Peter Gulia

I’ve read some proposed, and some enacted, laws, Federal and State, on the on the two-sexes theme. I’ve not yet read a law that forbids a nongovernmental service provider to ask about an individual’s voluntary description of sex or gender information.

david rigby’s observation seems about sorting work between a pension plan’s ERISA-defined administrator and a service provider. About which person bears responsibility for a Form 5500 report as a plan’s ERISA-defined plan administrator or otherwise in that role: For a chapter 11 bankruptcy, the debtor continues to operate its business, subject to bankruptcy constraints. Often, an employee-benefit plan’s debtor-appointed administrator—often, the bankruptcy debtor itself—continues to serve. For a chapter 7 bankruptcy, “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, [the chapter 7 bankruptcy trustee shall] continue to perform the obligations required of the administrator[.]” 11 U.S.C. § 704(a)(11) http://uscode.house.gov/view.xhtml?req=(title:11 section:704 edition:prelim) OR (granuleid:USC-prelim-title11-section704)&f=treesort&edition=prelim&num=0&jumpTo=true. This is not advice to anyone.

Paul I, thank you for mentioning respectful oral and written communications, including getting honorifics right. (BenefitsLink neighbors, if you’re wondering, for the last 14 years my university teaching includes how to use language that refers to personal information, including sex or gender, in respectful and thoughtful ways. But my students, all of whom have work experiences and some inside retirement service providers, seen unable to mention a use beyond the one Paul I describes.) Is there another use for a record of whether a participant is female, male, or nonbinary?

I’ve seen some big recordkeepers ask for information on a participant’s or employee’s gender, with system fields and drop-downs for female, male, nonbinary, or unspecified. An employment-based individual-account (defined-contribution) retirement plan often has no provision that determines a benefit according to the participant’s sex or gender. Yet, I imagine a service provider has other service-related reasons for collecting the information. What are a service provider’s uses for which it’s helpful to know whether a participant is female, male, or nonbinary?

Of the employer’s bankruptcy, is it a liquidation bankruptcy or a reorganization bankruptcy?

C. B. Zeller, thank you noting an authority a practitioner would consider. Borrowing that § 54.4980B-2 rule for not only counting employees but also looking to a § 414(b)-(c)-(m)-(n)-(o) employer might fit an interpretation of the statute. As your note observes, the Treasury’s January 14 notice of proposed rulemaking is only a proposed interpretation of the statute. Further, even if it becomes a final, effective, and applicable rule, it remains an interpretation, one that a court might consider but does not defer to. Yet, the practical answer prevails. No tax disqualification results because a plan sponsor set an automatic-contribution arrangement § 414A might not require. Only a plan sponsor opposed to an implied-assent regime and ready to take some risk would want advice about interpreting the statute on this question.

Bill Presson, thank you for that practical answer. Others with a different outlook? If the plan sponsor’s decision-makers are strongly opposed to implied-assent regimes, does that affect an adviser’s analysis?

Internal Revenue Code § 414A, which sets an automatic-contribution arrangement as a tax-qualification condition for a § 401(k) arrangement, does not apply “earlier than the date that is [one] year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.” I.R.C. § 414A(c)(4)(B). Section 414A does not define what “the employer maintaining the plan” means. Section 414(b)-(c)-(m)-(n)-(o) specifies several tax Code sections for which more than one organization or business might be treated as one employer. But § 414A is not among these. Imagine a business organization is setting up a new plan with a new § 401(k) arrangement. Even counting owners, this organization has only six employees (and is unlikely ever to have more). The organization is commonly controlled with several other organizations, each of which has a separate retirement plan. (Assume none of coverage, nondiscrimination, or top-heavy is a worry.) The common-control employer has hundreds of employees. If you advise this new plan sponsor, what do you say about whether it must or need not make its § 401(k) arrangement an automatic-contribution arrangement?

DSG, throughout this discussion thread, I didn’t express a conclusion on ejohnke’s question, or even on several questions I mentioned as possibilities for a plan’s administrator to consider in its interpretations, analysis, and decision-making. And my observation above was that an administrator might prefer that the spouse’s consent be made by a court-supervised conservator.

fmsinc, thank you for your observations about what one or more family members might consider. A retirement plan’s administrator’s focus often is limited to deciding whether to approve or deny a claim, or accept or decline a participant’s election or other choice. An administrator might have nothing to consider until a participant submits a beneficiary change. As noted above, an administrator, to the extent of its discretion, might prefer that the spouse’s consent be made by a court-supervised conservator. Some might interpret that ERISA § 205 or the plan requires that the decision-making for the spouse bear some independence from the participant that a power-of-attorney agency might not provide, especially if the spouse’s agent would be the participant. (Although the Treasury’s interpretation refers to a guardian, I find it helpful to think of the distinction between a guardian of the person and a conservator of the person’s property. I recognize many States’ laws and many people use different lingo.) fmsinc, it’s good that you mention a plan fiduciary’s duty of impartiality. This is not advice to anyone.

While these are not a complete list of all remedies: If a plan intended as one described in Internal Revenue Code § 401(a) is not administered according to the written plan, the IRS might assert that the plan is not such a tax-qualified plan. If a plan allows hardship distributions contrary to Internal Revenue Code § 401(k), the IRS might assert that the intended cash-or-deferred arrangement is not a § 401(k) arrangement. A hardship distribution that is not a Roth-qualified distribution counts in income and so might incur Federal income tax, including (if no exception applies) an extra 10% too-early tax. If the distributee’s tax return correctly reports the distribution, one doubts the IRS would pursue a further consequence merely because of the distributee’s false statement to the retirement plan. Unless the retirement plan or its fiduciary suffers a loss, liability, or expense other than having paid the unmerited hardship distribution, it seems unlikely that a plan’s fiduciary would pursue a claim against the participant for having made a false statement. (If a distributee sues a plan fiduciary for having misadministered the plan, one hopes a court would find that the distributee was not harmed by obtaining what she asked for.) Although making a false statement to an employee-benefit plan is a Federal crime, it seems unlikely that the United States would prosecute a mere hardship claimant unless there are extraordinary or unusual circumstances. This is not advice to anyone.

Paul I reminds us that a plan’s administrator, in designing or updating its procedure for approving and denying claims for a hardship distribution, might read and interpret documents governing the plan, and consider what services are (or are not) provided or offered by one’s service provider.

If the plan is ERISA-governed: Does a document governing the plan preclude recognizing a power of attorney? Does a document governing the plan allow recognizing a power of attorney? Does a document recognize an agent only under a participant’s power of attorney? Or does a document recognize also a spouse’s power of attorney? Are the documents governing the plan silent about recognizing or refusing a power of attorney? Does a document governing the plan grant the plan’s administrator discretion about recognizing or refusing a power of attorney? (This note uses administrator to refer to a person that fits ERISA’s definition, not a nondiscretionary service provider.) If the administrator has discretion, has the administrator adopted a written procedure? Or, has the administrator adopted an unwritten procedure? If the administrator yet has no procedure, what advice has the administrator obtained about designing a procedure that would meet the administrator’s ERISA § 404(a) responsibility? Does the administrator have someone with enough law training to read a power-of-attorney document and evaluate what powers the document grants, restricts, or omits? Will the administrator require that the power’s maker have acknowledged it before a notary (even if no relevant State law requires that)? Will the administrator require that the power’s making have witnesses (even if no relevant State law requires that)? Will the administrator require a notarial act about the witnessing? Even if the power states it grants the agent power to do anything the maker could do, will the administrator require an express grant of specific authority to consent to the participant naming a beneficiary other than the participant’s spouse? Might the administrator prefer that the spouse’s consent be made by a court-supervised conservator? See 26 C.F.R. § 1.401(a)-20, at Q&A-27 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)-20. (Without interfering with the power-of-attorney agent’s other powers, a court might grant a limited conservatorship to decide only whether to make the spouse’s consent.) An administrator might consider that Congress’s 1984 revision of ERISA § 205 sought to preclude a participant’s election done without the spouse’s consent in an act that is independent of the participant. An administrator might balance the plan’s and its fiduciaries’ interests in protections, the spouse’s interest in independent decision-making in the spouse’s interests, and the participant’s interest in not being burdened by inappropriate expenses. This is not advice to anyone.

Here’s the text of Internal Revenue Code of 1986 § 401(k)(14)(C): In determining whether a distribution is upon the hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is— (i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and (ii) not in excess of the amount required to satisfy such financial need, and that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification, and for procedures for addressing cases of employee misrepresentation. The Treasury has not yet adopted, or even proposed, a regulation that would state any exception to a plan administrator’s reliance on an employee’s certification. Although in theory a plan’s sponsor and a plan’s administrator might make some choices about risks and opportunities, many fall in with the service one’s service provider offers. Differences in tax law and fiduciary law might matter regarding a § 403(b) plan or contract, a governmental § 457(b) plan, another governmental plan, and a church plan.

The Treasury department’s proposed interpretation [https://www.regulations.gov/document/IRS-2023-0058-0001] of the statutes includes this: “Subject to paragraph (c)(3)(ii) of this section, the rules of this section do not preclude a plan from establishing an eligibility condition that must be satisfied in order for an employee to participate in the arrangement (for example, requiring as a condition of participation that an employee be employed within a specified job classification), provided that the condition is not a proxy for imposing an age or service requirement that requires an employee to complete a period of service with the employer or employers maintaining the plan that extends beyond the close of the earlier of the periods described in section 401(k)(2)(D)(i) and (ii).” If a plan’s administrator, in interpreting documents that govern a plan (or in interpreting a presumption about a to-be-written-later plan amendment that would have retroactive effect), follows the Treasury’s proposed interpretation of the statutes, there still might be legal, textual, and factual ambiguities about whether a job classification or other eligibility condition is or “is not a proxy for imposing an age or service requirement” contrary to ERISA § 202(c) or Internal Revenue Code § 401(k)(2)(D)(i)-(ii). That an employee becomes eligible to elect for or against elective deferrals does not by itself mean the employee is eligible for another kind of contributions. As Patricia Neal Jensen observes, a plan might specify eligibility conditions distinctly for each kind of contributions.

If a survivor or death benefit (if any) results from the decedent’s service as an employee of the U.S. Department of Veterans Affairs, consider that Federal law might govern the benefit, and that the statute or rule might be unfamiliar to one who lacks experience with benefits for U.S. government employees.

DSG, thank you for thinking of me, and for sharing your research about courts’ decisions. I recall a bit of folk wisdom from an inside counsel of a former client: ‘Lots of things can happen in court, all of them bad.’ Your case notes are a reminder about why, if I advise a plan’s sponsor about the plan’s governing documents, I often suggest an exclusive-forum provision. And why, except for a State or local government’s or a Native American Indian tribe’s plan, a plan’s administrator prefers a Federal court. And why a plan’s administrator might strive to avoid unnecessary contacts with a place other than the administrator’s office, preferably only one. Domestic-relations courts’ difficulties also are a reminder about why many employee-benefits lawyers state in one’s engagement letter that the lawyer has no authority to accept service of process for the client or anyone.

About whether the earlier payment and a later payment is or isn’t treated as one distribution, and, possibly relatedly, whether the payments are treated as one or distinct for a processing charge: Is this another RTFD moment? What do “the documents and instruments governing the plan” — perhaps supplemented by, or interpreted regarding, the administrator’s written procedures, a relevant claim form, relevant disclosures (possibly including a summary plan description and a recent 404a-5 disclosure), and the administrator’s agreements with its service providers (possibly including a recent 408b-2 disclosure) — provide? If, after thoroughly considering all writings, the plausible conclusions are close to evenly supported or evenly unsupported, which discretionary interpretation is the one the administrator prudently considers sound as its going-forward precedent? Or, after considering that somewhat similar situations might occur with some estimated number of participants, is the plan’s expense for seeking a sensible conclusion disproportionate to the plan’s interests involved? This is not advice to anyone.

In 2006, the Treasury department, in a rulemaking that lets many things be done by electronic notices and electronic acts, considered but rejected remote witnessing for a spouse’s consent. The 2006 rule requires: “In the case of a participant election which is required to be witnessed by a plan representative or a notary public (such as a spousal consent under section 417), the signature of the individual making the participant election is witnessed in the physical presence of a plan representative or a notary public.” 26 C.F.R. § 1.401(a)-21(d)(6)(i) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)-21#p-1.401(a)-21(d)(6)(i). That rule remains in effect. Regarding the Coronavirus Disease 2019 emergency, IRS Notices provided some temporary relief for 2020, 2021, and 2022. Those Notices might have had some legal effect restraining the Treasury department and, arguably, the Labor department. The Notices had no effect on a spouse’s rights. On December 30, 2022, the notice of proposed rulemaking (cited above) was published. The IRS’s temporary relief ended with 2022. The proposed rulemaking’s explanation includes: “taxpayers may rely on the rules set forth in this notice of proposed rulemaking.” It is unclear what legal effect that statement has on the Labor department, or even the Treasury department. The Treasury’s explanation had and has no effect on a spouse’s rights. Although almost two years have passed since the close of the comment period on the 2022 notice, the Treasury department has not acted on the proposed rulemaking. It remains no more than a proposed interpretation. Further, even if the Treasury’s proposed interpretation were to be published as a final rule and to become effective and applicable, a Federal court deciding a dispute does not defer to an executive agency’s interpretation of a statute. Loper Bright Enterprises v. Raimondo, No. 22-451, 603 U.S. ---, 2024 BL 221307, 2024 LEXIS 2882, 2024 WL 3208360 (June 28, 2024). A Federal court may consider, but must not defer to, an executive agency’s interpretation of a statute. For a question of law not already answered by a judicial precedent, a court must decide a dispute with the court’s interpretation of the statute (ERISA § 205). I suspect (but don’t know) that some plan fiduciaries accepted some remote-witnessing consents in 2020, 2021, and 2022, especially when physical-presence notary service was hard to get. I’m much more interested in what plans are doing now. And I’m wondering whether plan fiduciaries evaluate the risks of remote-witnessing consents.

justanotheradmin, thank you for sharing your experience. For an ERISA-governed plan, whether a spouse’s consent is sufficiently witnessed to meet a plan’s provision designed to meet ERISA § 205 is governed by Federal law, not State law. But a State’s law governs whether a person is authorized to perform notarial acts, and the manner of how a notary performs a notarial act and makes a notarial certificate. Under the Treasury’s proposed interpretation, a plan could treat a witnessing as enough to meet ERISA § 205 if the witnessing follows both the State law that governs the officiating notary (which might be unrelated to any location of the participant, the consenting spouse, or the plan’s fiduciary) and the Treasury’s proposed rule. Whether a plan’s administrator should accept or refuse a remote witnessing is a serious question. To support my thinking about that question is why I’m seeking information about whether plans are using or ignoring the Treasury’s proposed interpretation. BenefitsLink neighbors, do you have other experiences or observations?

And much might be accomplished using no litigation but a plausible threat of litigation. A taxpayer in an IRS examination may request that the IRS’s Office of Chief Counsel advise the IRS about any question of law relevant to the examination. Considering that a taxpayer can challenge in Federal courts an IRS decision to tax-disqualify a plan, a Chief Counsel lawyer might, before responding in writing to a request, advise the IRS that the United States prefers not to litigate, apart from the pending Texas case, whether the Consolidated Appropriations Act, 2023 is law, and that the government’s interests could be served by negotiating a closing agreement, even if its terms are more favorable to the taxpayer than the IRS otherwise would offer.

When a participant seeks one’s spouse’s consent to name a primary beneficiary other than the spouse (or to elect against a survivor annuity), a consent has no effect unless “the spouse’s consent is witnessed by a plan representative or a notary public[.]” ERISA § 205(c)(2)(A)(iii). Although ERISA does not preclude a notary from using electronic means to furnish the notary’s certificate of a notarial act, a notary must witness the spouse signing the consent. 26 C.F.R. § 1.401(a)-21(d)(6). Until recently, most service providers advised plan administrators that this calls for a spouse to sign a consent in the notary’s physical presence. Under a proposed interpretation of the statute, a notary may witness the spouse’s signing with physical presence, or by using live audio-video technology and meeting all requirements and conditions under the proposed rule and the State law that applies to the notary. Use of an Electronic Medium to Make Participant Elections and Spousal Consents [notice of proposed rulemaking], 87 Federal Register 80501–80509 (Dec. 30, 2022). That notice states: “Prior to the applicability date of the final regulation, taxpayers may rely on the rules set forth in this notice of proposed rulemaking.” Id., at 80506. BenefitsLink neighbors, in your experience: Are plans’ fiduciaries accepting a notary’s certificate if the certificate shows the notary did the witnessing not by physical presence but rather by audio-video technology?

Thank you for your kind words. When I write or edit a plan’s governing documents, I write custom beneficiary provisions. That’s so even when I’m stuck with reacting to an IRS-preapproved document. Beyond allowing ways to help claimants and get efficient plan administration, one can write beneficiary provisions to narrow the plan administrator’s or claims administrator’s scope and so lessen its liability exposure. The beneficiary provisions are not one-size-fits-all because different plans face different challenges, and different administrator have different needs.

Even within one pension plan, a plan might provide different definitions of a spouse for different purposes. For example: A provision designed to meet Internal Revenue Code § 401(a)(9) might use Federal tax law’s definition of a spouse, and apply it to a relationship the church does not recognize as a marriage. A plan might impose a survivor annuity to protect a spouse of a marriage the church recognizes (and has not annulled), even if civil law ended the marriage. A plan might provide a special death benefit or a subsidized survivor annuity only to a surviving spouse of a marriage the church recognizes. A plan might, for some purposes not constrained by Federal tax law, recognize as a participant’s spouse a civil-union party or domestic partner, even if the U.S. Treasury department’s interpretation treats such a person as not a spouse.

Don’t assume a State’s law applies. If ERISA governs the employment-based retirement plan, ERISA supersedes and preempts States’ laws. If ERISA governs, a plan’s administrator administers the plan according to its governing documents. A typical plan document states provisions for recognizing a natural or appointed conservator, natural or appointed guardian, UTMA custodian, or other fiduciary to act for a minor. A plan’s administrator might, in some circumstances, consider a State’s law or States’ laws to form a finding about whether a person is empowered to act for the minor. When a death benefit is a small amount, a plan’s administrator might prudently form some risk-tolerant practical decisions. The administrator’s focus is on whether it is dealing with a satisfactory claimant and payee. That fiduciary of the minor sorts out what is or isn’t proper, and is or isn’t prudent, about a rollover to an IRA or a transfer into a trust or UTMA account. This is not advice to anyone.