Peter Gulia

Bird, thank you for reminding me that often I wish we had an environment with less dependence on government agencies specifying every detail and more room for prudent judgment. Yet, about the limits and requirements of tax-qualified retirement plans, clients have become conditioned to presume there is an administrative-law answer to every question.

A participant’s salary-reduction agreement called for $961.54 per pay. The employer did this for all 26 pay periods, with no change to December’s last pay. The participant’s deferral limit for 2019 is $25,000 [$19,000 + $6,000 age 50]. Assume the employer/administrator is unwilling to use the plan’s provision for a return of a mistaken contribution. Must the plan’s administrator instruct the plan’s trustee to pay the participant a corrective distribution of $0.04? Is there any non-frivolous argument for treating this as so small that a correction is unnecessary?

If the plan is ERISA-governed, ERISA § 404 governs which steps are prudent or imprudent. But a plan’s administrator also might consider doing, if not imprudent, the steps the Internal Revenue Service has described as enough that an examiner should not challenge a plan’s tax-qualified treatment because of a failure to pay a § 401(a)(9)-required distribution. Also, a plan’s administrator or trustee might evaluate whether it wants to follow the deceased participant’s investment direction, or change the investment of the participant’s account. missing participant minimum distribution memo-for-employee-plans-10-19-17.pdf

As shERPA observes, what is or isn’t reasonable turns on the circumstances. The “reasonably short notice” idea Mike Preston describes comes from a 1970s rule: Termination of contract or arrangement. No contract or arrangement is reasonable within the meaning of section 408(b)(2) of [ERISA] and [29 C.F.R. § 2550.408b-2(a)(2)] if it does not permit termination by the plan without penalty to the plan on reasonably short notice under the circumstances to prevent the plan from becoming locked into an arrangement that has become disadvantageous. . . . . 29 C.F.R. § 2550.408b-2(c)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=87cb1ac41956dcefa2e2c6c25cde1486&mc=true&node=se29.9.2550_1408b_62&rgn=div8

Here's a widely respected practitioner's write-up about unofficial observations from IRS TE/GE people last week. https://ferenczylaw.com/flashpoint-irs-representatives-say-no-imminent-vcp-changes/?utm_source=newsletter&utm_medium=email&utm_content=READ%20THE%20ENTIRE%20ARTICLE&utm_campaign=Ferenczy%20FlashPoint%3A%20%20IRS%20Representatives%20Say%20No%20Imminent%20VCP%20Changes

Here’s a 2009 discussion: https://benefitslink.com/boards/index.php?/topic/40926-march-15th-deadline/ And 26 C.F.R. § 301.7503-1 https://www.ecfr.gov/cgi-bin/text-idx?SID=433ece255a30fe50ebca570ba8867b22&mc=true&node=se26.20.301_17503_61&rgn=div8 RatherBeGolfing’s observation isn’t idle, I once worked on a business deal in which my client obtained a national bank’s acts on a Saturday.

The Joint TE/GE Council Employee Plans and Exempt Organizations annual meeting is this Thursday and Friday, February 27-28. One imagines there might be several conversations about the news described above. Bloomberg BNA usually sends a reporter.

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?