Peter Gulia

RatherBeGolfing, thank you (!) for that helpful information. Do we suspect the document states the prohibition because the IRS asked for it? If so, why would the IRS think precluding arbitration is needed to support tax qualification? (By the way, I'm not advocating for or against using an arbitration provision; I'm only seeking to learn what is or isn't feasible for a preapproved document's user.)

If a user of an IRS-preapproved document wants to add an arbitration provision, does any sponsor's document allow a user to specify an arbitration provision through an adoption-agreement choice or other norm of the preapproved document? If not, is an arbitration provision something a user can add without defeating reliance on the IRS's approval?

Does the plan's governing document mandate an interim valuation, or rather allow an interim valuation? What amount or portion of her account did the participant ask for? If 100% (and whether to use an interim valuation is discretionary), does the participant run a risk that the plan's fiduciaries approve her claim but use the December 31, 2018 valuation?

BenefitsLink furnishes the prepublication text of the Treasury’s final rule (scheduled to be published next Monday) about hardship distributions and related provisions. https://benefitslink.com/news/index.cgi In my quick glance, the Treasury’s explanation responds to the questions raised in the discussion above. It also answers a few other questions. Leaving aside thoughts about whether one likes or dislikes the rules, does the final rule sufficiently remove uncertainties?

Just curious (and without concurring with or dissenting from any view described above): How many plans have a procedure in which there is no restraint on a participant’s account until the plan’s administrator has received a domestic-relations court’s order? For those with such a procedure, how often does it happen that someone disappointed or frustrated by the lack of a restraint complains about it? Of those, how many become a court proceeding, however meritless, that a plan’s administrator must spend at least some effort to defend? Conversely: How often does a participant complain that the plan’s administrator used a power to restrain the participant’s account when the administrator had not received a domestic-relations court’s order? And how much grief or expense to explain or defend the plan’s administration?

And if the plan's administrator would use a temporary investment, the communications must explain that a participant lacks a power to direct investment until the later recordkeeping services begin. Not the happiest way to begin a plan.

Recordkeepers vary widely in how much or how little responsibility for identity frauds the service provider accepts or denies. Well-advised fiduciaries include this point in a request-for-proposals and in negotiations (even apart from an RFP). To help plans that lack purchasing power, some advisors consider cybersecurity protections and promises in evaluating which recordkeepers one would present to a client. And if not from the service provider, some consider insurance.

If the plan’s administrator provides no investment-direction power to the claimants who seek to be recognized as the participant’s beneficiary, the plan’s fiduciaries get no ERISA § 404(c) relief for the temporary investment because the plan does not “[p]rovide[] an opportunity for [the eventual rightful] beneficiary to exercise control over assets in his individual account[.]” 29 C.F.R. § 2550.404c-1(b)(1). Likewise, the plan’s fiduciaries get no QDIA relief. An investment fund—even if it meets all QDIA conditions regarding other participants and beneficiaries—cannot be a qualified default investment alternative regarding the not-yet-recognized beneficiary. Among the conditions for QDIA treatment are that the beneficiary must have: “the opportunity to direct the investment of the assets in his or her account . . .” “the ability . . . to transfer, in whole or in part, his or her investment from the qualified default investment alternative to any other investment alternative available under the plan[.]” 29 C.F.R. § 2550.404c-5 https://www.ecfr.gov/cgi-bin/text-idx?SID=3e49c7c6acbd50dad463b6cec21dee60&mc=true&node=se29.9.2550_1404c_65&rgn=div8 QDIA treatment depends on the individual’s power to reject or countermand the default investment. Instead, a fiduciary must invest the individual account (or segregated portion of an account) for which no beneficiary has an investment-direction power according to the fiduciary’s responsibility under ERISA § 404(a). The challenges of making investment decisions not knowing which claimant might establish a right include not only not knowing the rightful beneficiary’s age but also not knowing when that person might take a full distribution or partial distributions. That said, there might be circumstances in which using a target-year fund might be sufficiently prudent, or circumstances in which it might be imprudent.

In a typical governmental individual-account 457(b) eligible deferred compensation plan, the only effect of normal retirement age is to set which years a participant may use an extended (by section 457, rather than age 50) deferral limit. The better way to write such a plan's provision or definition is to allow a participant to elect her normal retirement age within the bounds set by the tax-law rule. https://www.ecfr.gov/cgi-bin/text-idx?SID=1278583cb06cb8fad0c0490238154ae1&mc=true&node=se26.8.1_1457_64&rgn=div8 Also, it's better to expressly provide that an election is not made until the participant's deferrals exceed what would have been proper without the "special section 457 catch-up".

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?