Peter Gulia

Here’s 4 U.S.C. § 114: http://uscode.house.gov/view.xhtml?req=(title:4 section:114 edition:prelim) OR (granuleid:USC-prelim-title4-section114)&f=treesort&edition=prelim&num=0&jumpTo=true

CuseFan, I’m with you; if the plan is ERISA-governed and the plan’s governing documents state the administrator’s discretionary power to interpret the plan, the administrator may use that discretion. Consider whether the plan’s administrator or claims administrator should, preferably before deciding, write a memo to explain the legal reasoning for its interpretation. Courts defer to reasoning, but not to an absence of reasoning. If there is a claimant beyond the remaining named beneficiaries, be punctilious about following ERISA § 503 and the plan’s claims procedure. This is not advice to anyone.

For Internal Revenue Code of 1986 § 457, the focus might be on the employer rather than on whether the plan is ERISA-governed or a church plan. The statute defines an eligible employer to include “any other organization (other than a governmental unit) exempt from tax under [the income tax] subtitle [of the Internal Revenue Code].” I.R.C. (26 U.S.C.) § 457(e)(1)(B). Under the Treasury department’s interpretation, the specially defined terms include these: “Eligible employer means an entity that is a State that establishes a plan or a tax-exempt entity that establishes a plan. The performance of services as an independent contractor for a State or local government or a tax-exempt entity is treated as the performance of services for an eligible employer. The term eligible employer does not include a church as defined in section 3121(w)(3)(A), a qualified church-controlled organization as defined in section 3121(w)(3)(B), or the Federal government or any agency or instrumentality thereof. Thus, for example, a nursing home which is associated with a church, but which is not itself a church (as defined in section 3121(w)(3)(A)) or a qualified church-controlled organization as defined in section 3121(w)(3)(B)), would be an eligible employer if it is a tax-exempt entity as defined in paragraph (m) of this section.” 26 C.F.R. § 1.457-2(e) https://www.ecfr.gov/current/title-26/part-1/section-1.457-2#p-1.457-2(e) “Tax-exempt entity includes any organization exempt from tax under subtitle A [income tax] of the Internal Revenue Code, except that a governmental unit (including an international governmental organization) is not a tax-exempt entity.” 26 C.F.R. § 1.457-2(m) https://www.ecfr.gov/current/title-26/part-1/section-1.457-2#p-1.457-2(m) For more information, see chapters 2 and 6 in 457 Answer Book.

If the employer is a cooperative described in subchapter T [Internal Revenue Code §§ 1381-1388], consider how that might affect patronage and ownership stakes. Are you sure there is no owner beyond the employees? Are you sure the owners have equal stakes? If not already done, the plan’s administrator with your help might check relevant facts and assumptions with the lawyer who wrote the organizing documents and the accountants who do the cooperative’s financial-statements accounting and income-tax accounting. If it’s so that the employer has fourteen employee-owners with 7.1429% each, your premise about 5%-owners seems right to me; but I am not knowledgeable about the tax law conditions involved.

If a law firm was on the scene when the weak documenting happened, the law firm might be persuaded to write a memo the CPA firm relies on as a file-closer. Otherwise, the employer/administrator might be at the mercy of what the CPA firm observes and, if it observes, thinks.

For the two steps G8Rs describes—(1) a spinoff transfer followed by (2) the transferee plan’s termination and final distributions: Does a pooled employer plan’s provider offer as a separate service for a separate fee, implementing the creation and termination of the transferee plan? Is it feasible to pay the transferee plan’s final distributions as quickly as 30 days after the spinoff from the pooled employer plan?

Among frames one might use to think about your question, here’s one of them: Who needs to be persuaded that the documents are good-enough? Is it the IRS, because the plan sponsor will apply for the IRS’s written determination? Is it an accounting firm, because an independent qualified public accountant audits the plan’s financial statements? Is it Belgarath, because the TPA wants to protect itself from a liability exposure or a reputation risk? Or is it only the employer, in its roles as the plan’s sponsor and administrator? Thinking through those questions might help one think about what’s good-enough. Also, consider the exact text of the employer’s resolution.

Is the interest rate too low? Or, too high?

What a neat idea! That there is a user fee specified for something suggests that the thing can be done.

MoJo’s post explains some sensible business reasons for a recordkeeper not to offer a service to support a plan’s administrator’s choice to volunteer information to the Labor department’s database. If an administrator’s recordkeeper doesn’t offer a service, that changes an administrator’s cost-benefit analysis about whether to volunteer. While there are many weaknesses about this new lost-and-found database, let’s remember that the Labor department responded to Congress’s command. So, let’s blame Congress for not thinking about what they legislated.

I wasn’t assuming a need to complete Form 5330 Schedule C line 5. Rather, noting only that the quoted text from the Instructions might be a useful or helpful way to think about when a prohibited transaction is corrected.

Thank you for sharing that sad story. No matter the business or legal positions, there’s no excuse for impoliteness. I have many times presented my client’s hard No, sometimes when I thought my client’s position was unwise or wrong. Yet, I’ve always listened respectfully to what others asked and said, even when that presentation was profoundly disrespectful or abusive. And I’ve always politely explained my client’s outlook.

If the plan’s governing documents specify no more than that the default beneficiary is “the Participant’s estate”, the meaning or effect of that phrase might be ambiguous, and there might be some need for the plan’s administrator to use its discretion to interpret the plan. Some administrators insist on paying only the estate’s court-recognized personal representative. Others use some tolerances for less control, taking some risks. Here’s a BenefitsLink discussion about whether to take some risks by relying on a small-estate affidavit. The plan’s administrator, with its lawyer’s advice, might consider whether a court’s decree or other determination of heirship might involve some similarities. Among the ways a plan’s administrator might manage communications with the estate’s heirs’ attorney could be to follow ERISA § 503 and the plan’s claims procedure. IF a plan’s administrator decides any tolerance to pay someone other than the estate’s personal representative, that would not excuse a need for each distributee’s certification of one’s Social Security Number, Individual Taxpayer Identification Number, or other TIN. This is not advice to anyone.

I’m curious: Was the impoliteness or rudeness that TIAA was unwilling to consider doing something the contracts did not obligate TIAA to do? Or to consider refraining from something the contracts or law permitted TIAA to do? Or was it more than that?

IF a plan sponsor’s goal is to help the plan’s administrator avoid a need to determine whether an employee is eligible to elect between money wages and § 401(k) elective deferrals BECAUSE she is a long-term-part-time employee, one would set the plan’s age, service, and other conditions on eligibility to elect deferrals so every employee who could be described in § 401(k)(2)(D)(ii) always would meet the plan’s conditions. Here’s why some employers might not choose that simple way. For employees who are eligible ONLY as necessary to meet tax law’s condition regarding long-term-part-time employees, a plan need not provide nonelective or matching contributions, and may exclude the otherwise excluded long-term-part-time employees from some specified coverage and nondiscrimination measures. Yet, those exceptions apply only if the employees “are eligible to participate in the [cash-or-deferred] arrangement SOLELY by reason of [§ 401(k)](2)(D)(ii)[.]” Sources: ERISA §§ 202(c), 203(b), IRC §§ 401(k)(2)(D), 401(k)(15), 416(g), SECURE 2019 § 112, SECURE 2022 § 125; Long-Term, Part-Time Employees Rules for Cash or Deferred Arrangements Under Section 401(k) [proposed rule], 88 Federal Register 82796 (Nov. 27, 2023). This is not advice to anyone.

The Form 5330 Instructions for Schedule C line 5 include this: “For purposes of section 4975(d)(23), the term ‘correct’ means to: Undo the transaction to the extent possible and in all cases to make good to the plan or affected account any losses resulting from the transaction, and Restore to the plan or affected account any profits made through the use of assets of the plan.” https://www.irs.gov/pub/irs-pdf/i5330.pdf I’d say the prohibited transaction is not corrected until the plan’s trust has not only the late participant contributions but also the interest or investment gains the plan would have obtained had the contributions been promptly invested or, if greater, the interest or investment gains the employer made by having the plan’s money.

From the instruction quoted above: “If you are required to file 10 or more information returns during the year, you must e-file.” Consider exactly which person is the “you” in that sentence. Also: “The 10-or-more requirement does not apply separately to each type of form. For example, if you must file four Forms 1098 and six Forms 1099-A, you must e-file.” If the quoted instruction fairly describes the law, the measure is not about whether one files ten 1099-Rs; it’s about whether one files ten information returns, counting several kinds. Consider that it might be impractical for a TPA to get from an employer or a plan’s administrator the total number of information returns it files. Or, that the count varies from year to year, with some years fewer than ten but other years with at least ten.

You should be justly proud of the great community you created.

Retirement plans, of several kinds, have a range of provisions about whether (and the extent to which) severance pay counts in compensation from which a participant might make an elective deferral, or in compensation on which an allocation of a matching or nonelective contribution is determined. As BenefitsLink neighbors say, RTFD—Read The Fabulous Document. Also, if your query relates to an end or discontinuance of a plan, consider how a plan amendment might affect provisions about counting or not counting severance pay.

The Form 5500 Instructions tell a plan’s administrator to report a late contribution until the first plan-accounting year that begins “after the violation has been fully corrected by payment of the late contributions and reimbursement of the plan for lost earnings or profits.” The Instructions call for reporting even if the late contribution and the correction happen in the same plan year.

I’ll start with one of my observations about how a fiduciary might evaluate the choice: If an individual-account retirement plan provides its retirement (or death) distribution only as a single sum (with no periodic payment allowed), the value to the plan of putting in EBSA’s database the names and TINs of not-yet-paid participants 65 and older might be outweighed by the expense of collecting information and submitting it to EBSA’s database. Yet, a loyal and prudent fiduciary ought to do some cost-benefit evaluation of the opportunity.

Some TPAs recommend setting an arrangement’s initial (and only) default contribution percentage at 10%. Their reasoning is avoiding escalations. Your hope that fewer inattentive participants fall into a deferral one regrets might help a little. Setting the contribution percentage is a plan-design, not fiduciary, decision. This is not advice to anyone.

Recently, the US Labor department announced a voluntary information collection request. It invites a retirement plan’s administrator to furnish the name and taxpayer identification number of each separated vested participant owed a benefit (or whose beneficiary is owed a benefit) and is (or would be) 65 or older. See column R on page 91801 https://www.govinfo.gov/content/pkg/FR-2024-11-20/pdf/2024-27098.pdf. Should a plan’s administrator voluntarily do this? If a plan’s administrator evaluates whether to do this, what should such a fiduciary consider?

JA, based on the forum you posted in, is this a plan of unfunded deferred compensation for selected executives?

Before considering any person’s or estate’s disclaimer, first discern which person or estate is the IRA’s default beneficiary (if no named primary or contingent beneficiary survives); it might be the IRA holder’s, not the child’s, estate. Read carefully the IRA’s governing documents. If one is considering a disclaimer, read carefully the IRA’s governing documents to discern whether the IRA allows a disclaimer, and what conditions a disclaimer must meet for the IRA trustee or custodian to accept and follow a disclaimer. If an IRA permits a beneficiary to disclaim a plan benefit, whether that power can be exercised only by the beneficiary personally or by the beneficiary’s executor, personal representative, guardian, or attorney-in-fact as a fiduciary might depend on the IRA’s text, including whether meeting Internal Revenue Code § 2518 conditions is a condition for the IRA trustee’s or custodian’s acceptance of a disclaimer, whether the IRA sets further conditions, and which State’s law governs the IRA. Unless an IRA states that a power to disclaim can be exercised by an executor, personal representative, guardian, or attorney-in-fact, it might be that only the beneficiary personally may exercise the power to disclaim. See, by analogy, R. Scott Nickel, as Plan Benefit Adm’r of the Thrift Plan of Phillips Petroleum Co. v. Estate of Lurline Estes, 122 F.3d 294, 21 Empl. Benefits Cas. (BL) 1762, Pension Plan Guide (CCH) ¶ 23937U (5th Cir. Sept. 22, 1997). If the IRA permits a disclaimer and does not preclude a fiduciary’s disclaimer, consider State law. Don’t assume the applicable State law is the law of the relevant decedent’s domicile. An IRA’s choice-of-law provision might govern more than you imagine. And States’ laws vary. Even if a fiduciary has power under applicable State law to make a disclaimer, such a disclaimer might not be a qualified disclaimer for Federal tax purposes. Compare, for example, IRS Letter Rulings 2000-13-041 (Jan. 4, 2000), 96-15-043 (Jan. 17, 1996), 96-09-052 (Dec. 7, 1995) (disclaimer recognized) with, for example, IRS Letter Ruling 94-37-042 (June 22, 1994) (disclaimer not recognized); see also Rev. Rul. 90-110, 1990-2 C.B. 209 (Dec. 24, 1990) (disclaimer by trustee not a qualified disclaimer). This information is not advice to anyone. As always, lawyer-up. BenefitsLink neighbors, do you have any practical experiences with what an IRA custodian allows or refuses?