Peter Gulia

Below Ground, thank you for your thoughtful and thorough response, and especially your explanation about ways to set a default allocation.

Does anyone deal with a situation in which the plan's administrator allows an affected participant to specify, before a due date, whether her corrective distribution is allocated to non-Roth or Roth? Is this feasible for a plan that has only a few highly-compensated participants? (The administrator would set the participant's due date a week or two before the date on which the administrator would instruct the corrective distributions.) Or even with only a few affected participants, is it too much work?

Even if nothing in ERISA or other law requires such a notice to participants, a recordkeeper's or other service provider's agreement might set some notice to the service provider before it is obligated to perform its service about the added investment alternative.

Returning to my curiosity about whether a plan's sponsor might balk at spending $$ on documenting a terminated plan, am I right in guessing that a service provider's fee for the restatement or amendment might be so modest that I'm imagining a nonproblem?

While the IRS's website guidance is not authoritative, some might consider its explanation. https://www.irs.gov/retirement-plans/terminating-a-retirement-plan

A curiosity: For those situations in which a practitioner suggests restating or amending a terminated or discontinued plan, how often does a plan's sponsor say it is unwilling to pay $$ for that work or document? If the plan's sponsor declines, do you just document that you rendered the advice? Or is there something more to do?

If there was a payment to a payee other than the participant and that payment is not explained by a death, QDRO, other court order, IRS levy, or direct rollover to an eligible retirement plan, do those facts suggest the plan's administrator and the paying or processing service provider should evaluate controls?

Just a point of curiosity: If the data about participants is the employer’s data, what distinct source of information (if any) does an independent qualified public accountant compare that data to? Or if the only data is the employer’s data, what methods does an IQPA use to find an incorrect entry in the employer’s records?

Last week, a court vacated the Labor department’s rule to interpret whether an association acts “in the interest of an employer”. But one imagines the Government will appeal that decision. Support for, or opposition to, the association health plans rule has a political divide. Republicans like a rule that could help businesses and workers avoid the Affordable Care Act’s small-group and individual health insurance markets. Democrats dislike a rule perceived as weakening the Affordable Care Act’s reforms. Could retirement plans legislation—if it includes provisions for association, professional-employer-organization, or other multiple-employer plans—invite politicking that reflects a proxy battle about association health plans?

What are the odds-makers saying about the probability that a bill of this kind would be enacted in 2019 (or early 2020)?

For 2017 and earlier years, were the plan's annual reports on the cash-receipts-and-disbursements method of accounting or an accrual method of accounting?

We’re no longer issue-spotting to help RatherBeGolfing, who let us know the situation is out for advice. Recognizing instead a professional-interest discussion, here’s another issue: Even if a plan’s administrator receives evidence from which the administrator finds a claimant (or a person identified by a claimant) is the participant’s child, how does someone prove the number of the participant’s children. Or how does someone prove the non-existence of any more children than already are identified to the administrator? Using the situation described above as a hypo, how does a plan’s administrator know that the two persons identified are the only children? If the plan pays a claimant 50% of the account, what responsibility applies about an overpaid 30% if later it is found that there are five children? If a plan’s administrator engages an heir-search service, is that fee a “reasonable expense[] of administering the plan” within the meaning of ERISA § 404(a)(1)(A)(ii)? In what circumstances is it prudent to incur the fee? In what circumstances is it imprudent to incur the fee? And if the expense is proper and prudently incurred, may a plan’s administrator allocate that expense against the account of the participant who made the expense necessary?

When in 2018 did the participant get the hardship distribution?

ESOP Guy, thank you. (I have thought about logical consistency with the employer’s reporting for other purposes.)

Kevin C, jpod, and Bird, thank you for your further observations. Because I must not reveal my client’s confidences, I can’t explain to BenefitsLink readers why in the particular circumstances the questions are real and innocently raised, and why seeking careful answers to them really matters. And I hope it won’t surprise anyone that, despite my burdens for this project, I volunteered to write off my time. I haven’t yet formed conclusions. Again, thank you, everyone, for helping me expand my thinking.

Yes, and the plan's fiduciary will use my written advice to show that the fiduciary acted loyally and prudently. Thank you, everyone, for helping me test my thinking.

And whatever the employer or fiduciary decides (or both decide), each might want its lawyer’s advice about: whether and how to document the record of what information was considered and what analysis was done; communicating the decision to meet whatever duties might apply; even without or beyond a duty of communication, communicating to start the running of a statute-of-limitations period on a disappointed person’s claim.

And what if Congress might provide that no 401(a)(9) minimum distribution is required for the Roth portion of a participant's 401(k), 403(b), or 457(b) plan account. For counting U.S. Government revenue gains and losses for tax or budget legislation, anything the scorers assume will motivate increased use of Roth pushes revenue gains into earlier years, and the scoring frame is no more than ten years.

An employer might not pay to avoid a threatened change to the participants’ tax treatment. Not every employer needs a deduction for the contributions. But even if an employer would “own” all tax treatments, my observation is that it’s awkward for an employer to be in the role of tax law enforcer when it has no other stake in deciding whether its employee is retired. Why is an employer the arbiter of whether someone no longer gets tax deferral on portions of her retirement savings?

One fact common to the situations I’ve described is that the employer has no money at stake, only its role as an enforcer of Congress’s tax policy.

Four years ago, a postdoctoral student in my course on Professional Conduct in Tax Practice chose for his semester paper to write about whether it’s feasible for a lawyer or a certified public accountant (he is both) to render advice to a marijuana business. Many associations’ opinions say it doesn’t break the profession’s conduct rules merely to render advice. But those opinions disclaim considering anything beyond the professional-conduct rules. Challenges under other law—including crimes of aiding another’s crime or engaging in a monetary transaction that involves proceeds of a crime, and risks of forfeitures (which might undo a fee)—have scared off many professionals. Even a client’s engagement of a professional might be vulnerable to an argument that the agreement is not a legally enforceable contract. What I heard about Empower was last month. But I’m not aware of anyone checking on it. A roomful of practitioners, mostly TPAs, said they wouldn’t accept a marijuana business, even for work strictly limited to a retirement plan. If anyone wants Empower’s answer, perhaps it’s straightforward to call there and ask.

I heard (but have not checked) that Empower Retirement / Great-West Life & Annuity Insurance Company is willing to serve some marijuana businesses.

Luke Bailey, thank you for reminding us about using an administrator’s powers and discretion. Recognizing a fiduciary’s duty to use those powers impartially is why my client seeks advice. My originating example is based on just one of several kinds of situations the administrator must interpret. And the number of people and situations involved is more than count-’em-on-your fingers. So, I’m still hoping BenefitsLink mavens will help us discover some principles or reasons to apply. One way of looking at the one-month-a-year situation is to assume that wages 1/12 of full-time is not enough to live on, and from that assume the worker is retired. What about someone who works throughout the year, but averages 13 hours a month? Or someone who works every week, putting in 3 or 4 hours a week? Those situations produce wages similar to the one-month-a-year worker, but is the work somehow more regular? If regularity matters, what about someone who works every month, but only one day a month? Does it matter whether the work is physical labor, office skills, or knowledge work? And for all these, why does it matter?

CuseFan, thank you. Yes, the participant is eligible to make elective deferrals (for any pay period that has wages).

As I mentioned, the participant has a right to take a distribution, but no obligation to receive a distribution unless the plan’s IRC § 401(a)(9) provision compels it. In the original situation—in which the employee consistently works one month every year (and the employee and the employer both expect their relationship to continue), what fact, if any, would trigger a plan administrator’s finding that the employee became “retired” or severed from employment?