Peter Gulia

After Paul I’s explanation, the Treasury department on November 27, 2023 published a proposed interpretation. https://www.govinfo.gov/content/pkg/FR-2023-11-27/pdf/2023-25987.pdf Comments on the proposed interpretation are available at https://www.regulations.gov/document/IRS-2023-0058-0001/comment.

Was that one participant’s allocation of the matching contribution the ONLY one that was incorrect? Might there be other participants credited with an amount more than the correct allocation? Or some credited with an amount less than the correct allocation? If the whole amount the employer paid to the plan’s trust was more than the sum of all participants’ correct allocations in the matching contribution, is there a ground for the plan’s administrator’s finding that an amount was paid under a mistake of fact? ERISA § 403(c)(2)(A)(i), 29 U.S.C. § 1103(c)(2)(A)(i) http://uscode.house.gov/view.xhtml?req=(title:29 section:1103 edition:prelim) OR (granuleid:USC-prelim-title29-section1103)&f=treesort&edition=prelim&num=0&jumpTo=true. If so, does the plan provide for returning to the employer its mistakenly-paid amount? After sorting a correction of the allocations of the matching contribution, the plan’s administrator might decide how to allocate investment gains and losses attributable to an incorrect allocation. This is not advice to anyone.

Attorney General Bondi’s February 5, 2025 memo rescinds Attorney General Garland’s July 1, 2021 memo, which rescinded a memo of a predecessor. Attorney General Sessions’ November 16, 2017 memo set standards for the Justice department’s nonrule guidance. Although the memo addressed only the Justice department, other agencies, including the Labor and Treasury departments, sometimes followed the memo’s principles. Attorney General Bondi directs a report on “strategies and measures that can be utilized to eliminate the illegal or improper use of guidance documents[.]” Although that report is due this week—March 7, it would be an internal report from the Associate Attorney General to the Attorney General. Recognizing deliberative-process and executive privileges, that report won’t be available under the Freedom of Information Act. It might be a while before a public release. Beyond whatever the Justice department might do or not do regarding an executive agency’s decision, we might interpret the February 5, 2025 memo as a general sense against an executive agency using nonrule guidance as a substitute for proper rulemaking, to set a right or duty beyond those already provided by a statute, or to state an interpretation of a statute beyond an interpretation already stated by a proper rulemaking. https://www.justice.gov/ag/media/1388511/dl?inline Prohibition on Improper Guidance Documents 2017-11-16.pdf

Here’s a hyperlink to the IRS’s FY2025 Lapsed Appropriations Contingency Plan: https://home.treasury.gov/system/files/266/IRS-FY24LapsePlan.pdf BenefitsLink neighbors, what do you think: Would stopping IRS examinations be welcome or unwelcome? Would stopping rulemaking and other interpretive guidance be welcome or unwelcome?

Some random thoughts: Can the plan be stated using only IRS-preapproved documents? If so and if the plan sponsor does not apply for an IRS determination, might there be little or no need to persuade the IRS if there is no examination to respond to? Was the amount deposited at least logically consistent with design elements the proposal suggested? Might writings made before or around the same time as opening the account, or to count the amount to deposit, suggest the employer adopted plan-design elements the proposal suggested?

Perhaps after March 14, a furloughed EBSA employee won't ask anything.

Bob Toth is a dear friend. He often has observations about points of law others overlook. Beyond some explanation about whatever SECURE 2022 § 202 might do (or might have caused to have been done, or to be done), Bob’s wider point is that professionals, including the three As—accountants, actuaries, attorneys, who have worked somewhat easily with retirement plans that provide account balances only might need to invoke some different thinking IF an individual-account retirement plan allows annuities, whether QLACs or other kinds. David Goldberg, whether a participant may during a marriage purchase a QLAC or another life-contingent annuity without the spouse’s consent turns on the particular retirement plan’s provisions. An ERISA-governed plan might be designed to meet ERISA § 205. A State or local governmental plan’s provisions might fit the State’s law. A church plan’s provisions might meet the church’s internal law and church doctrine. If ERISA § 205 [29 U.S.C. § 1055] governs: http://uscode.house.gov/view.xhtml?req=(title:29 section:1055 edition:prelim) OR (granuleid:USC-prelim-title29-section1055)&f=treesort&edition=prelim&num=0&jumpTo=true. Read particularly ERISA § 205(b)(1)(c)(ii). Even if other conditions for not requiring a qualified joint and survivor annuity are met, a participant can’t elect a life annuity other than a QJSA without a qualified election with the spouse’s consent. The Retirement Equity Act of 1984 lives.

About such a domestic-relations-order procedure a plan-documents publisher supplies along with its IRS-preapproved documents, the publisher likely does not state that the procedure is consistent with ERISA’s title I generally or even ERISA § 206(d)(3) particularly. And adopting the publisher’s domestic-relations-order procedure typically is not a condition of a user’s reliance on the IRS’s opinion letter that a preapproved document, if used correctly, could state a plan that in form meets some conditions of Internal Revenue Code § 401(a). Some fiduciaries might question whether adopting legal advice from a service provider that denies that it provides legal advice meets ERISA § 404(a)(1)(B)’s standard for a fiduciary’s care, skill, prudence, and diligence. And no matter how serviceable to third persons is the publisher’s lawyer’s advice to her client, the publisher, that advice—even if the advice embedded in a suggested procedure considers general interests of the class of the publisher’s users—can’t consider the particular facts, circumstances, and interests of a particular user. So, a plan’s administrator might want its lawyer’s or other adviser’s advice about writing the administrator’s domestic-relations-order procedure. ERISAlaw, you are not alone in wondering that an administrator need not—and, depending on particular facts and circumstances, perhaps should not—segregate any portion of the participant’s account unless the administrator has received an order that is a domestic-relations order. Even then, an administrator need not restrict any more than what would become distributable to an alternate payee if the DRO is a QDRO. And the administrator may end the segregation when the administrator has decided the DRO is not a QDRO. ERISA § 206(d)(3)(H) [unofficially compiled as 29 U.S.C. § 1056(d)(3)(H)] http://uscode.house.gov/view.xhtml?req=(title:29 section:1056 edition:prelim) OR (granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true. Yet, some administrators, preferably with one’s lawyer’s help, evaluate and balance many risks that might come from domestic-relations situations. (I don’t here advocate or describe any view.) ERISAlaw, if you think a publisher’s draft domestic-relations-order procedure isn’t right for your client, might your client want you to write what you think makes sense? This is not advice to anyone.

Also, the retirement plan needs a fiduciary who is independent of the decedent, the decedent’s surviving spouse, the decedent’s children, and any anyone else who might be an heir, legatee, or beneficiary who might take from the decedent’s estate or trust.

The charity (I’m guessing) might want its lawyers’ and accountants’ advice about how these compensation elements will or would be reported in its Form 990 information return, which is publicly available, and in its audited (?), reviewed (?), compiled (?) financial statements.

Some lawyers like provisions by which nonobjection to an account statement or confirmation accepts or ratifies what it reports. Especially when the plan’s governing documents support those provisions.

SECURE 2019 includes ERISA § 404(e)’s “safe harbor” for selecting an annuity insurer, and Internal Revenue Code § 401(a)(38)’s way to get rid of a no-longer-welcome annuity investment alternative. I guessed that David Goldberg’s query considered some possibility of increased availability and selections of in-plan annuities. Over the past five years, I’ve seen no demand for in-plan annuities. (That doesn’t mean there wasn’t any, only that I didn’t see it.) I have responded to plan sponsors’ and plan fiduciaries’ questions about getting rid of annuities. Even if few participants choose an annuity and yet fewer have it in circumstances that might affect the negotiation of a domestic-relations order, a thought experiment in answering a what-if query helps me refresh my recollection of the QDRO statute’s fundamentals.

David Goldberg, if we limit your query to individual-account (defined-contribution) retirement plans governed by ERISA § 206(d) (unofficially compiled as 29 U.S.C. § 1056(d)), § 206(d)(3) shows us the boundary. A QDRO may specify an alternate payee’s share as a specified amount, or as a specified percentage, within the participant’s rights. Among the conditions: A QDRO can’t direct a benefit the plan does not provide. For example, a QDRO can’t direct a single-sum payment if the plan does not provide that form of payout. (Some individual-account retirement plans do not provide a single-sum payout, and some that provide it limit the conditions under which a single-sum payout is available.) A QDRO can’t direct shares that would add up to more than what the plan otherwise is obligated to pay or deliver to the participant (and others). Let’s imagine a participant, before the participant’s death or divorce (or other end of the participant’s marriage), annuitized half the participant’s account as an annuity on the participant’s life, and left the other half as an account balance. (Let’s leave aside that under many plans choosing a life annuity, rather than a qualified joint-and-survivor annuity, might require the participant’s qualified election with the spouse’s consent—see ERISA § 205.) If we assume only one alternate payee—the participant’s soon-to-be former spouse—and no other person who could be treated as a current, former, or surviving spouse, the alternate payee’s QDRO share could be: an amount or percentage of that part of the participant’s rights that remains an account balance (not to exceed all of it). AND an amount or percentage of each annuity payment as it becomes due (with the alternate payee’s share of each payment not exceeding the amount the annuity obligor is obligated to pay). Even if an individual-account retirement plan includes among the plan’s payout options a single sum, a plan does not provide that payout to the extent of the portion of the participant’s rights that is no longer an account balance because the participant had exchanged an amount for a right to annuity payments. But, if the annuity contract provides that the obligor MUST commute or adjust an annuity obligation on the holder’s request, a plan’s administrator might consider that contract provision in finding what a QDRO may direct be paid or delivered to an alternate payee without failing the § 206(d)(3)(D) conditions. Remember a general principle: A QDRO divides rights the participant has. David Goldberg, as you observe, a might-be alternate payee or one’s lawyer might seek to: classify the employment-based retirement plan to which a domestic-relations order might be directed as governmental (Federal), governmental (State or local), church, ERISA-governed with § 206, ERISA-governed but not § 206, or something else; classify the plan as defined-benefit or individual-account; discern the plan’s provisions, including those designed to meet ERISA § 205 (if applicable), or those (if any) designed to provide a participant’s spouse some interest in the participant’s rights; and discern the annuity obligor’s obligation, and the annuity holder’s rights. As BenefitsLink neighbors remind us, RTFD—Read The Fabulous Documents. This is not advice to anyone. Although there might be only a slight increase in individual-account plans’ participants choosing annuities, consider adding these points to your CLE teaching.

While that’s possible, don’t assume the plan’s design was the predecessor recordkeeper’s doing. Plan design is the plan sponsor’s choice. If you have doubts about whether the plan’s design is truly what the sponsor intends or desires, consider asking the government agency or instrumentality that administers the plan.

Some of us remember when many retirement plans, of nongovernmental employers too, and not only defined-benefit pensions but also individual-account (defined-contribution) plans, were designed so no form of benefit would be what now we call an eligible rollover distribution. Under some plans, the only forms of benefit were life-contingent annuities. Under a few, there was no choice at all.

A plan might have several distinct definitions of compensation measured for different purposes. Are you asking about: benefit-accrual compensation? nondiscrimination-testing compensation? annual-additions-limit compensation? Among some of many questions one might need to answer to develop relevant facts: Which of the three partnerships is or are participating employers? For which of the three partnerships did the partner perform personal services? For which of those was the partner’s services a material income-producing factor? Regarding each partnership, how much of the net income from it is attributable to capital, and how much to the partner’s personal services? Regarding each partnership, does the partner own more than 10% of the capital interests, or of the profits interests? Does each partnership have the same tax year as the others? Is the plan’s limitation year the same as or different than a partnership’s tax year? Is the plan’s limitation year the same as or different than the partner’s tax year? Is one or more of the partnerships not a US organization Consider Internal Revenue Code of 1986 § 401(d): “A trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, in addition to meeting the requirements of subsection (a), the plan provides that contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established. And consider this rule: “If a self-employed individual is engaged in more than one trade or business, each such trade or business shall be considered a separate employer for purposes of applying the provisions of sections 401 through 404 to such individual. Thus, if a qualified plan is established for one trade or business but not the others, the individual will be considered an employee only if he received earned income with respect to such trade or business and only the amount of such earned income derived from that trade or business shall be taken into account for purposes of the qualified plan.” 26 C.F.R. § 1.401-10(b)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401-10#p-1.401-10(b)(2). As always, Read The Fabulous Document. This is not advice to anyone.

Internal Revenue Code of 1986 § 72(t)(2)(A)(iii) provides a nonapplication of the too-early tax for a “[d]istribution[] which [is] attributable to the employee’s [the participant’s] being disabled within the meaning of subsection [72](m)(7)[.]” Although Basically’s story suggests some possibility that the participant’s father might be disabled, the story makes no mention of the participant’s disability.

If the participant’s father is the participant’s dependent, the participant might want his lawyer’s or certified public accountant’s advice about whether some expense gets the Internal Revenue Code § 72(t)(2)(B) exception for medical expenses. And even if the participant’s father is not the participant’s dependent, the participant might want advice about whether up to $1,000 might get a § 72(t)(2)(I) exception as an emergency personal expense distribution. http://uscode.house.gov/view.xhtml?req=(title:26 section:72 edition:prelim) OR (granuleid:USC-prelim-title26-section72)&f=treesort&edition=prelim&num=0&jumpTo=true This is not advice to anyone.

Many academics and some lawyers preserve websites using https://perma.cc/, operated by Harvard College.

Might a bank’s loan (perhaps supported by a mortgage or second mortgage on the house) be more efficient than drawing on retirement savings?

If no bank or trust company is available to serve and the employer is reluctant to leave a broker-dealer that requires a trustee, the employer sets up a rabbi trust and finds an individual (or a few) willing to accept the trusteeship. And those involved hope no trouble happens. Further, austin3515 to protect oneself might decline to provide tax advice. Or, might explain the tax risks.

If the employer gets recordkeeping from one of the big providers, ask the recordkeeper whether its captive or affiliated trust company (or the unaffiliated trust company the recordkeeper usually arranges for customers’ § 401(a)-(k) plans’ trusts) is available to serve as a rabbi trustee. If that service is available, don’t be surprised if the trustee’s fee is more than for a funded plan’s otherwise similar trust. A rabbi trustee budgets for its expenses in responding to, and sometime incurring litigation expenses regarding, other creditors’ claims, including claims asserting that the trustee ought to have stopped payments to deferred compensation participants and beneficiaries and instead preserved the rabbi trust’s assets for all creditors. If not appointing a bank or trust company, an employer evaluating whether to use a rabbi trust for the employer’s assets might consider whether such a set-aside does much to protect participants and beneficiaries (or the organization). An individual trustee might have too much information about the deferred compensation obligor’s financial condition, possibly triggering conditions under which the trustee must act to preserve the interests of all creditors. And if the chief purpose of a rabbi trust is to protect deferred compensation obligees from the obligor’s dishonest refusal (while the obligor is solvent) to pay an entitled claim, how likely is it that the organization’s executive will act differently because she is a rabbi trustee than she would act if she were only the organization’s executive? If an individual asked to serve as a rabbi trustee is an executive of the obligor or has a friendship with some of the people who might have a claim to deferred compensation, one might carefully consider whether conflicting interests could put her in an untenable, or at least unwelcome, situation. For an unfunded deferred compensation plan, investments (if any) remain the employer’s property. If so, might it be simpler, in some circumstances, for the employer to hold its property without a set-aside?

Whether it’s an investigation or an inquiry, a service provider ordinarily cooperates, including furnishing records, to the extent that doing so does not breach one’s service agreement. An interviewee should avoid unnecessarily saying anything that could suggest the service provider ever did, or had any power to do, anything discretionary. Although EBSA also presents information requests and before-enforcement demands to plan fiduciaries, EBSA often turns to service providers. The reasons are many, including: EBSA can’t find a fiduciary. A fiduciary does not respond, and EBSA lacks resources to compel a response. A fiduciary asserts that she is not, and never was, a fiduciary, and EBSA prefers not to spend resources fighting the denying fiduciary. A fiduciary did not keep records. A fiduciary no longer has access to records. A fiduciary’s records were discarded. (This often happens with a failing business.) EBSA seeks a distinct source of information because EBSA suspects a target fiduciary’s information is false.

About an employment-based retirement plan, a reader of the plan’s governing documents might discern whether the plan provides a surviving spouse 100% of a death benefit or, if the plan provides a qualified preretirement survivor annuity, whether the participant may limit the QPSA to a 50% QPSA. If a surviving spouse’s benefit is only a 50% QPSA, a beneficiary designation might be effective for the other half of the death benefit. A participant might want information to consider choices about whether and how to seek one’s spouse’s consent.

In responding to EBSA inquiries, a recordkeeper or third-party administrator wants to be clear, yet tactful. If, after a good explanation, an examiner persists (inaptly), consider: “I’d really prefer not to need to call your supervisor, but . . . .” But don’t do that if you guess the supervisor might be behind the repeated inquiry. If other efforts fail, lawyer-up. Clients of lawyers I referred have told me that EBSA’s conduct got much better after a lawyer was on the scene. Sometimes, a lawyer’s mere mention that she represents the TPA ended all inquiries. While not budging from reminding an inquirer about what a nonfiduciary service provider must not do, it sometimes helps to show a little empathy. A tiny handful of EBSA people are fighting a vast scourge of thefts and abandonments. This is not advice to anyone.