Peter Gulia

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.

Just to give you a way to think about this as you prepare to get your lawyer’s advice: Relying on the plan administrator’s and trustee’s instructions about the service you’re asked to do might be enough if : you’re a nonfiduciary service provider; your service agreement releases you from liability for following instructions; your service agreement indemnifies you from liabilities and expenses from your having followed instructions; and your indemnitors have enough money to make good their promises. But if you are or your affiliate is a fiduciary (of whatever kind), one might consider a cofiduciary’s responsibility regarding what another fiduciary does or fails to do. Beyond whatever the plan’s administrator considers about its responsibility to the plan, the surviving spouse might want her lawyer’s advice about whether it’s unwise to be too quick to pay medical expenses from the accident. (Who caused the car accident: the decedent, or someone else?) This is not advice to anyone.

Consider that there might be a few years’ grace before the employer no longer may maintain a SIMPLE. For details, see Gary Lesser’s and Denise Appleby’s SIMPLE, SEP, and SARSEP Answer Book. Also, does the employer have workers in a State with a play-or-pay law that calls an employer to allow retirement savings? If so, a plan with a § 401(k) automatic-contribution arrangement might not burden an employer much more than would recording and paying over automatic-contribution wage-deduction contributions to IRAs the State arranged. If no State’s play-or-pay law applies, much might depend on what the business owner prefers to do for herself.

For the IRS’s view of tax law’s remedial-amendment period, see Miscellaneous Changes Under the SECURE 2.0 Act of 2022, Notice 2024-2, 2024-2 I.R.B. 316, 333 (Jan. 8, 2024), at Q&A-J1, available at https://www.irs.gov/pub/irs-irbs/irb24-02.pdf. Do we imagine the IRS might further delay the December 31, 2026 due date for a plan amendment? Further, do we imagine the IRS might again delay the year for enforcing Internal Revenue Code § 414(v)(7)? Even if one follows tax law’s remedial-amendment legal fiction, a sponsor/employer/administrator might need to decide at least one plan-design or plan-administration choice. For example: If a participant’s extant deferral election for the first payday in which her non-Roth deferral would exceed her tax year’s without-catchup limit: some might treat an affected participant’s deferral election to the extent a non-Roth amount is precluded as invalid, limiting such a participant to her without-catchup deferral limit. some might, after repeated notices, treat an affected participant as having impliedly assented to treat her catchup deferrals as Roth contributions.

Brian Gilmore, thank you for helping us learn about health plans. If you’re willing to help us learn a few points more: Imagine the health plan’s benefits are the employer’s “self-funded” obligation, with no health insurance contract. Imagine no claim reached any attachment point of a stop-loss insurance contract. Imagine there was some time in the past when the child was not the participant’s dependent (as the health plan defines the term), but the participant had told the employer/administrator that the child is the participant’s dependent. Assume the plan paid a claim for a healthcare service the child received, but that service was had when the child was not the participant’s dependent. May the employer demand that the participant/employee return the amount the employer paid? If so, are there legal reasons that might influence an employer’s decision-making about whether to demand the participant/employee return the money? If the employer is not reimbursed and the child was not the participant’s dependent not only for the health plan’s terms but also for Federal income tax purposes, should the employer’s W-2 wage report on its employee’s wage include an amount for the coverage provided when the child was not the participant’s dependent? And, despite whatever the legal answers might be, do many employers simply make practical business choices?

What do the documents governing the plan provide? Or, if not yet amended to provide that a participant may elect that a nonelective contribution be treated as a Roth contribution, what does the plan’s sponsor want the remedial amendment to provide? And if the plan’s sponsor expects to use IRS-preapproved documents, which choices will those documents allow?

A Form 1099-R tax-information report should be true when the reporter signs or otherwise adopts the report. One might be reluctant to code a report assuming a fact that has not yet happened.

Will the payer tax-report the distribution soon after it is paid? Or will the payer wait to tax-report until after the calendar year has ended?

Saying nothing about the US government employees’ retirement plans: If other conditions are met, ERISA § 206(d)(3) does not preclude a domestic-relations order that provides alimony or marital property to the participant’s current spouse, even with no divorce or annulment, and no separation. But the order must have been “made pursuant to a State or Tribal domestic relations law (including a community property law).” At least two States’ courts found that because neither of two spouses had asked the court for a divorce, annulment, separation, or other domestic-relations relief, there was no matter that could call for an order a plan might treat as a QDRO. Wallace v. Wildensee, 990 N.W.2d 637, 2023 Empl. Benefits Cas. (BL) ¶ 154,219 (Iowa 2023) (When there is no divorce or separate-maintenance proceeding, a court lacks power to issue a domestic-relations order.); Jago v. Jago, 2019 Pa. Super. 246, 217 A.3d 289, 297 (Pa. Super. 2019) (“[A] QDRO is a procedural right derivative of or adjunct to a domestic relations matter, but outside the context of a domestic relations matter, a QDRO is not a distinct, discrete legal claim[.]  [W]e hold that absent a divorce or other domestic relations matter pending between spouses, they cannot obtain a QDRO for the sole purpose of moving funds in the participant/spouse’s [retirement] plan out of the plan to the non-participating spouse[’s IRA].”). A current spouse has a right to a survivor annuity or death benefit, to the extent the plan provides (or ERISA § 205 commands the plan to provide). Does Maryland law empower a domestic-relations court to allocate property between current spouses?

Here’s a hyperlink to Nevada Revised Statutes chapter 353D—Nevada Employee Savings Trust. https://www.leg.state.nv.us/nrs/NRS-353D.html#NRS353DSec070 Nev. Rev. Stat. § 353D.070 “Covered employer” means an employer that: 1. Employs more than five persons in this State; 2. Has been in business for at least 36 months; and 3. Has not maintained a tax-favored retirement plan for its employees or has not done so in an effective form and operation at any time within the current calendar year or 3 immediately preceding calendar years. Nev. Rev. Stat. § 353D.150 “Tax-favored retirement plan” means a retirement plan that is tax-qualified under or is described in and satisfies the requirements of section 401(a), 401(k), 403(a), 403(b), 408(k) or 408(p) of the Internal Revenue Code[.]

The Form 5500 Instructions state: Page 1: “Each Form 5500 must accurately reflect the characteristics and operations that applied during the reporting year of the plan or arrangement.” Page 19: “In the boxes for line 8a and 8b, as appropriate, enter all applicable two-character plan characteristics codes that applied during the reporting year[.]” Page 36 [part V line 8]: “Enter all applicable pension plan characteristics codes that applied during the reporting year[.]” https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2024-instructions.pdf While the word during has meanings that depend on the context, the sentences quoted above do not mention the beginning or end of a year. With its lawyer's advice, the plan’s administrator might consider reporting every code that describes the plan on any day of the reported-on year. But an edit in the Form 5500 software, especially if it’s from the Labor department rather than the software designer, might point in another direction. This is not advice to anyone.

I see three frames for thinking about these questions: For a year that ended: The plan’s administrator must read the documents governing the plan. If this leads to one clear finding about whether the plan provides not only a true-up but also a true-down, so be it. If the documents are ambiguous, the administrator must—with “the care, skill, prudence, and diligence” ERISA § 404(a)(1)(B) requires—interpret the documents to discern the plan’s provision. If on text interpretation alone, none of the plausible interpretations is readily better than others, the administrator might interpret the documents considering the “exclusive purpose of . . . providing benefits to participants and their beneficiaries[.]” ERISA § 404(a)(1)(A)(i), 29 U.S.C. § 1104(a)(1)(A)(i). And if there is written evidence that the plan’s sponsor intended that the plan would tax-qualify under Internal Revenue Code § 401(a), the administrator might favor an interpretation that supports tax-qualified treatment over an interpretation that risks not meeting all tax-qualification conditions. (Listen to Bill Presson’s question.) For a year that has begun: If the plan’s sponsor considers amending the documents, it would consider whether a midyear amendment could contravene ERISA § 203 [29 U.S.C. § 1053]. In doing so, one might consider that Treasury rules interpreting Internal Revenue Code § 411 also are, to the extent Reorganization Plan No. 4 of 1978 provides, interpretations of ERISA § 203, except for § 203(a)(3)(B). Before a year has begun: The plan’s sponsor might consider amending the documents to apply its desired provision to years not yet begun. Might the sponsor prefer providing a true-up, but no true-down? None of this is advice to anyone.

Prohibited Transaction Exemption 80-26, a class exemption, sets conditions for a service provider’s interest-free loan to a plan. https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/class

DSG, do you include telephone numbers and email addresses in the court’s order? Or, do you put that sensitive information in some kind of supplement for the plan’s administrator, but not on the court’s public record?

Paul I, thank you for widening my thinking. BenefitsLink neighbors, do you have other observations or thoughts?

In a BenefitsLink discussion yesterday, neighbors asked which service others like to search for a participant with an inoperable address. If a search result includes what the search suggests now is a likely current address (postal or email, or even both) for the individual, what does a plan administrator or its service provider do with that information? (Assume an account not yet nearing a § 401(a)(9) required beginning date and not subject to a small-balance involuntary distribution.) Whether the found address is postal or email, an administrator might be reluctant to send a written communication there, fearing that a person other than the participant might receive the communication. That would invade the participant’s privacy. And a shrewd person might see that the retirement plan lacks enough control about the participant’s identity to detect a false claim. Could efforts to find an inoperable-address participant help an impostor steal the participant’s account? Are there ways of communicating to the found address without revealing anything about the name or identity of the retirement plan? Or might the communication omit the participant's name? If so, would either such a communication, if it reaches the participant, be effective in getting a response from the participant? What steps would a plan’s administrator use to guard against a theft of an inoperable-address participant’s account?