Peter Gulia

Just curious, how does that rule about ownership apply if the individual was not an owner “with respect to the plan year ending in the calendar year in which the employee attains the applicable age” because the business then had not been created? Does this mean a 77-year-old might create a new business and be its 100% owner, yet not be a 5%-owner to determine her required beginning date? 26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii).

That § 72(p)(2)(C) condition calls for the amortization, not necessarily the payments, to be level. It might be possible for an amortization to remain level even while periods’ payments vary if each payment is enough to extinguish the period’s accrued interest and to pay the constant portion of the principal. Black’s Law Dictionary (12th ed. 2024) defines amortization as “[t]he act or result of gradually extinguishing a debt . . . , usually by contributing payments of principal each time a periodic interest payment is due.” That definition’s subentry defines negative amortization as “[a]n increase in a loan’s principal balance caused by [periodic] payments insufficient to pay accruing interest.” An adjustable-rate loan sometimes changes what interest is due under the loan’s terms. If every payment is enough to satisfy the then due interest, the amortization might be level. We might never know whether a loan with interest adjustments meets the § 72(p)(2)(C) condition because, as noted above, recordkeepers and third-party administrators don’t offer services regarding such a loan. This is not advice to anyone.

If the plan’s count of participants is such that the plan’s administrator engages an independent qualified public accountant to audit the plan’s financial statements, the administrator might consider asking the accountant whether she would concur with the administrator’s finding that a distribution of the individual annuity contracts ends the plan. If the IQPA is not satisfied that the employer/administrator’s disassociation from the annuity contracts ends the plan, the IQPA might feel she should not furnish a “clean” report on the plan’s financial statements. This is not advice to anyone.

About not blaming the TPA, consider that we don’t know the terms and conditions of the TPA’s engagement.

While an impulse is for the plan to distribute to participants not money but rather each’s individual annuity contract, that won’t work unless the annuity contract provides rights and conditions that meet the plan’s provisions to follow ERISA § 205 and the insurer is obligated to administer, without the employer/administrator’s involvement, the plan’s and annuity contract’s provisions for a survivor annuity or other protection for the participant’s spouse. Does the TIAA individual annuity contract provide those obligations? This is not advice to anyone.

CuseFan gives us a helpful reminder to consider logical consistency under the retirement plan to be administered, and maybe logical consistency regarding other employee benefits.

Is the plan ERISA-governed?

“Subparagraph [414A(c)(2)](A) [excepting an arrangement established before December 29, 2022] shall not apply in the case of an employer adopting after [December 29, 2022] a plan maintained by more than one employer, and subsection [414A](a) shall apply with respect to such employer as if such plan were a single plan.” Internal Revenue Code of 1986 (26 U.S.C.) § 414A(c)(2)(B). “In the case of a plan maintained by more than 1 employer, subparagraphs [414A(c)(4)](A) [excepting an employer in existence for less than three years] and [414A(c)(4)](B) [excepting an employer until after it “normally employed more than 10 employees”] shall be applied separately with respect to each such employer.” Internal Revenue Code of 1986 (26 U.S.C.) § 414A(c)(4)(C). http://uscode.house.gov/view.xhtml?req=(title:26 section:414A edition:prelim) OR (granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true (There are IRS interpretations on those points.) But a multiple-employer plan’s governing documents might provide that every participating employer adopts an eligible automatic contribution arrangement designed to meet § 414A(a), even if some employers’ participations need not meet that tax-qualification condition. Whether that plan design is a helpful or harmful business strategy might be the multiple-employer plan’s sponsor’s business decision.

“In the case of a plan maintained by more than 1 employer, subparagraphs [414A(c)(4)](A) [excepting an employer in existence for less than three years] and [414A(c)(4)](B) [excepting an employer until after it “normally employed more than 10 employees”] shall be applied separately with respect to each such employer.” Internal Revenue Code of 1986 (26 U.S.C.) § 414A(c)(4)(C) http://uscode.house.gov/view.xhtml?req=(title:26 section:414A edition:prelim) OR (granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true.

The Labor department has not changed that rule. 29 C.F.R. § 2510.3-102(a)(2)(i) https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-102#p-2510.3-102(a)(2)(i).

For a participant who has reached the participant’s applicable age, the Treasury’s rule sets the § 401(a)(9)(C) required beginning date as the April 1 that follows “[t]he calendar YEAR in which the employee retires from employment with the employer maintaining the plan.” 26 C.F.R. § 1.401(a)(9)-2(b)(1)(ii) (emphasis added) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(1)(ii). If, by December 31, neither the employer nor the employee communicated to the other an end of the employment, it might be a good-faith interpretation to presume the employee had not THEN retired from employment. If so, the following April 1 would not be the required beginning date, even if before April 1 (but after the preceding December 31), the employer or the employee decided to end the employment. A rule interpreting a severance from employment, although for a different tax law condition, suggests that a mere expiration of a nonemployee’s work period might not be a severance “if the eligible employer anticipates a renewal[.]” And that’s so even if whether the worker is reengaged depends on whether the employer needs the worker’s services, whether the employer has money to pay for the services, or both. See 26 C.F.R. § 1.457-6(b)(2)(i) https://www.ecfr.gov/current/title-26/part-1/section-1.457-6#p-1.457-6(b)(2)(i). This is not advice to anyone.

About the other plan: Consider that an unfunded deferred compensation plan “for a select group of management or highly compensated employees” might provide that the employer decides whether an employee is eligible or selected, and chooses this in its business discretion. Whether someone is a select-group employee is highly fact-sensitive, varying with many possibly relevant facts and circumstances. Yet, the risks of guessing wrong can be severe. Further, a plan’s sponsor might seek its lawyer’s advice about which forum would decide a claim that involves a question about whether the plan was sufficiently limited to “a select group of management or highly compensated employees[.]”

Here’s the rule’s defined term for “working owner”: 29 C.F.R. § 2510.3-55(d)(2) https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-55#p-2510.3-55(d)(2). (In reading the rule, recall that it’s an interpretation of ERISA title I’s definition for an employer.) Observe that an owner need not have any minimum hours of service to be treated as a working owner. It’s enough that an owner has wages from the employer or self-employment income from the deemed employer. A confusion might result from the compound question’s use of a negative and a disjunctive. And that’s ignoring the sentence’s logically inconsistent uses of plurals and singulars. Although my thinking might be worthless and is useless, I concur with your thinking that A, B, C, and D each describes a “working owner” as the rule defines that term. Is there time to ask the Office of the Chief Accountant what EBSA seeks with this question?

And confirming David Rigby’s recollection, part 54 of subchapter D of chapter I of title 26 of the Code of Federal Regulations shows no Treasury rule or regulation to interpret Internal Revenue Code of 1986 (26 U.S.C.) § 4980. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D

Even if no one in a might-be plan sponsor has a practice anywhere near employee benefits, someone might know or find an employee-benefits lawyer who could render advice. Brob69’s description of the story suggests some possibilities that there might be facts from which a lawyer could render written advice that no plan was established. In seeking a lawyer’s advice, a might-be plan sponsor might want to act carefully to preserve evidence-law privileges for confidential lawyer-client communications. This is not advice to anyone.

If an amount withheld for a payment toward Federal income tax is not paid to the US Treasury the same day as or promptly after the amount is segregated from the distributee’s individual account, which account under the plan’s trust gets the float value of the amount not yet paid over?

About your question 2: Internal Revenue Code § 414A(c)(2)(A)(i)’s exception from the tax-qualification condition to provide a cash-or-deferred arrangement as an eligible automatic contribution arrangement looks not to when the plan was established, but rather to when the “qualified cash or deferred arrangement” was established. http://uscode.house.gov/view.xhtml?req=(title:26 section:414A edition:prelim) OR (granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true

Along with justanotheradmin’s guidance: Recognize that there might be differences between the employer’s reorganization bankruptcy and the employer’s liquidation bankruptcy. Also, some points of bankruptcy law, trust law, and other nonbankruptcy law apply differently regarding a charitable organization’s insolvency, especially if there are trusts dedicated to particular purposes.

That might turn on how much of the plan’s in-operation provisions are not yet expressed in “the” plan document. A plan-termination amendment might omit stating an optional provision the plan sponsor didn’t adopt in administering the plan. And even some required changes might not need an amendment to the extent that the document you’re amending expresses a provision by reference to the Internal Revenue Code. If the plan you’re amending was stated using IRS-preapproved documents, those documents’ publisher or licensee might furnish a suggested form of plan-termination amendment. While a practitioner wouldn’t rely on that, it’s another source of information to consider. Further, other BenefitsLink neighbors can give you practical suggestions about how to use IRS lists and the plan sponsor/administrator’s records of what was done “in operation” to discern provisions to be stated in a plan-termination amendment. This is not advice to anyone.

Of recently enacted early-out distributions limited to an amount (for example, $1,000, $5,000, $10,000, or $22,000), am I right in recalling that an eligible distribution to a victim of domestic abuse is inflation-adjusted (to $10,300) for 2025 but others are not yet adjusted? And is there any early-out distribution limited by a Code-specified amount but with no inflation adjustment?

Step One is Read The Fabulous Documents, perhaps including a written loan procedure if it is a document governing the plan. If a complete and fair reading of the plan’s governing documents results in an ambiguity about what the plan permits or restricts, the administrator might use its discretionary power to interpret the plan. If interpretation is called for, consider, with other points, that a plan’s governing documents might not have one all-encompassing defined term for “participant”. Some documents recognize that a person might be a “participant” regarding some kinds of allocations but not for other kinds. For example, if a plan’s provisions make a person eligible for a rollover-in subaccount, an administrator might interpret whether such a person is a participant for that subaccount. Consider also that some recordkeepers, TPAs, and other service providers get agreements that allow the service provider to rely on the service recipient’s instructions about what the plan provides, often stored as a computer database, even if the service provider knows those instructions are contrary to the plan’s governing documents. This is not advice to anyone.

While this is beyond TH 401k’s question: An interest in a retirement plan or its trust might be a security, and—absent an exemption, or a no-action letter—an issuer, offeror, or distributor of such a security (which might include a plan’s sponsor, administrator, trustee, or investment manager, and might include a participating employer) might need or want the security to be registered under the Securities Act of 1933, the Investment Company Act of 1940, and other Federal and State securities laws. Some exemptions might be available regarding a single-employer plan, but might not be available regarding a multiple-employer plan (including a pooled-employer plan). Securities Act of 1933 § 3(a)(2), 15 U.S.C. § 77c(a)(2) http://uscode.house.gov/view.xhtml?req=(title:15 section:77c edition:prelim) OR (granuleid:USC-prelim-title15-section77c)&f=treesort&edition=prelim&num=0&jumpTo=true Investment Company Act of 1940 § 3(c)(11), 15 U.S.C. § 80a-3(c)(11) http://uscode.house.gov/view.xhtml?req=(title:15 section:80a-3 edition:prelim) OR (granuleid:USC-prelim-title15-section80a-3)&f=treesort&edition=prelim&num=0&jumpTo=true To sort out what is or isn’t a security and is or isn’t an exempt-from-registration security, get a securities lawyer’s advice.

If more than a few people know about the notice failure, an employer/administrator should lawyer-up. And if anyone might assert that a recordkeeper, TPA, or other service provider did something (or failed to do something) in a way that helped the employer/administrator’s breach, a service provider too might lawyer-up (with a lawyer who’s conflict-free regarding the employer/administrator). Even if an assertion is baseless, defending against an assertion can be $$$, often unrecoverable. A fiduciary might, at least until it considers its lawyer’s advice, be careful not to concede or admit liability or responsibility. Among other reasons, a too-early concession can defeat one of the conditions of a prohibited-transaction exemption for settlements and releases. A situation like this might call for quick work: one might seek to quiet participants so no one thinks of a telephone call to the Employee Benefits Security Administration. Once EBSA has even an inquiry file open, it’s more likely that unwelcome things can happen. This is not advice to anyone.

But might company A and company B be under common control or otherwise comprise one employer under Internal Revenue Code § 414(b)-(c)-(m)-(n)-(o)?

The potential consequences of failing to furnish an ERISA § 101(i) blackout notice (if it was required) might include fiduciary responsibility for an individual account’s losses that result from the directing individual’s lack of notice, and a civil penalty. (There can be other consequences, but those might be beyond your query and this discussion.) Fiduciary liability. Failing to furnish a required blackout notice is a breach of the plan administrator’s fiduciary duties. ERISA § 404(a)(1). A fiduciary is liable to make good losses that result from the fiduciary’s breach. ERISA §§ 409, 502. Although it might be difficult to prove causation, some lawyers believe a directing individual could assert she would have made different investment directions had the individual received the proper notice. Civil penalty. If a plan’s administrator fails to furnish a required blackout notice, the Labor department may impose a civil penalty. In 2024, the maximum penalty is $169 per affected participant, beneficiary, or alternate payee multiplied by the number of days that the administrator failed to furnish the notice. ERISA §502(c)(7); 29 C.F.R. §§ 2560.502c-7, 2575.3; Dep’t of Labor, Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2024, 89 Fed. Reg. 1810, 1819 (Jan. 11, 2024). If more than one person is responsible for a failure to furnish a blackout notice, all responsible persons are jointly and severally liable for the penalties on that failure. 29 C.F.R. § 2560.502c-7(j). There is no Internal Revenue Service correction procedure; ERISA § 101(i) is an ERISA title I command. A failure to deliver an ERISA § 101(i) notice is not a breach with a routine correction under EBSA’s Voluntary Fiduciary Correction program. The Labor department might not assert a civil penalty if EBSA doesn’t know that the plan’s administrator failed to deliver the notice. Restoring a loss caused by a lack of a blackout notice, especially if the affected individual otherwise seems likely to complain, might help lessen both exposures. An administrator would want its lawyer’s advice, including about whether to condition restoration on the individual’s release of claims against the plan’s administrator. There can be a range of strategies about this. If the plan’s administrator has ERISA fiduciary liability insurance or other insurance that might respond to a claim, the administrator should get its lawyer’s advice, including advice about the insured’s obligation to give the insurer notice of a claim or of even an occurrence that could lead to a claim. Insurance contracts differ about these obligations and opportunities. And again, there can be a range of strategies. Santo Gold might want to present information without giving legal advice. This is not advice to anyone.