Peter Gulia

Do you yet know whether: the buyer buys the target’s shares (or capital interests), or buys the target’s assets? the buyer assumes the target’s retirement plan? the buyer requires the target to terminate its retirement plan before the closing? And here’s a practical suggestion: Consider getting and collecting now an advance retainer for more than what you estimate as your full fees for any services you might provide. (After the closing, the target might have no money in its till, or might have it only until the target pays the target’s sellers.) This is not advice to anyone.

Here’s a further way to think about the situation Santo Gold describes. Imagine that beyond the plan’s trustee there is a bank, trust company, securities broker-dealer, or other financial-services business that serve as the trustee’s custodian of the plan’s investments. Imagine that the daughter, supposedly acting as the trustee’s agent, instructs the custodian to redeem investments. Does the agreement the trustee made with the custodian obligate the custodian to act on the trustee’s agent’s instruction? Does the agreement even permit the custodian to act on the trustee’s agent’s instruction? What if the powers to act for the trustee, even if otherwise valid under the State and Federal laws governing the effect of the power-of-attorney document, are contrary to the retirement plan’s or its trust’s governing documents? Or are contrary to applicable law governing the plan’s trust? If the daughter lacked authority to instruct the custodian, or an authority was invalid under the plan, its trust, the custodian’s agreement, or an applicable law regarding any of them: Is the custodian liable for the consequences of having acted without a valid instruction? Should the custodian lawyer-up?

Of plans that provide a default investment intended as a qualified default investment alternative, many provide only a permanent QDIA, but some provide a time-limited temporary QDIA, “designed to preserve principal[.]” 29 C.F.R. § 2550.404c-5(e)(4)(iv)(A) https://www.ecfr.gov/current/title-29/part-2550/section-2550.404c-5#p-2550.404c-5(e)(4)(iv)(A). Some plan sponsors choose this so a defaulted-in participant who claims an early-out permissible withdrawal (if the plan provides it) would not suffer a principal loss on the investment. After an initial period runs out, the QDIA becomes the permanent QDIA. This is a plan sponsor’s plan-design choice; but it might be influenced by a service provider’s preference or service condition.

I imagined some possibility that the distributee didn’t receive the check that paid the involuntary distribution. Further, the distributee might not have received (or might not have read) a notice that the unrequested distribution would be paid. Following TPApril’s description, it seems the involuntary distribution was not destined for a default rollover to an IRA. The plan’s administrator might know only that a payment was not collected, but might not know why it was not collected. We’re commenting without having read: the plan’s governing documents, the trust agreement or declaration (if any), a group annuity contract (if any), a custodian’s agreement (if any), the recordkeeper’s service agreement, and an agreement with a default IRA provider (if any). While a plan’s administrator might wish a recordkeeper’s services would include some about uncollected payments, we don’t know what this recordkeeper was obligated (or even permitted) to do.

QDROphile, thank you for helping me think about diction and grammar. I meant that in 2020, after coronavirus, the numbers of thefts and other frauds were beyond what had been ordinary.

Five years ago (near a coronavirus outbreak) United States mail was unreliable. Also, thefts and other frauds were extraordinary. Before deciding what to do next, a plan’s administrator might consider whether to investigate some circumstances surrounding the uncollected payment. Some might investigate a little even if the expense is disproportionate to the distribution’s amount.

Under a State’s law, there might be constraints on a public-school employer’s authority: A public-school district or other political subdivision of a State has no more power than State law grants it. Many States’ enabling statutes allow a public-school employer to collect and pay over salary-reduction contributions to a § 403(b) contract, but don’t allow other contributions. State law might preclude a public-school employer from retirement provisions beyond participating in the Statewide retirement systems. To the extent (if any) that State law requires or permits collective discussion with an employees’ association or other collective-bargaining group, that process might restrain a governmental employer. However, sometimes a superintendent’s, principal’s, or other executive’s employment agreement is custom-negotiated. Agreements of that kind often require vetting by the school attorney and approval by the school board.

Whether a pairing or grouping of entities is or isn’t treated as one employer or otherwise related matters not only for qualified retirement plans’ coverage and nondiscrimination conditions but also for ERISA title IV about liabilities to a pension plan, including withdrawal liability to a multiemployer plan; general debtor-creditor law, including equitable-remedies law; bankruptcy law, insolvency law, or both; Federal, State, municipal, and international tax laws, whether for income, value-added, or other indirect taxes; and financial-statements accounting. A private-equity shop might use many lawyers to fine-tune the arrangements.

Private-equity investors often use strategies to order carefully rights and relations regarding investees, and often design these to keep investees separate from one another and from each investor. Beyond carefully defining and allocating each capital interest, profits interest, or income interest, an investor might assert that it is not “a trade or business”, and so is not to be combined with any other investor nor any investee. Don’t get involved in trying to sort out what is or isn’t a § 414(b)-(c)-(m)-(n)-(o) employer. Get your client, preferably with its lawyers and accountants, to instruct you on what you are to assume in performing your services. This is not advice to anyone.

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?