Peter Gulia

If anyone is wondering, I have for many years expressed my belief that any person should be free to give legal advice, and to bear responsibility for her advice. And in an IRS TE/GE conference a few years ago, I suggested (in response to an IRS speaker’s question about what the IRS could do to help plans comply) that the Internal Revenue Service could assert power to treat not only submitters of IRS-preapproved documents but also their licensees’ workers who help users fill-in the documents as engaged in practice before the IRS, subjecting them to the Treasury department’s “Circular 230” rules for that practice. While not a complete response to the problem, it could be a way to push some document assemblers closer to the practices that commenters here advocate.

austin3515, thank you for a clear answer. Do other BenefitsLink mavens have concurring or differing views? My question is less about what current law does, and more about what you feel the responsibility ought to be. And would your answer change if, instead of a TPA’s custom handling, a recordkeeper assembles documents for 100,000 users?

So, here’s a related question: How much responsibility ought a third-party administrator, recordkeeper, or other service provider that’s not a law, accounting, or actuarial firm have for guiding a preapproved document’s user to adopt a plan that meets tax-qualification conditions and meets ERISA title I required provisions? Imagine this hypothetical situation. A TPA licenses from an unaffiliated business preapproved-documents software. The TPA’s employee drafts, for a user’s approval, an adoption agreement. The TPA’s employee fills-in information from the user, including about its intent to exclude an employee who works less than 1,600 hours. The software does not flag that exclusion as even a potential error. The customer asks no question, and the TPA says nothing, about whether the filled-in text might be inconsistent with IRC § 410(a) or ERISA § 202(a). (Assume the TPA knows the user has not asked any lawyer, accountant, or actuary to review anything.) Even if a user doesn’t ask, ought the TPA to have some responsibility for warning the user that its desired provision might be legally ineffective under ERISA sections 202(a) and 404(a)(1)(D), or might tax-disqualify the plan. Imagine there is a general warning—perhaps in the TPA’s service agreement, and usually on the preapproved document itself—that no one gives any assurance that the user has properly used the preapproved document to state a tax-qualified plan. Is such a general warning enough? Or ought a TPA be responsible to call attention to the specific point? Most important, what’s your reasoning for how much or how little responsibility the TPA ought to have? BenefitsLink mavens, what do you think?

Under the rules for a preapproved document, the IRS does not issue an opinion letter for “[p]lans that include blanks or fill-in provisions for the employer to complete, unless the provisions have parameters that preclude the employer from completing the provisions in a manner that could violate the qualification requirements[.] Rev. Proc. 2017-41 at § 6.03(17). Did the adoption-agreement form include an instruction to constrain what would be proper for the fill-in line the employer used?

kmhaab, is the plan stated as an "individually-designed plan" or using a preapproved document? If a preapproved document, was the provision you observed within the parameters the adoption-agreement form allows?

QDROphile, thanks. The $300 limit is in the statute, which a rule can't disobey. Side observation: Proposals for a selection I ran last year for a State's plan showed at least two competitors with QDRO-processing fees much higher than Oregon's limit.

Under Oregon Revised Statutes § 243.507, an Oregon State or local government employer’s eligible deferred compensation plan “shall” pay money or deliver a right to an alternate payee as provided by a domestic-relations order the plan’s administrator received. (Not all governmental plans provide for a non-participant following a domestic-relations order.) That statute leaves the rulemaking, including allocations of plan-administration expenses, to the Public Employees Retirement Board or, for a local plan, its administrator. Or. Rev. Stat. § 243.507(7); see also Or. Rev. Stat. §§ 243.472, 243.478. An Oregon PERS rule states: “The Deferred Compensation Program, when collecting administrative expenses and related costs, shall allocate those expenses and costs between the participant and the alternate payee on a pro-rata basis, based on the fraction of the account received by the participant or alternate payee. The Deferred Compensation Program may not charge the participant and alternate payee more than a combined total of $300.00 for administrative expenses and related costs incurred in obtaining data or making calculations.” Or. Admin. R. 459-050-0250(2) (“Fee for Administration of a Court Order”). To return to J Simmons’ query, I might focus an inquiry in this order: Does Internal Revenue Code § 457(b)-(g) preclude a QDRO-processing charge? No, if the charge is reasonable and does not otherwise result in an exclusive-benefit violation. Does the State’s enabling statute (a law that authorizes establishing and maintaining the plan) state a power or restriction? Does a rule or regulation implementing or interpreting the enabling statute state a power or restriction? Is the QDRO-processing charge logically consistent with the State’s statutory and common law of trusts? What powers or restrictions (if any) are stated in the plan’s governing documents? Information about “Using Plan Assets to Pay for Necessary Services” is in 457 Answer Book chapter 18—Fiduciary Duties to a Governmental Deferred Compensation Plan.

As always, Read the Fabulous Document. One imagines a plan could provide its administrator a power to supersede a claims administrator's decision. I once heard a knowledgeable employee-benefits lawyer debate, with herself, whether it would be good or bad for a plan's creator to provide such a power.

The proposed rule remains a proposed rule. Analyzing all comments, writing explanations about how an agency was or wasn’t persuaded to revise the proposed rule, and other work required under the Administrative Procedure Act and other Federal laws is, even for experienced agency lawyers, difficult and time-consuming work. The November 14, 2018 notice of proposed rulemaking about hardship distributions set January 14, 2019 as the due date for comments. Because the Treasury department then had a funding lapse through January 25, there have been only ten business days available for work on the comments. (And for the three lawyers assigned, this rulemaking is not the only project.)

Kevin C, thank you for the good learning.

To the extent the plan provides that forfeiture balances are allocated among participants' accounts or are used toward plan-administration expenses that would be charged against participants' accounts, does the Internal Revenue Service expect the plan's administrator to restore a portion of the forfeiture balance and correct the accounting to what would have resulted had the administrator correctly applied the plan's (before-amendment) provisions? Does the IRS ask for a showing that no one beyond the employer/administrator was harmed by the error?

ERISAgeek111, before your client assumes that the radiologist would not be eligible based on the health plan's 30-hours eligibility condition, might the plan's administrator consider how the employer or service recipient counts hours and consider whether the plan's measure is wider? While I don't know your client's facts, I can imagine that a medical professional who works only 24 hours in patient-facing medical procedures and care might work another six (or more) hours in activities that count as service for the relevant employer or service recipient. (Of course, much depends on the particular plan's provisions and definitions.)

I had a client for which the business owners believed (without any advice or information from me) that not allowing a QDRO distribution before the participant's earliest retirement age would improve the participant's leverage for a divorce negotiation, if ever there might be a divorce to negotiate. QDROphile, do you find that some domestic-relations lawyers write the QDRO and fill out the plan's claim form to specify as the alternate payee's address the address of the lawyer's office?

Kevin C, thank you for the further information, especially about a publisher that offers an adoption-agreement choice.

There has been an uptick in fraudsters impersonating regulators, not only EBSA and IRS but also banking, insurance, and securities regulators. It’s frequent enough that last year the Financial Industry Regulatory Authority sent securities broker-dealers an alert about the problem. And some fraudsters use techniques much smarter than those your client described to you. There are many ways to get rid of a faker while not offending a caller who is a legitimate government inquirer or investigator. Among them, one can respond that the person the to-be-examined fiduciary will assign to respond to the inquiry or investigation will initiate her own communication with the regulator. It’s unnecessary to ask for a telephone number or even a name because an experienced person already knows how to communicate with the regulator and get the status of a matter.

While I don't suggest it's likely, among the remaining possibilities is one Lou S. suggested in the first response: a plan with no asset beyond insurance contracts. ERISA section 403(b)(1)-(2) https://www.govinfo.gov/content/pkg/USCODE-2017-title29/html/USCODE-2017-title29-chap18-subchapI-subtitleB-part4-sec1103.htm

RatherBeGolfing, thank you for your further thought. And it answers my originating query. If the writing is logically consistent with the IRS-preapproved document and within what Revenue Procedure 2017-41 allows, a user can get a choice without losing reliance on the IRS opinion letter. For all BenefitsLink readers, my citation above should be to ERISA section 402(b)(4).

ERISA § 403(b)(4) commands: “Every employee benefit plan shall specify the basis on which payments are made to and from the plan.” If the plan’s administrator adopts a written procedure that says whether the administrator will or won’t allow a QDRO that specifies a distribution before the participant’s earliest retirement age, did the administrator amend the plan? If the procedure is, meaningfully, a plan amendment, might it be invalid if the administrator is not the same person as the plan’s sponsor and the plan did not provide the administrator power to amend the plan? If the procedure is not a plan amendment, does the plan specify the conditions under which the plan will pay a QDRO distribution?

I found the text RBG quoted in an IRS-preapproved document of a big publisher. Perhaps the publisher (or another BenefitsLink maven) has some reasoning about why the provision is not troublesome under IRC 411(d)(6). But even if there is no problem on that tax-law point, I wonder whether the quoted text is contrary to ERISA section 403(b)(4). And if the plan grants discretion, I wonder what factors a fiduciary would consider in deciding whether to allow or deny an "early" QDRO distribution.

RatherBeGolfing, thank you!!!!! One imagines that this provision might not really grant the Plan Administrator absolute discretion. Rather, if the provision allows any discretion, doesn't ERISA section 404 call a fiduciary to use reasoning and decide similar situations with sufficiently similar responses? If so, what circumstances would support a decision against an immediate QDRO distribution?

Under ERISA and the tax Code, a retirement plan may allow an alternate payee’s QDRO distribution before the participant’s earliest retirement age. ERISA § 206(d)(3)(E)(ii); IRC § 414(p)(4)(A)-(B); 26 C.F.R. § 1.401(a)-13(g)(3). For individual-account (defined-contribution) retirement plans, many plan sponsors permit an immediate distribution to an alternate payee, perhaps because a practitioner or service provider suggested that to do so is simpler than keeping a court order open for many years while waiting for the participant to reach an earliest retirement age. (That’s been my advice.) Yet some plan sponsors might prefer to provide for not paying an alternate payee before the participant becomes entitled to receive a distribution or reaches age 50. (I’m not advocating this choice; rather, I’m curious about whether it’s even practically available.) Does an IRS-preapproved document afford a user an adoption-agreement or other choice for not providing a QDRO distribution until the participant’s earliest retirement age? Does the document your firm uses afford a choice on this plan-design point?

I'm imagining a plan that provides the 70-something working owner once each year exactly the 401(a)(9)-required amount. No less, because the plan is designed to meet IRC 401(a)(9). But no more, because the participant had not elected a distribution.

Lou S., thank you for breaking a logic jam for me. (It's been a long time since I've thought about an in-service distribution beyond a hardship provision.) I was thinking about an owner's required beginning date as a quasi-retirement event, but it's not. For an owner who is employed or deemed employed, a 401(a)(9)-required distribution IS an in-service distribution (even if the plan's document doesn't so label it).

We all recognize the reasons for limiting a plan's benefit to a single-sum distribution. And that's usually my advice to sponsors of ERISA-governed plans. My follow-up query is about a business owner who might prefer to leave some amounts in her employment-based plan after her required beginning date. Let's imagine she has a good reason for preferring it over an IRA. Among other possible reasons, an ERISA-governed plan in some circumstances gets better protection from a participant's creditors. In that situation, might an employer tolerate plan provisions that allow an owner's once-a-year payments?

Belgarath and RatherBeGolfing, thank you for the further information. The answers and reasoning confirm what I expected. A further question for everyone: If a big-enough owner nears age 70 and doesn't want a single-sum distribution, do you amend the plan?