Peter Gulia

And beyond RatherBeGolfing’s sensible point about what fits a plan’s documents, a plan’s sponsor and administrator might reread its service agreement with its recordkeeper to discern which services are obligated or omitted.

Under the Treasury’s proposed interpretation, a plan’s sponsor may design a plan to provide only an age 50 catch-up without the age 60-63 catch-up. “The higher applicable dollar catch-up limit for participants attaining age 60 through 63 may, but is not required to be, included in an applicable employer plan. Thus, an applicable employer plan may also be designed to limit the catch-up contributions for those participants to the same applicable dollar catch-up limit that applies for all other catch-up eligible participants.” Catch-up contributions [notice of proposed rulemaking], 90 Fed. Reg. 2645, 2649 fn. 6 (Jan. 13, 2025).

Consider also whether the employer prefers that a recordkeeper, third-party administrator, rabbi trustee, or another service provider tax-report the deferred wages.

Thanks!!! In designing the report that’s the deliverable to clients and their CPAs, were there any issues about interpreting the tax law? Or are those provisions of the Internal Revenue Service so clear and unambiguous that there was no need for interpretation? (As you’re smart enough to discern, my interest is in teaching students about work environments beyond law and accounting firms.)

I read in this week’s Pensions & Investments magazine that at least one recordkeeper “calculates Secure 2.0 tax credits for new plan sponsor clients, giving them worksheets that they can give to their CPAs to make sure they take advantage of the tax credits[.]” TPAs, of recordkeepers you work with, is this a common service? TPAs, do you offer this service? Routinely, or when asked? Within a base fee, or for an incremental fee? What are the advantages and disadvantages of this service?

Thought so, but I’m glad to have a smart person check me. In the last section of yesterday’s 389-page markup of title XI (Ways and Means) for a budget-reconciliation bill, that amount would be the proposed increase in the US debt limit—31 U.S.C. § 3101(b).

What amount is $4,000,000,000,000 if a writer uses only the “4” and replaces the many zeroes with one word?

Paul I, thank you for suggesting some other factors. Among many points a fiduciary might consider, one I find at least question-raising is that neither the auto-portability provider nor the receiving plan’s recordkeeper seems obligated to evaluate whether the receiving plan is prudently, or even lawfully, administered. What if, under a next employer’s plan, the expenses borne by a plan account are worse than those charged to a default IRA? What if none of a new employer’s people handling the plan’s assets is covered by fidelity-bond insurance, one of them steals the new participant’s account, and the employer is judgment-proof? It’s hard enough to decide defaults for the plan a fiduciary manages. But how does a fiduciary prudently say yes to defaults about an unknown plan that’s beyond the former employer’s control? Yet, I also can imagine some situations under which not getting auto-portability default contributions might weaken a plan for some of its participants. I wonder whether a plan’s fiduciary has a responsibility to consider that. And there are impartiality conflicts: Even within one plan, auto-portability could help some participants, and could harm some others. I guess the analysis might wait until there’s a live candidate with real facts to consider. Or, maybe Congress will legislate a nonliability provision, or even a command.

The text seems adapted from Q33a in EBSA’s FAQs on EFAST2 Electronic Filing System https://www.dol.gov/agencies/EBSA/about-ebsa/our-activities/resource-center/faqs/efast2-form-5500-processing#signing.

This situation was relatively easy because one human held powers to act for the discontinued retirement plan’s administrator, the plan’s trustee, the plan’s one participant, and the IRA holder. Let’s recognize difficulties a discontinued retirement plan might face if it has no currently serving fiduciary and lacks a quick way to get an appointment of someone willing to serve. Imagine the plan’s share of the settlement is $95,000, to be allocated among 1,000 participants and beneficiaries. Or, $1 million, among 10,000 people.

After almost 200 views with no responses, I suspect many of us suffer from my lack of experience. (I haven’t yet had any client ask me about auto-portability; I hope to prepare for the day when a client is offered the opportunity and wants to evaluate the advantages and disadvantages.) While we’re seeking to learn more, here’s one difference: Under ERISA § 404(c)(3), one year after a default rollover to an IRA done according to the Congress-directed Labor rule, the former participant or beneficiary is treated as “exercising control” over the default IRA. That sets up a nonliability for any loss, including an opportunity loss, that results from the former participant’s or beneficiary’s deemed exercise of control. Under EGTRRA § 657(c)(2)(A), naming a default IRA custodian or insurer and investing a default rollover according to the Congress-directed Labor rule “is deemed to satisfy the fiduciary requirements of” ERISA § 404(a). Nothing in ERISA section 404 sets up any similar nonliability or no-breach for a fiduciary’s approval or disapproval of an auto-portability service.

“Imagine you are teaching your child to drive. You reach an intersection with a red light with absolutely no sign that anyone else is around. Your child asks ‘Why can’t we go through the light? How will the police know we did that?’ How would you respond?” Reflecting on Chaz’s illustration and considering an adviser’s role about a query of the kind casey72 describes, there might be some differences between them that matter for how one thinks and feels about each situation. There might be differences between serving as a parent or teacher responsible for a child’s formation, and as an adviser providing information to a mature adult ordinarily presumed to have autonomy to make one’s decisions. I won’t here recount the debate between those who suggest an adviser provide full information and those who suggest holding back information that would help a principal know what it can do without getting caught. But I think it’s important to recognize who’s the principal. And who’s an adviser, who, although she might have powers about her role, is not (unless so engaged) the principal’s decision-maker Chaz, thank you, again, for helping me think about this. In the summer semester, I teach Professional Conduct in Tax Practice; may I use your example and its great metaphor?

Belgarath, you see another of the many infelicities in Congress’s work on the 2022 tax legislation. Internal Revenue Code § 414(v)(7)’s (or § 457(e)(18)(A)(ii)’s) constraint against non-Roth contributions does not apply to a participant without Federal Insurance Contributions Act (“FICA”) wages from the employer. That could result if the participant was a State or local government employee whose services were excluded from § 3121(b)(7)’s definition of employment. Of more immediate interest to some TPAs, § 414(v)(7) applies differently regarding otherwise similarly situated workers following whether the worker is, regarding the employer or deemed employer, an employee or a partner or other self-employed individual. To illustrate the point: A law firm’s 51-year-old partner whose preceding year’s compensation was $2 million is unburdened, but a 51-year-old associate or counsel whose compensation was as little as $200,000 is stuck with § 414(v)(7).

Imagine your client’s retirement plan provides on severance-from-employment an involuntary distribution of a participant’s account no more than $7,000, accepts rollover-in contributions, and otherwise is eligible for the auto-portability network the plan’s recordkeeper offers. Imagine your client asks for your advice about whether to approve auto-portability. And your client specifically asks for your advice not about what’s best for participants, but rather about what’s most risk-avoiding for the fiduciary. What responsibility and potential liability might a fiduciary face because it approved auto-portability? What responsibility and potential liability might a fiduciary face because it did not adopt auto-portability? How do you advise your client?

Consider reading carefully the software license agreement to discern whether XYZ has or lacks a right to let ABC use the software. Or, after finding and recognizing all facts that might be involved, consider whether ABC would use the software. This is not advice to anyone.

What is the separate interest the might-be alternate payee would get? A specified set of payments? A single-sum amount? Other than the plan providing a survivor annuity for a participant’s surviving spouse (whether actual or deemed), does the plan allow a participant a right or power to name a beneficiary for a death benefit other than a survivor annuity?

Some domestic-relations orders try to get an alternate payee a power to name the alternate payee’s beneficiary, and some plans’ administrators react by deciding that such a DRO is not a QDRO. (I express no view about whether so deciding might be a correct or incorrect application of ERISA § 206(d)(3).) If the plan’s administrator prefers the absence of a constraint, the administrator might want its lawyer’s advice about whether an order would “require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,” which would make such an order fail a QDRO condition. ERISA § 206(d)(3)(D)(i). It matters whether a retirement plan is a defined-benefit plan or an individual-account plan. For example, a defined-benefit plan might have no form of benefit that allows a participant to name the participant’s beneficiary. And it matters whether a plan allows or precludes a distribution before the participant’s retirement. An alternate payee’s right to designate a beneficiary for the alternate payee’s portion must be no greater than the participant’s right to designate a beneficiary. See ERISA § 206(d)(3)(D)(i); 26 C.F.R. § 1.401(a)-13(g)(4)(iii)(B). If a plan does not provide a participant a right or power to name the participant’s beneficiary, an order that purports to grant, regarding that plan, a nonparticipant a right or power to name a beneficiary would not be a QDRO. Different law and plan provisions might apply for a church plan, governmental plan, plan for only business owners, non-US plan, or other non-ERISA plan. If a plan might allow an alternate payee to name the alternate payee’s beneficiary, does the plan’s administrator have sufficient capabilities to receive and record those designations (and changes)?

Of the firms that publish a yearly table of inflation-adjusted amounts, many of us select and omit elements grounded on one’s audience’s or one’s own interests. For example, my November 1 one-pager includes § 72(t)(2)(K)(ii)(I) / distribution to a domestic abuse victim and 414(v)(7)(E) / catch-up deferral must be Roth, but omits anything about a small-employer credit. In my table, I show not only what changed but also what’s not adjusted, whether because the element has no inflation-adjusting provision or didn’t meet a rounding threshold. Notice 2024-80 states: 1. “The annual compensation limitation under section 45E(f)(2)(C) for employees excluded from the calculation of the additional small employer pension plan startup cost credit for certain employer contributions is $105,000.” 2. “The Roth catch-up wage threshold for 2024, which under section 414(v)(7)(A) is used to determine whether an individual’s catch-up contributions to an applicable employer plan (other than a plan described in section 408(k) or (p)) for 2025 must be designated Roth contributions, remains $145,000.” 3. “The limitation under section 72(t)(2)(K)(ii)(I) for eligible distributions to victims of domestic abuse from applicable eligible retirement plans is increased from $10,000 to $10,300.” BenefitsLink regularly publishes the IRS’s notice the same morning it’s posted on the IRS’s “drop” webpage for prepublication releases. https://benefitslink.com/search/index.cgi?datasource=MYDB&textQuery=2024-80 So, even if you like the convenience, formatting, and style of some firms’ tables, to find what they omit you can check the primary source.

Under lawyers’ professional-conduct rules, “[a] lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent[.]” Rule 1.2(d) https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/204/chapter81/s1.2.html. But a professional might distinguish between advising a client to do the bad thing and informing a client about what consequences could or seem likely to result if a person did or does the bad thing (without the professional’s involvement in it). Here’s a bit of the law professors’ debate: Jamie G. Heller, Legal Counseling in the Administrative State: How to Let the Client Decide, 103 Yale L.J. 2503 (1994) (suggesting a lawyer educate her client with full-picture counseling about the law’s provisions, practical application, potential nondetection, potential nonenforcement, and purposes so the client can make fully informed choices). Stephen L. Pepper, Counseling at the Limits of the Law: An Exercise in the Jurisprudence and Ethics of Lawyering, 104 Yale L.J. 1545 (1995) (suggesting modes of reasoning about whether it is appropriate for a lawyer to advise a client about potential nondetection or nonenforcement). Different standards apply if one is a paid preparer of an individual’s tax return.

If I may ask one more: How often does an employer’s health plan provide no coverage for a worker’s spouse, even if the spouse has no opportunity for any group health coverage?

If a health plan provides a worker’s spouse is ineligible if the spouse has another employer’s offer of health coverage, what methods does an employer use to detect that its worker falsely stated that the spouse lacked another employer’s offer of health coverage?

Are there many situations in which both spouses’ employers offer this sort of adjustment? If both spouses are presented with offers of this kind (and the health coverage offered to each is the same), do spouses select between or among employers’ offers based on the $$?

Is there a database a recordkeeper or third-party administrator could use for records of deaths? In your experience, is the database reliable?

Has the spouse evaluated, applying Internal Revenue Code § 414 as amended by SECURE 2022 § 315, whether her business might not be a part of the same employer as her husband’s business? And, if so, might not have been a part of the same employer for plan years that began after December 31, 2023?

This might be one of many things about which it would be difficult, perhaps extraordinarily difficult, for the IRS to detect a tax return’s claim of a tax benefit the law doesn’t provide. The hard questions are about whether it’s professionally or ethically proper for an adviser to inform one’s advisee about nonenforcement and nondetection.