Peter Gulia

For those who the need the details about the uses of life insurance with tax-qualified retirement plans, still the best book is Life Insurance Answer Book (3d ed. 2002), with Gary S. Lesser and Lawrence C. Starr as the lead authors and editors.

Does anyone have the number on how many ERPAs are so registered with the IRS?

PTE 92-6 (which amended PTE 77-8): https://www.gpo.gov/fdsys/pkg/FR-2002-09-03/pdf/02-22376.pdf

Bri, thank you for helping me.

Retirement plan documents now is mostly about IRS-preapproved documents, and seldom does an employer apply for a determination. Beyond Form 5300 applications, what is it that enrollment as a retirement plan agent permits an ERPA to do (that one could not do without enrollment)? Is it only about the Employee Plans Compliance Resolution System? Does the right to represent a taxpayer in the IRS’s examination of a Form 5500 report matter? Is there something else allowed for an ERPA (but precluded for others)?

To treat what happened as a mistake and not a transaction, the plan’s administrator would do a prudent investigation to satisfy itself that it understands what happened and finds the reporting would be truthful and not misleading. And recognizing that a prohibited transaction or a fiduciary’s lack of control always matters for a plan’s financial statements (even if all amounts are immaterial or even insignificant), the independent qualified public accountant might have some responsibilities. Further, a plan’s administrator might prefer to report a transaction (and its correction) in a Form 5500 schedule and in the IQPA report’s narrative. Doing so might result in the Secretary of Labor having knowledge that triggers ERISA § 413’s three-year statute of limitations.

To meet 26 C.F.R. § 1.401(k)-1(e)(6), a cash-or-deferred arrangement must not condition a benefit (beyond a matching contribution and a few others the rule allows) on “the employee’s electing to make or not to make elective contributions under the arrangement.” The linked-to Abbott Labs announcement suggests the employer’s nonelective contribution is tied to whether a participant made a student-loan repayment. But the news release doesn’t fully describe the plan’s provision. Under some I can imagine, there might be an argument that the employer’s nonelective contribution also is conditioned, at least indirectly, on whether the participant elected not to make § 401(k) elective contributions. If that is the provision, is the effect one that that 26 C.F.R. § 1.401(k)-1(e)(6) should preclude?

This situation suggests two key law issues, first under State law and then under Federal law: (1) If yesterday a court had ended Pat’s marriage to Sam, can a court tomorrow order that Pat and Sam were married yesterday? (2) If a State court’s order says Pat and Sam were married yesterday (and the order is a domestic-relations order within the meaning of ERISA § 206(d)(3)(B)(ii)), would following that order “require [the] plan to provide any type or form of benefit, or any option, not otherwise provided under the plan [or] require the plan to provide increased benefits (determined on the basis of actuarial value)[.]” ERISA § 206(d)(3)(D). It’s hard to do much about question 1. But employee-benefits practitioners might help some judges learn the legal, economic, and practical effects of question 2. A related point: The situation the originating post describes illustrates some usefulness of venue provisions in an employee-benefit plan’s governing document. If the plan’s administrator decides the revised order is not a QDRO and the would-be surviving spouse challenges that decision, would the plan’s employer/sponsor/administrator prefer that the challenger be compelled to proceed in Federal (rather than State) court and in the district the plan’s sponsor chose? Newbie’s committee has a lawyer and we don’t presume to advise either of them. As we use this thread for academic interest or professional development, among many court decisions about the issues raised one might read these: (1) Padgett v. Little, 172 Cal. App. 4th 830, 91 Cal. Rptr. 3d 475, 47 Empl. Benefits Cas. (BNA) 1050, 1061 (Cal. Ct. App. 2009) (A trial court exceeded its authority by using the ruse of a nunc pro tunc [now for then] order in its attempt to create an interest.). (2) Garcia-Tatupu v. Bert Bell/Peter Rozelle NFL Player Retirement Plan, 249 F. Supp. 3d 570 (D. Mass. 2017) (whether a nunc pro tunc order entitled a participant’s former spouse to a benefit turned on whether the former spouse’s interest had been established before the participant’s death so that the order did not create a new benefit not otherwise payable).

Chippy, should we assume that an employer-provided contribution allocated to a participant’s account because the participant made a student-loan repayment is not a matching contribution? 26 C.F.R. § 1.401(m)-2 https://www.ecfr.gov/cgi-bin/text-idx?SID=13eef7f159960c6c2f53a4aa6d7922c5&mc=true&node=se26.6.1_1401_2m_3_62&rgn=div8 If a retirement plan limits this allocation to non-highly-compensated participants (or limits the allocation for a highly-compensated employee to apply counting only the first $120,000 of compensation), how much should one worry about nondiscrimination?

My working assumptions are: There are many ways one might contribute money, rights, or other property to obtain partnership interests. A partner might have contributed more than one kind of property. A partner might (or might not) have an obligation to perform services for the partnership. A partner might (or might not) have a right to perform services for the partnership. For a partner who performs services, exactly when she performs might be unmeasured. Even for a partner who contributed nothing beyond her services, when a partner is paid an amount might not bear a close or obvious relation to when she performed services that bear some relationship to how the amount (or a portion of the amount) was determined. Again, thanks everyone for aiding my thinking.

Any experience or guess on how long the IRS takes?

Also, it's possible that retirement plans merge without a merger of a business organization that sponsored or administered a plan. In those circumstances, a buyer of business assets might not have made an obligation to file an annual report on the other plan.

If the payer tax-reports a normal distribution on Form 1099-R and the distributee does not put the income (or a rollover) on her Form 1040, does the IRS's matching catch the inconsistency?

I wish a plan’s sponsor would ask me to help design and document its plan. Nowadays, that happens with governmental plans and plans for select-group executives, but on plans that could fit the IRS’s § 401(a) and § 403(b) “preapproved” regimes only for mega plans. Luke Bailey, thank you for your idea of writing (or interpreting) a plan to treat a partner as meeting a last-day allocation condition if she then was available to perform services.

BetterCallSaul's originating post doesn't specify whether the health plan was insured or "self-funded".

jpod, thank you for the observation about how an administrator might use its discretion to avoid a question about non-discrimination (if it can do so while also meeting ERISA's fiduciary duties, including impartiality). Bird, thank you for weighing in with your respected view.

jpod, thank you for helping me think. Being a partner isn't enough to make one a deemed employee for a retirement plan; there must be at least some personal services. Unlike a law firm, this partnership has some partners who do not provide (and never had provided) any personal service. Yet some of the partners who have provided personal services also made other contributions of money or other property (or both) in exchange for his or her partnership interests. How does an HR employee who acts for the employer/administrator determine that a partner who previously performed personal services has stopped performing them if distributions to the partner are computed on factors other than work? Is a partner who previously performed personal services a deemed employee until he or she is deadmitted from the partnership? Or is something more than having been a partner on the last day of a year needed for one to be treated as having been "employed" on that day?

A profit-sharing retirement plan has a last-day condition on who shares in an allocation of a discretionary contribution. The employer is a partnership, and many of the employer’s workers are partners rather than employees. For the last-day condition, the plan’s governing document refers only to whether the participant is “employed” on the last day. The partnership keeps no records of a partner’s time worked. How does one determine whether a partner was employed on the last day? Was a partner “employed” on the last day of a year if she had not been deadmitted from the partnership (and had for the year earned income more than zero)? What rules should I worry about?

Kristina, thank you for that idea. Direct conversation, when feasible, often is productive. For some plans and employers, direct conversation might be impractical. Also, the longer ago that a participant left the employer, the more likely it is that neither the recordkeeper nor human resources has a good telephone number.

By the way, I used the word "recalcitrant" the way the ERISA Industry Committee used it in a recent comment letter--as a coined term to distinguish between those who are missing or unlocated and those for whom the plan's administrator has a good address but the participant, beneficiary, or alternate payee doesn't communicate (often in circumstances for which there is no obligation to communicate). ERIC letter to Assistant Secretary Rutledge rmissing participants July 2018.pdf

CuseFan, I like your idea very much. If, by a year or more after the distribution, the distributee has borne tax on the payment, one hopes she'd then decide to request (and deposit) a reissued payment.

Kevin C and Madison71, thank you for the good ideas about a default rollover. The plan’s governing document lacks such a provision. I suspect the sponsor would not want to add the provision because the administrator would not want fiduciary responsibility for selecting a distributee’s IRA. The safe-harbor protection under 29 C.F.R. § 2550.404a-2 can apply only if the benefit is no more than the maximum amount under IRC § 401(a)(31)(B). The amount declined is much more. Other suggestions? What else are people doing?

Much has been said and written about missing or unlocated participants. But much less has been discussed about what some describe as recalcitrant participants—those who decline to deposit or negotiate the check that pays a distribution. Imagine this situation. A profit-sharing plan (with no 401(k) arrangement) permits a distribution after a participant has severed from employment and attained age 60. The plan requires a distribution after a participant has severed from employment and attained normal retirement age. After the participant severed from employment, about 40 mailings—including disclosure notices, revised summary plan descriptions, summary annual reports, and benefit statements—were sent to the participant’s address, and nothing came back as undelivered. After this participant’s normal retirement age, the plan’s administrator mailed the participant a check for her required distribution. The participant is not missing; rather, the administrator has solid proof that the distributee accepted delivery of the plan’s mailing. After eight months, the payee has not deposited or negotiated the check. What steps should the plan’s administrator take next? What are the big recordkeepers doing with problems of this kind?

Whether and how ERISA’s blackout-notice provision applies might turn on the “plan year”. ERISA § 101(i)(8)(A) defines an individual-account plan for ERISA § 101(i). That definition excludes a one-participant retirement plan. ERISA § 101(i)(8)(B) defines for ERISA § 101(i)(8)(A) a “one-participant retirement plan” as a plan “that on the first day of the plan year (i) covered only one individual (or the individual and the individual’s spouse) and the individual (or the individual and the individual’s spouse) owned 100 percent of the plan sponsor (whether or not incorporated), or (ii) covered only one or more partners (or partners and their spouses) in the plan sponsor.” The interpretive rule restates those definitions. 29 C.F.R. § 2520.101-3(d)(2)-(3). If those definitions alone do not remove a situation from ERISA’s blackout-notice provision (which might be so if the relevant plan year begins on August 1 or later), consider also whether there is a blackout and, if there is, who it affects. ERISA § 101(i)(1) states: “In advance of the commencement of any blackout period with respect to an individual[-]account plan, the plan administrator shall notify the plan participants and beneficiaries who are affected by such action in accordance with this subsection.” The interpretive rule somewhat similarly states: “In accordance with section 101(i) of [ERISA], the administrator of an individual[-]account plan, within the meaning of paragraph (d)(2) of this section, shall provide notice of any blackout period, within the meaning of paragraph (d)(1) of this section, to all participants and beneficiaries whose rights under the plan will be temporarily suspended, limited, or restricted by the blackout period (the “affected participants and beneficiaries”) . . . in accordance with this section.” 29 C.F.R. § 2520.101-3(a). If, based on the relevant plan year, the plan is not a one-participant retirement plan AND the service change results in a blackout (which might be uncertain on the few facts described above), the plan’s administrator might deliver a notice to the affected participant. ERISA § 101(i) is not the only part of ERISA that might call for a blackout notice or similar communication. For example, an administrator, trustee, or other fiduciary might use a communication to meet a responsibility under ERISA § 404(a). Yet the situation 401(k)athryn describes suggests that the plan’s administrator, operated by the employer’s owner, might find that the affected participant already has information about how the change affects his rights under the plan.

Based on my experiences (most often as counsel to the decision-maker) with several situations in which a designated beneficiary killed the participant, I’ll tell you that a plan’s fiduciaries often don’t recognize fully how their decisions and communications can get scrutiny from many directions, including not only the named primary beneficiary, a named contingent beneficiary, a default beneficiary, and the personal representative of the participant’s estate, but also the alleged killing’s prosecution and defense lawyers (because either “side” might perceive strategic advantages or disadvantages that turn on whether a defendant has or lacks a right to get money). Even if the plan’s sponsor/administrator has excellent written claims procedures and long experience with flawless claims-handling, a slayer situation might put them to the test. Also, the plan’s administrator should not assume (at least not without its lawyer’s advice) that even a proven slaying would undo the slayer’s benefit. Unless the plan’s governing document states a provision, there might be no clear rule.