Peter Gulia

GMK, thank you for the further information, and your observations. It's talk from IRS employees in recent years that has caused some employer/administrators to ask about what one may accept on the claimant's word, and what calls for an administrator to probe and evaluate.

Wow! Thank you! I had forgotten that earlier discussion. But what if the plan's administrator does NOT tie the gross-up to anything about withholding? Is it okay to accept the claimant's written representation about his or her combined marginal tax rate (as long as it's within a range that could be possible)?

The Treasury department's rule states: "[T]he amount required to satisfy the financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution." Do BenefitsLink mavens read this as allowing a gross-up reflecting the distributee's marginal income tax rates, even if the withholding will be much less? If so, what information about the distributee does one use to discern what marginal tax rate to assume for the gross-up? If one assumes that, beyond the distributee's wages from the one employer, the distributee's tax returns might include other wages and other income, could this make it reasonable to accept a claimant's written representation about his or her marginal tax rate (as long as it's no more than the combination of the highest rates for the jurisdictions shown by the claimant's address)?

You're right that many (likely most) pre-approved document sets don't display a check-off box or other means for illustrating the idea that an adopter might name the Plan Sponsor or Employer organization as a plan's trustee. But the fact that a pre-approved document's maker or sponsor chose not to display something doesn't necessarily mean that what's not readily suggested on that form is not a choice. If the question is "Can the employer be the trustee of a 401(k) plan?", perhaps a lawyer's answer might be "it depends on relevant Federal and State laws; how much research do you want to pay for?"; and a practical answer (sometimes from a lawyer too) might turn on how much effort makes sense in the situation. That might be little to no effort if the questioner or her advisor finds that the potential consequences are modest or unlikely to be meaningfully affected.

Even if appointing as a retirement plan's trustee the plan-sponsor corporation or other business organization (rather than the organization's officer, manager, or employee) does not practically change an acting individual's exposures to personal liability, some plan sponsors prefer to name the organization as the trustee so the liability in the first instance is on the organization, even if an individual also will be exposed to liability (especially if the organization is unable to pay). And some just like the symbolic value of naming the plan sponsor as its plan's trustee. For the many retirement-services providers that seek to avoid too much advice about what a plan's sponsor should do, it's useful to know that a customer's question about whether the plan-sponsor organization may serve as the plan's trustee is not necessarily an idle or useless question. Most small-business customers don't ask this question. But when one does, it can be useful to consider that the answer need not be a too-quick or too-simple No. That said, we recognize that these complexities can be challenging for a TPA, recordkeeper, or other service provider.

Some States’ laws do not preclude a corporation or other non-natural person from serving as a trustee. Or if a State’s law precludes a non-natural person other than a bank or trust company from engaging in a BUSINESS of serving as a trustee, an employer’s service without compensation only for a single-employer plan for the employer’s employees might not be such a proscribed business. Even if a State’s law generally prohibits a corporation that’s not a bank or trust company from engaging in a business of serving as a trustee or other fiduciary, a State’s law might permit a corporation to serve as the trustee of a trust for an employee-benefit plan for the corporation’s employees. To pick just one example, Pennsylvania’s Banking Code expressly permits a non-bank corporation to act as trustee of a trust “for the benefit of [the corporation’s] own employe[e]s[.]” 7 Pa. Stat. § 106(a)(iii).

If the plan's administrator construes or interprets the meaning of "person or other entity", the administrator might consider that, absent special definitions, customary legal usage includes in the meaning of "person" not only a human being but also a non-natural person, such as a corporation. Moreover, ERISA includes a definition for "person". Even if the plan's text doesn't compel following or using that definition, an interpretation that is consistent with ERISA might be stronger. And while it is a separate task, if the plan's sponsor wants to preclude a participant from naming a for-profit person as the participant's beneficiary, an amendment or other revision of the plan could make clear what the plan does not allow.

The Bankruptcy Code in its section 704(a)(11) states: The [bankruptcy] trustee shall ... if, at the time of the commencement of the case, the debtor (or any entity designated by the debtor) served as the administrator (as defined in section 3 of the Employee Retirement Income Security Act of 1974) of an employee benefit plan, continue to perform the obligations required of the administrator[.] There are steps a bankruptcy trustee may take to administer a plan and meet an administrator's ERISA duties. These might include using the plan's assets to defray reasonable expenses of administering the plan. Or if a bankruptcy trustee is in doubt about whether engaging and paying an independent qualified public account and other service providers is prudent and otherwise consistent with ERISA's exclusive purpose, he or she may bring a civil action "to obtain other appropriate equitable relief", which might include an Article III court's approval of one or more plan-administration expenses. One recognizes that difficult circumstances can make unclear exactly what a fiduciary must or should do. But there are ways to find out.

Bankruptcy is not necessarily an excuse from a plan administrator’s duty to file an annual report, including an independent qualified public accountant’s report. Administrative Law Judges have upheld such a position. https://www.dol.gov/ebsa/newsroom/2010/ebsa011510.html

While I express no suggestion, the hyperlink below leads to one publisher's description of the problem. http://www.businessofbenefits.com/2016/07/articles/uncategorized/403b-policy-loans-continued-form-5500-reporting-problem/

If the plan states a broad power to amend the plan without restricting the way the sponsor does it, almost any writing (perhaps even a series or set of e-mails) might be an amendment. If the plan was not amended, I can't offer a suggestion about corrections because I haven't experienced the situation you describe.

Has either the employer or the plan's administrator evaluated whether the plan sponsor's resolution amended the plan? What does the plan state about what the sponsor must or may do to amend the plan?

You’re right that the EFAST2 FAQs (not only in Q&A 31 but also others) are ambiguous. For example, the third paragraph of Q33a does not describe what submission would be required or permitted if the employer wants to make a submission that is not the same as the administrator’s submission. But if one has the more typical situation in which the employer approves filing the same Form 5500 return and report that the administrator approves, the regulation and the Form 5500 instructions align in saying that the administrator’s signature is enough. In that situation, one might not worry about anything in off-rule guidance that might leave one in doubt about whether a second signature is needed to show the employer’s assent. It would be at least unseemly, if not improper, for the Internal Revenue Service to assess a penalty if the employer followed the Treasury department’s regulation.

Consider too that an administrator's Form 5500 financial-statements Schedule may report a contract on fair value even if the administrator's other financial statements (that are the subject of the independent qualified public accountant's report) report the same contract on contract value. The AICPA's Audit & Accounting Guide for Employee Benefits Plans tells an IQPA to include in its report a reconciliation between the Form 5500 amounts and the other financial statements' amounts.

Could the provision you're reading be about a year of participation and an accrual computation period? If so, 29 C.F.R. 2530.204-2 shows examples of how a plan may require 2,000 hours of accrual service for a full year of participation.

jpod and My 2 cents, thank you for the helpful ideas.

Thanks for the help. "I don't know" is a good response if that statement is true. My inquirer, a nonlawyer practitioner, is evaluating whether she should accept an engagement to act as the representative on a Form 5300 application. If she were asked about the employer/administrator's operational compliance, she would not say she doesn't know (if she does know), and she fears that declining to respond to a question might indirectly suggest that a response would reveal non-compliance. My guess was that a 401(a)-determination procedure looks only at the plan document, not whether the employer/administrator obeys it. Anyone with a different experience?

For those plan administrators (and practitioners who advise them) who take seriously the idea that the plan administrator is the maker of a retirement plan's financial statements and is responsible to decide the accounting methods and policies, one can retrieve Accounting Standards Update 2015-12 (July 2015) at: http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176166228978 This Update is effective for years that begin after December 15, 2015, but early application is permitted.

I'm interested in learning from BenefitsLink mavens' practical experiences. In handling a Form 5300 application for the IRS's written determination that an individually-designed retirement plan document states provisions that, in form, state a 401(a)-qualified plan (I'm thinking about the cycle that ends this winter), does an IRS employee ever ask about operational compliance?

Both Internal Revenue Code section 6058 and the first of the two regulations that interpret and implement it allow the return to be filed by the employer or the IRC section 414(g) plan administrator. ERISA commands that a plan's administrator file an annual report. The Form 5500 instructions seem designed under an assumption that the administrator can act for both the administrator and the employer. It is unclear what to do if the employer wants to make a return that is different than the administrator's report (for the same year or period).

To get a sense of how the proposed reporting changes relate to a software revision, search the .pdf for the document's five uses of the word "recompete" and read the text surrounding those uses.

Among other changes some of us are beginning to spot, the revised instructions would state: The statute of limitations under [internal Revenue] Code section 6501(a) for any trust described in section 401(a) . . . will not start to run until you timely file with the appropriate trust information on this Form. See pages 518 and 700.

Don't we think the instruction draws a line between participant-directed transactions and fiduciary-decided transactions, limiting a reportable transaction to one that was a fiduciary-decided transaction?

Consider, but in the context of everything else, the following sentence from 29 C.F.R. 2550.404a-5(b)(1): "A plan administrator will not be liable for the completeness and accuracy of the information used to satisfy these disclosure requirements when the plan administrator reasonably and in good faith relies on information received from or provided by a plan service provider or the issuer of a designated investment alternative." Following ERISA section 404(a)(1)(B), a correction should be grounded on no less care, skill, prudence, and diligence than would be used by an experienced and prudent plan administrator facing the same facts and circumstances.

jpod, depending on what your client has asked of you and other circumstances, you might consider whether an agreed-to contribution is within or beyond the employer's powers. Under some States' laws (and sometimes depending on exactly which kind or class of State or local government entity the employer is), a governmental employer might lack power to provide a nonelective contribution. I have seen an employer, after a financial-statements auditor detected the employer's payment of agreed-upon but unauthorized contributions, take back the improperly paid amounts with interest or investment value.