Peter Gulia

RatherBeGolfing, thanks. Anyone with a different view?

What do you think about how Congress's H.R. 1, including its changes about how a business's income passes through to owners, will affect small-business employers' desire and willingness to create retirement plans?

The attachment is Judge Beetlestone's order enjoining two administrative-law rules about religious or moral exceptions to providing a health plan's coverage for contraception. religious and moral exception rules enjoined.pdf

John Feldt, I doubt that the Internal Revenue Code precludes a sole-proprietor business from establishing a § 401(a)-qualified plan merely because the proprietor is younger than 21 or 18. Some banking, insurance, and securities businesses are unwilling or reluctant to make a contract with a person who has not yet attained the age of competence to make a non-voidable contract. Others reason that a young businessperson who seeks to save or invest seems a good risk. Some might desire the loyalty of such a customer. Even with the businesses that are willing to deal with a young person, doing so might require the approval of someone beyond the ordinary front-line processor. So it might make sense to inquire about this point before sending an application.

And consider 26 C.F.R. section 1.402A-1's Q&A-13. https://www.ecfr.gov/cgi-bin/text-idx?SID=2f15788783ead36e79e54a376e3afcb7&mc=true&node=se26.6.1_1402a_61&rgn=div8 That this rule against "transferring value" from non-Roth accounts to Roth accounts refers not only to a "transaction" but also to an "accounting methodology" suggests that non-Roth and Roth accounts may share an investment if the accounting among the subaccounts of a participant's account is fair.

Those interested in this discussion's observations about which State laws ERISA preempts or does not preempt might consider a recent U.S. Supreme Court decision about the reach of ERISA's preemption. While the factual context is quite different, the opinions describe some interests in 'nationally uniform plan administration', and disagree about how much a State law may interfere. https://www.supremecourt.gov/opinions/15pdf/14-181_5426.pdf Again, I don't state a particular conclusion; only that an employer (and a plan administrator if not the same person) should get its lawyer's advice.

If one relies on 26 C.F.R. § 1.401(k)-3(g), doesn’t the reduction or suspension of safe-harbor contributions apply no earlier than 30 days after eligible employees are provided the -3(g)(2) supplemental notice that explains the plan amendment?

My communication was something like what My 2 cents describes. I used the same blast lists I had used for my mid-October e-mail. I quoted the SSA's announcement about its reason for its adjustment. Several clients thanked me.

Following ERISA § 404(a)(1)(D), a plan’s administrator should follow the provisions of the documents that govern the plan (unless such a provision is contrary to ERISA, other Federal law, or unpreempted State law). Beyond the written plan, the administrator should read the administrator’s ERISA § 514(e) automatic-contribution-arrangement notice. If the written written plan’s proper provisions and the notice are logically consistent, the administrator would follow them. If the notice does not sufficiently describe the plan’s provisions, the administrator should rewrite the notice.

duckthing, thank you for your excellent help. Only rarely do I work with plans that use any safe-harbor design. After rereading Notice 2016-16, I understand more about why practitioners grumble that rules against mid-year changes sometimes restrain changes that are not intended to (and sometimes could not) benefit any highly-compensated employee.

I heard a presentation on this at a conference of retirement-plans practitioners. While I was not fully persuaded by the reasoning, it was clear that the designers had thoughtfully considered relevant law and tax treatment. If one wants the details, the Custodia Financial have more analysis than is shown on the website. And of course one would read the insurance contract.

Is the answer different if the facts are that the mid-year amendment cannot cause any highly-compensated employee to get a bigger matching contribution than she already had under the no-true-up provisions?

According to the website austin3515 points to, it is insurance: "Retirement Loan Eraser (RLE) is smart insurance protection that repays your 401(k) plan loan if you default on your payments due to involuntary job loss." https://www.loaneraser.com/faqs/ Also, the website's privacy notice discloses sharing a customer's information with "insurance firms with which we have a relationship[.]"

2017 is about 90% done. Imagine a written plan provides that safe-harbor matching contributions are made on a payroll-by-payroll basis, and that “true-up” contributions will not be made. The employer now would like to provide that matching contributions are recalculated (after a plan year ends) based on the ratio of elective deferrals to compensation for the plan year, and “true-up” contributions are made. May the employer make this amendment effective for 2017? Or must the employer apply the amendment only to 2018 and later years? Which regulation and what reasoning allows or precludes the change for a year already begun?

MoJo, thank you for the further thoughts, especially about ERISA 405(a)(3), and generally on why monitoring and evaluating a fiduciary might call for different work than for monitoring and evaluating a non-fiduciary. About your middle paragraph: If an employer/administrator does not allocate a function to a "3(16)", doesn't the employer/administrator retain fiduciary responsibility for its prudent performance of the function? About your third paragraph: Let's imagine a hypothetical situation in which the procedures and methods for doing the specified functions are exactly the same whether the functions are done as a fiduciary or as a non-fiduciary. Might it be worthwhile to the plan to spend a little extra to buy the economic value of the 3(16) provider's extra responsibility (and so its potential contribution to making good the plan's losses that result from the 3(16)'s direct breach, or from the employer/administrator's breach that the 3(16) failed to prevent or remedy)? I recognize that often there might be more sales-pitch sizzle than steak. But I wonder that there might be some economic significance in an ERISA fiduciary's responsibility. Else, why would so many service-provider businesses, including many that lack compensation conflicts, have worked so hard over the past 43 years to eschew that responsibility?

Under the format in which a service provider is responsible only to perform its contract (and not as an ERISA fiduciary), isn’t the selecting fiduciary responsible to monitor and evaluate the service provider’s performance? And to do itself whatever is not done by the service provider?

Thanks. Others' thoughts?

Thanks. While an informed plan-sponsor fiduciary recognizes it never gets out of fiduciary responsibility, some consider it an advantage to replace frequent activities (including deciding claims and responding about court orders), some of which can't be perfectly scheduled, with a periodic, regularly scheduled, review of the service provider's performance on the contracted tasks. Question for BenefitsLink mavens: (Assume that the fiduciary can't compel the employer to administrator to administer the plan.) If it's so that there are only a few available "3(16)" service providers, could that scarcity make it prudent for a selecting fiduciary not to disengage a poorly-performing provider if the selecting fiduciary's reviews show that the other providers are no better?

Some recordkeepers and third-party administrators offer to provide services for a 401(k) plan not merely as a contract service provider but also by expressly accepting responsibility as an appointed fiduciary for a specified set of plan-administrator (not investment-manager) functions. Business jargon seems to use "3(16)" as a label for this kind of service. If a plan sponsor wants to engage this service, is there a meaningful choice of providers? Or is the number that offer this service so few that an employer faces little choice?

Here's a link to the Labor department's rule about different SPDs for different classes of participants: https://www.ecfr.gov/cgi-bin/text-idx?SID=61b245fa37ff49f3c1733d64e32ca6d5&mc=true&node=se29.9.2520_1102_64&rgn=div8 29 C.F.R. § 2520.102-4.

jpod's observation that even locating the beneficiary might be unnecessary until the required beginning date approaches is why my note mentioned "IF any plan administration now is needed". Also, Jim Chad's originating post mentioned that the participant's children "want" to make a claim. A plan's administrator need not respond to a claim that hasn't yet been submitted. If a child submits a claim, the plan's administrator would follow ERISA section 503 and the administrator's claims procedure. This should include explaining each reason for a denial of the claim. Many difficult death-benefit situations become resolved through careful attention to the plan administrator's claims procedure.

An interpleader, even if otherwise fitting, might not end the surviving spouse's claim unless the court has jurisdiction over the surviving spouse. If any plan administration now is needed to decide a claim or for some other reasons, sufficiently locating the spouse to make it feasible to serve process or notice and meet other requirements to support jurisdiction might also mean it's feasible to communicate with the spouse to invite him to disclaim the benefit (if the plan allows a disclaimer) or to get his distribution instructions. Those means might be less expensive than the courts' proceedings.

ERISA § 404(a)(1)(D) states: “[A] fiduciary shall discharge his duties with respect to a plan . . . in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title and title IV.” This might apply if each State law that otherwise could restrain the employer’s deduction from the pay of a participant who asked to stop the deductions is preempted. (I don’t suggest that a fiduciary must follow a plan’s governing document if doing so would be a violation of an unpreempted State law.) I recognize that many employers make practical choices about this intersection between Federal and State laws.

Some lawyers read ERISA Advisory Opinion 94-27A (July 14, 1994) to suggest some reasoning under which ERISA might preempt a State’s wage-payment law. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/1994-27a For preemption to apply, Federal law need not regulate the same subject or object as what the State law regulates. Under ERISA’s express preemption, ERISA’s titles I and IV supersede a State law “insofar as [the State law] may . . . relate to any [ERISA-governed] employee benefit plan[.]” ERISA § 514(a), 29 U.S.C. § 1144(a). Further, a participant-loan procedure’s or other governing document’s provisions about repayment of a participant loan might be a part of a plan’s ERISA § 402(b) funding policy. A lawyer rendering advice about whether a State’s wage-payment law is or isn’t preempted might consider ERISA § 514(b)(4): “Subsection (a) shall not apply to any generally applicable criminal law of a State.” (Before ERISA § 514(e), some lawyers interpreted § 514(b)(4) as undoing a preemption that otherwise might apply if the State’s law made it a crime to violate the State’s wage-payment law.) Relevant law’s several (and compound) ambiguities suggest an employer needs its lawyer’s advice. (If the plan’s administrator is a person distinct from the employer, it too might need its lawyer’s advice.) Consider that a too-hasty decision in either direction risks a breach or violation.

Flyboyjohn, ESOP Guy, and David Rigby, thank you for the helpful observations.