Peter Gulia

Answering my own question: My quick look at the 2017 Required Amendments List https://www.irs.gov/irb/2017-52_IRB#NOT-2017-72 and the Operational Compliance List https://www.irs.gov/retirement-plans/operational-compliance-list suggest nothing is needed.

Leaving aside questions about whether either (or any) plan is not governed by ERISA, Your description doesn't say whether all, some, or none of the charter founders are highly-compensated employees. Remember, because a charity has no 5%-owner, there might be few highly-compensated employees, or even none. Counting the exact numbers of HCEs and NHCEs might affect some analysis on your questions.

An employee stock ownership plan was most recently amended in January 2017 (and then included everything through the “2016 Required Amendments List for Qualified Retirement Plans”) . The employer/sponsor/administrator anticipates ending the plan and paying its final distributions in 2019. Beyond stating the discontinuance and termination, is there any plan amendment needed to tax-qualify the plan for its end?

QDROphile and Belgarath have it. Even if an employer has no obligation to deposit anything to support its unsecured obligation to pay unfunded deferred compensation, a participant might insist that the measure of her deferred compensation (often, a bookkeeping account) be credited as promptly as the plan provides, whether by its express or implied terms, and, if the plan provides participant-directed investment, according to the participant's investment direction. In theory, it's possible to notionally credit a participant's account without the movement of money to the unfunded set-aside; in real-world practice, doing so is burdensome and difficult.

Absent an on-point text in a rule or regulation and if there is no clear direction in nonrule guidance, a lawyer, certified public accountant, or other IRS-recognized practitioner acting within her scope might render written advice that there is substantial authority for a position. In determining additional tax on a substantial understatement, a substantial-authority position is treated, even without disclosure, as properly shown on the tax return. Substantial authority is more than reasonable-basis but can be less than more-likely-than-not. “There may be substantial authority for the tax treatment of an item despite the absence of certain types of authority. Thus, a taxpayer may have substantial authority for a position that is supported only by a well-reasoned construction of the applicable statutory provision.” 26 C.F.R. § 1.6662‐4(d)(3)(ii) https://www.ecfr.gov/cgi-bin/text-idx?SID=a112bf10c0fa27ecf5e056ed105e5a79&mc=true&node=se26.15.1_16662_64&rgn=div8

Last time I looked (which was quite a while ago), there was no Treasury department rule or regulation that directly addresses this kind of question. Practitioners had a range of views about how or whether a condition imposed by the investment but not by the plan might affect effective availability of a particular form of investment.

Does your client's IRS-preapproved document allow choices or flexibility about when an involuntary distribution is provided? Or do you have the luxury of an individually-designed document?

A carefully written agreement can allocate responsibilities between a § 3(16) service provider and a plan’s administrator (if the administrator knowingly makes such a contract). You’d write the who-does-what so it’s legally sound under the relevant States’ laws of agency and contract and meets the conditions for a valid allocation under ERISA § 405(c). Even if the writing is perfect and legally enforceable, a § 3(16) service provider (if it has enough authority or control to make it a fiduciary) doesn’t escape co-fiduciary responsibility. ERISA § 405(a), 405(c)(2)(B). A co-fiduciary if it has knowledge of another fiduciary’s breach is liable for it unless the observing co-fiduciary “makes reasonable efforts under the circumstances to remedy the breach.” ERISA § 405(a)(3). If your business can accept and manage those and related risks, offering a 3(16) service can be a value-added. I’d bet you’d be good at it.

Without again reading San Francisco’s Equal Benefits Ordinance or the City and County agency’s administrative interpretations of it (I last looked six years ago), one imagines a contractor should be treated as meeting a condition if the contractor as an employer and a plan’s sponsor and administrator does all that it can do. A retirement plan’s sponsor can decide which forms of payout (single sum, payments for nn months or years, annuity for the beneficiary’s life) the plan provides for a beneficiary. But neither a plan’s sponsor nor its administrator decides the Federal income tax treatment that results from the payout option a beneficiary has chosen or from the distributee’s treatment for Federal tax purposes as a spouse or non-spouse.

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.