Peter Gulia

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.

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