://www.ecfr.gov/cgi-bin/text-idx?SID=93bab6d03bb9386c1be48ee7b5de8cce&mc=true&node=se26.6.1_1401_2k_3_61&rgn=div8

Retirement plans’ and investment issuers’ service providers seem to have ways to pass through to participants voting of employer securities, but seem not to offer those or similar services for voting mutual funds’ shares. Or are my observations too limited?

Before you analyze issues about arranging summary plan descriptions, have you found for each "different" benefit whether it is an ERISA-governed plan? Might some not be a plan because there is nothing more than a payroll-deduction convenience for an employee to buy something, which the employer doesn't sponsor or endorse? Might some not be an employee-benefit plan because the benefit is of a kind that ERISA does not define as a welfare benefit?

For those who want to join the conversation austin3515 invites, here’s a link to the Instructions for Form 8950. https://www.irs.gov/pub/irs-pdf/i8950.pdf On its page 2 under “Plan Sponsor Authorization” and its subtopics “Declaration” and “Authorization”, the text speaks to some questions raised above.

Mutual funds’ proxy-voting solicitations are much fewer than they were in the 1980s and 1990s. Yet it’s still not none. A trust company’s typical directed-trustee agreement provides that the trustee votes the trust’s securities only as the plan’s administrator directs. That leaves the administrator (usually, the employer) with an unwelcome duty. An individual-account plan could require participants (and others with accounts) to direct the fiduciaries’ voting. But often this is practical only if the plan’s administrator has engaged a recordkeeper or other service provider to deliver the fund’s proxy-voting solicitation and collect the participants’ (and beneficiaries’ and alternate payees’) directions. BenefitsLink mavens, will you share your experiences about which recordkeepers offer or disclaim such a service?

Your description doesn’t say whether all, some, or none of the worker’s labor credited under the SAG-AFTRA pension plan is attributable to the loan-out corporation. Among other points, consider 26 C.F.R. § 1.415(f)-1(g): (g) Multiemployer plans— (1) Multiemployer plan aggregated with another multiemployer plan. Pursuant to section 415(f)(3)(B), multiemployer plans, as defined in section 414(f), are not aggregated with other multiemployer plans for purposes of applying the limits of section 415. (2) Multiemployer plan aggregated with other plan— (i) Aggregation only for benefits provided by the employer. Notwithstanding the rule of §1.415(a)-1(e), a multiemployer plan, as defined in section 414(f), is permitted to provide that only the benefits under that multiemployer plan that are provided by an employer are aggregated with benefits under plans maintained by that employer that are not multiemployer plans. If the multiemployer plan so provides, then, where an employer maintains both a plan which is not a multiemployer plan and a multiemployer plan, only the benefits under the multiemployer plan that are provided by the employer are aggregated with benefits under the employer’s plans other than multiemployer plans (in lieu of including benefits provided by all employers under the multiemployer plan pursuant to the generally applicable rule of § 1.415(a)-1(e)). (ii) Exception from aggregation for purposes of applying section 415(b)(1)(B) compensation limit. Pursuant to section 415(f)(3)(A), a multiemployer plan, as defined in section 414(f), is not aggregated with any other plan that is not a multiemployer plan for purposes of applying the compensation limit of section 415(b)(1)(B) and § 1.415(b)-1(a)(1)(ii). https://www.ecfr.gov/cgi-bin/text-idx?SID=08f1d21bf4474cf4697e46754c983f57&mc=true&node=se26.7.1_1415_2f_3_61&rgn=div8

If those who become eligible because of soon-to-be amended IRC § 401(k)(2)(D) otherwise would increase a plan’s count of participants to 100 or more, is it feasible for an employer to maintain two or more plans? See Q&A 14 [on pages 17-18]: https://www.americanbar.org/content/dam/aba/migrated/2011_build/employee_benefits/dol_2009.pdf

In my experience, the IRS is reluctant to pursue tax-disqualifying a plan that paid its final distributions. That’s so if the business organization that sponsored and administered the plan has been dissolved and the legal procedures that would raise money from that organization or its former owners or executives would take more time than the IRS wants to use. Also, the § 6652(i) penalty becomes payable only “on notice and demand by the Secretary[.]”

No. But a professionally behaving lawyer must not fail to render advice a client asked for. Further, 10 C.F.R. § 10.21 sometimes arguably requires a practitioner to render advice a client has not asked for, might not need, and might not want. In this situation (and for reasons beyond the current issue), the bigger risk is an EBSA investigation about ERISA fiduciary breaches.

C.B. Zeller, thank you!!!!! You uncovered a lurking issue I didn’t have time to find. And you explain it so neatly. I’ll advise the administrator about how impairing a distributee’s direct-rollover opportunity tax-disqualifies the plan. And this will intensify my advice about a fiduciary’s obedience and prudence breaches.

Thank you, justanotheradmin, for helping me think this through. The § 402(f) notice was delivered, but not 30 days before the anticipated involuntary distribution. Some participants, perhaps many of those still employed, will waive the 30 days. But the administrator anticipates some others, especially retirees, won’t respond in any way. After estimating this (and not counting those with a balance under $200), the number of § 402(f) failures would be few enough that the administrator easily can pay the penalty. But the administrator prefers not to risk tax-disqualifying the plan. Is it so that an administrator’s compliance with § 402(f) is not a § 401(a) condition for a plan’s tax-qualified treatment?

The Treasury department’s rule under Internal Revenue Code § 402(f) calls for an administrator to deliver a § 402(f) written explanation “no less than 30 days . . . before the date of [the] distribution.” Internal Revenue Code § 6652(i) imposes a penalty of $100 on each failure to deliver a § 402(f) written explanation. To speed up a plan termination’s final distribution, an administrator is considering deliberately incurring that penalty. In the circumstances, that amount is much less than the business harm that would result from not completing the plan’s termination by December 30. I’ve already analyzed ERISA title I consequences, including about the fiduciary’s potential obedience and prudence breaches. Is it so that an administrator’s compliance with § 402(f) is not a § 401(a) condition for a plan’s tax-qualified treatment? (The plan’s governing document does not state any provision or command based on § 402(f).) Am I missing something?

Is the UK company under common control with, or otherwise a part of the same IRC § 414 employer as, the employer that sponsors or participates in the retirement plan your query is about? And if not, how much compensation does the worker have from employers for the US plan?

Black’s Law Dictionary defines situs as “[t]he location or position (of something) for legal purposes[.]” Titles I, III, and IV of the Employee Retirement Income Security Act of 1974 do not use the word situs. Nothing in the United States Code’s title 29 (Labor) uses the word situs. Further, the whole United States Code has only 16 uses of the word situs, and none of these is about a health plan. Consider asking the statement’s maker to explain whether the business assumes a health plan has a location less wide than the United States, and why it might matter that the plan’s administrator’s address have some relation to such a location. Or might the statement refer, if the health plan uses a health insurance contract, to some insurance law or an insurer’s underwriting factor?

Does the employer have distinct documents for the management and staff plans? An employer/administrator might want its lawyer’s advice about whether the documents and other facts and circumstances result in only one plan, or more than one plan. In the American Bar Association’s 2009 Q&A session, I presented a question with hypothetical facts and a proposed answer designed to make obvious that an employer had arranged two employee-benefit plans with no purpose beyond avoiding a reporting requirement. Despite a legal reason for ignoring the ostensible separateness of the plans, the Labor department staff answered that the plans could be separate plans. “t would be reasonable for a fiduciary to look to the instruments governing the [plans] to determine whether the benefits are being provided under separate plans and to treat the [plans] for annual reporting purposes as separate plans to the extent the instruments establish them as separate plans and they are operated consistent with the terms of such instruments.” https://www.americanbar.org/content/dam/aba/migrated/2011_build/employee_benefits/dol_2009.pdf

Does the absence of a restriction about bankruptcy suggest the administrator should approve the loan if the administrator would approve it for a similarly situated non-bankrupt participant?