Peter Gulia

Or, when a retirement plan considers buying shares, the plan’s fiduciaries could meet all the conditions the released but unpublished proposed rule and class exemption suggest.

Dietrich advertises a capacity to place annuities, without a pension plan’s termination, “for individual plan participants at retirement.” https://www.dietrichannuity.com/group-annuity-products/individual-placements/

A caution: The before-publication text, signed by Assistant Secretary Lisa M. Gomez on January 13 and filed with the Office of the Federal Register on January 16, shows the notice of proposed rulemaking, including its withdrawal of the 1988 proposal, is scheduled to be published on January 22 (Wednesday). As soon as January 20 (after noon), President Trump or his chief of staff might direct the Labor department to withdraw the scheduled publication. Over the past 44 years, a pause on executive agencies’ rules and rulemakings, even proposals, has been customary for an incoming President. For example, on January 20, 2021, President Biden’s chief of staff directed agency heads to “propose or issue no rule in any manner—including by sending a rule to the Office of the Federal Register (the “OFR”)—until a department or agency head appointed or designated by the President after noon on January 20, 2021, reviews and approves the rule.” Further: “With respect to rules that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR[.]” https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/regulatory-freeze-pending-review/ A notice is not officially published until the Federal Register publishes it.

Just curious, if an employer pays the participant's extra tax (because the employer believes it, in its plan-administrator role, is responsible for the minimum-distribution failure), is the payment a deductible business expense?

While I recognize EBSA’s observation that fees might be more than investment gains or interest credited and so consume meaningful portions of a default-rollover IRA, some might wonder whether it’s prudent or appropriate to cause a participant to receive income and so (in some circumstances) incur Federal, State, and local income taxes, rather than get a continuing deferral of income for one or more tax purposes. The factors to consider might be somewhat different if a participant’s whole accrued benefit is no more than $1,000 and an amount that might be sent to a State’s abandoned-property administration is not rollover-eligible because it is a § 401(a)(9) minimum distribution.

Just curious, if a retirement plan uses the default-IRA provider the recordkeeper suggests, will that provider accept default rollovers for amounts less than $1,000? If so, is there any lower amount a default-IRA provider would not accept?

I wouldn’t imagine a logic about why there is no Roth treatment for a defined-benefit pension plan’s benefit. Although there are plausible explanations, I wouldn’t ascribe to Congress a reason without evidence that Congress considered the reason. (I suspect the only Congressional evidence about why there is no Roth treatment for a defined-benefit pension plan’s benefit is that no Member of Congress filed a bill that proposed legislation for that idea.) The short answer is that the statute provides what the statute provides. I.R.C. (26 U.S.C.) § 402A http://uscode.house.gov/view.xhtml?req=(title:26 section:402A edition:prelim) OR (granuleid:USC-prelim-title26-section402A)&f=treesort&edition=prelim&num=0&jumpTo=true SECURE 2022 § 604.

And may a plan provide that a claim for a 414w permissible-withdrawal distribution is treated as also an affirmative election for a 0% deferral?

Some TPAs and recordkeepers suggested to clients setting the initial (and final) default percentage at 10%. Their reason was to avoid yearly auto-escalations, which might be error-prone. The 10% works also to avoid difficulties about what default percentage applies to a participant the administrator didn’t apply a default to for 2025 and, if required, puts in later.

If the plan provides the initial default is 10% and the escalated default is 10%, would a difficulty about which default percentage to apply be avoided?

Which is your role: lawyer for the participant/decedent? lawyer for the would-be alternate payee? lawyer for the participant’s recent spouse? lawyer or other adviser helping the plan’s administrator? How you approach the questions relates to your role. The decedent’s personal representative might assert that a domestic-relations order now is improper under the State’s law. The would-be alternate payee might assert that an order now is proper to implement what the divorce decree ordered (perhaps including what otherwise was agreed regarding the divorce). The participant’s recent spouse might assert that an order now, even if otherwise proper, cannot invade a surviving spouse’s survivor annuity or other survivor benefit. The plan’s administrator would consider whether an order submitted to it is a DRO and, if so, whether it is a QDRO. Among other points, an administrator would consider whether an order purports to set up a benefit the plan does not provide. Even if an order is a QDRO, the administrator might consider exposures to competing claims or potential claims. This is not advice to anyone.

The proposed rule distinguishes between a “statutory applicability date” and a “regulatory applicability date.” The Treasury’s explanation of its proposed rule includes this: Regulatory applicability date The proposed regulation WOULD apply to plan years that begin more than 6 months after the date that final regulations under section 414A are issued. {One guesses this would be no sooner than January 1, 2027.} For earlier plan years, a plan would be treated as having complied with section 414A if the plan complies with a reasonable, good faith interpretation of section 414A. As explained in section I.B.1 of this Explanation of Provisions, the proposed regulation would require an EACA to cover all employees in the plan who are eligible to elect to have contributions made on their behalf for the automatic enrollment requirements of the proposed regulation to be satisfied. If a CODA or section 403(b) plan that provides for salary reduction agreements becomes subject to the requirements of section 414A(a) as of the first day of the plan year beginning after December 31, 2024 (2025 plan year), but employees who became eligible to participate in the CODA or to enter into a salary reduction agreement before the first day of the 2025 plan year (and who do not have affirmative elections in effect on that date) are not covered under the EACA, then those employees would have to be covered under the EACA on the first day of the first plan year that the FINAL regulations apply to the CODA or to the section 403(b) plan that provides for salary reduction agreements (first applicable plan year). As a result, under the proposed regulation, unless employees who became eligible to participate in the CODA or to enter into a salary reduction agreement before the first day of the 2025 plan year have affirmative elections in effect on the first day of the first applicable plan year, those employees would need to be automatically enrolled as of that date {the regulatory applicability date} in order for the requirements of the regulation to be satisfied. In that case, the default contribution percentage would be the percentage that would apply under the EACA for the first applicable plan year had those employees been automatically enrolled starting on the first day of the 2025 plan year. As an alternative, the plan terms could reflect the provision in the proposed regulation permitting the redetermination of the initial period in the case of an employee who did not have default elective contributions made for an entire plan year (so that the plan would be permitted to provide that the initial contribution percentage that applies to those employees is the percentage that would apply under the EACA had the initial period for those employees started on the first day of the first applicable {regulatory applicability date} plan year). * * * * * * If a plan’s administrator’s interpretation of the plan’s provisions before reading this proposed rule was for something less than the full “sweep”—that is, applying the plan’s default to every eligible employee who has no affirmative election in effect, such an administrator might continue its interpretation for 2025, and reconsider before interpreting the plan’s provisions for 2026—for example, before deciding the content of a notice that looks to 2026. That assumes the administrator formed its interpretation for 2025 using no less care, skill, caution, and diligence than would be used by someone who is experienced with the needs of a similar retirement plan and with the fiduciary’s role in serving such a plan. It assumes also that the administrator’s interpretation is at least “a reasonable, good faith interpretation”, even if in the circumstances ERISA § 404(a) might permit a lower-quality interpretation. This is not advice to anyone.

From the Treasury’s explanation of its proposed interpretation: “The Treasury Department and the IRS received comments in response to Notice 2024-2 requesting that the guidance provide that certain categories of employees need not be covered by an EACA for section 414A(b) to be satisfied. However, although section 414A(c) provides several exceptions to the requirements of section 414A(a) for certain types of plans, there is no provision in section 414A (or in section 101(c) of the SECURE 2.0 Act) that excludes any category of employee from the automatic enrollment requirements of section 414A(b) of the Code if the plan is subject to section 414A(a). Accordingly, the proposed regulation would clarify that a CODA or salary reduction agreement under a plan satisfies the automatic enrollment requirements of section 414A only if the plan provides for an EACA that covers all employees in the plan who are eligible to elect to have contributions made on their behalf under the CODA or pursuant to the salary reduction agreement (including long-term, part-time employees described in section 401(k)(15) of the Code or section 202(c) of ERISA). Commenters also requested guidance on whether an employee must be automatically enrolled if the employee was eligible to participate in a CODA or salary reduction agreement included in a plan before the CODA or salary reduction agreement became subject to the automatic enrollment requirements of section 414A(b). In response to these comments, the proposed regulation would provide an exception to automatic enrollment for certain employees who are eligible to make a cash or deferred election under a CODA or to enter into a salary reduction agreement that is comparable to the exception for certain current employees under a QACA, as set forth in § 1.401(k)-3(j)(1)(iii). Specifically, the proposed regulation would clarify that an EACA will not fail to satisfy section 414A merely because the default election under the EACA does not apply to an employee who, on the date the plan is first required to satisfy the automatic enrollment requirements of the proposed regulation, had an affirmative election in effect (that remains in effect) to have contributions made on the employee’s behalf under a cash or deferred election or a salary reduction agreement (in a specified amount or percentage of compensation) or not have contributions made on the employee’s behalf under a cash or deferred election or a salary reduction agreement.”

Under the Treasury’s proposed interpretation, a § 414A arrangement must cover every employee who’s eligible to make a cash-or-deferred election. The exception is for an employee who has in effect an affirmative election—whether for an amount or percentage of compensation to be deferred, or for no deferral (but it must be an affirmative election).

The notice of proposed rulemaking (to be published Tuesday, January 14) proposes a rule that would state: “For earlier plan years [those for which the final rule does not apply], a plan is treated as having complied with [Internal Revenue Code § ]414A if the plan complies with a reasonable, good faith interpretation of section 414A.”

I’ve heard many employers’ paymasters lack software to apply the three age ranges of age-based catch-up limits. Some can sort for whether a participant will be 50 by the end of a year. But some can’t sort for whether an individual will be 60, or will be 64. Let’s hope designers of IRS-preapproved documents will, when the remedial-amendment time comes, allow users choices about whether to provide or omit the 60-63 catch-up.

Here’s Internal Revenue Code § 45E http://uscode.house.gov/view.xhtml?req=(title:26 section:45E edition:prelim) OR (granuleid:USC-prelim-title26-section45E)&f=treesort&edition=prelim&num=0&jumpTo=true and § 408(p)(2)(C)(i) http://uscode.house.gov/view.xhtml?req=(title:26 section:408 edition:prelim) OR (granuleid:USC-prelim-title26-section408)&f=treesort&edition=prelim&num=0&jumpTo=true which defines an eligible employer for § 45E. The measure is not about participants; it’s about a number of employees who received at least $5,000 in compensation from the employer for the preceding year. Consider also that § 45E(e)(1) and § 414 include provisions about persons treated as one employer. If a tax credit might be unavailable, consider whether the participants might bear plan-administration expenses.

The 2024 Form 5500 instructions for Schedule H line 4a refer to: “Amounts PAID by a participant or beneficiary to an employer []or WITHHELD by an employer for contribution to the plan are participant contributions that become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets[.]” While failing to implement a participant’s elective deferral might involve tax-qualification conditions, a plan’s financial statements might not necessarily include an accrual or disclosure about an amount that never was taken from a worker’s pay. Consider whether the plan’s administrator might want its lawyer’s advice about whether the participant ratified a nondeferral, and, if not, what correction might be necessary, appropriate, unnecessary, or even unwise. Further, consider whether the plan’s administrator might want advice (perhaps independently of the independent qualified public accountant) about generally accepted accounting for whatever is (or isn’t) the plan’s receivable or contingent gain. The AICPA’s generally accepted auditing standards call for an IQPA to find that the Form 5500 report is consistent with the plan’s financial statements, or to note tolerable differences. Depending on the facts and circumstances, there might be room for an administrator’s Form 5500 reporting position that doesn’t necessarily interfere with an IQPA’s opportunity to render a “clean” report on the plan’s financial statements and related points. None of this is advice to anyone.

Although many BenefitsLink neighbors are fond of saying Read The Fabulous Document, this might be an occasion for looking beyond “the” plan document because a plan’s true provisions might be stated with some tolerances for: (1) interpreting a provision according to the Internal Revenue Code and Treasury rules, and (2) treating as in-operation provisions some that might be written later within a remedial-amendment period, including those periods for SECURE 2019 and SECURE 2022. If so, might this rule tell you much of what the plan’s administrator wants to know? 26 C.F.R. § 1.401(a)(9)-3(c) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-3#p-1.401(a)(9)-3(c) Also, for a situation in which the participant died before a distribution commenced and the beneficiary is the participant’s surviving spouse, does the recordkeeper’s or third-party administrator’s software determine what required beginning date applies?

For a US tax return or tax payment due today, one may take an extra day, to January 10. That includes “any federal income, payroll[,] or excise tax deposit due on Jan. 9, 2025, including those required to be made through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).” https://www.irs.gov/newsroom/irs-for-carter-remembrance-taxpayers-have-extra-day-to-file-pay-returns-payments-due-jan-9-are-now-due-jan-10

If the plan’s governing documents do not constrain what the plan’s administration might responsibly choose: The notice of proposed rulemaking C.B. Zeller points to includes a transition rule: “For purposes of paragraph (b)(2) of this section [calling for forfeitures to be used no later than 12 months after the close of the plan year in which the forfeitures “were incurred”], forfeitures incurred during any plan year that begins before January 1, 2024, will be treated as having been incurred in the first plan year that begins on or after January 1, 2024.” And: “Taxpayers . . . may rely on these proposed regulations for periods preceding the applicability date.” If the plan TH 401k describes is on calendar plan years, the plan’s administrator might, with its lawyer’s advice, consider using the forfeitures from 2023 and 2024 during 2025. Although the notice of proposed rulemaking states only a proposed rule, not a final or interim rule, a practitioner might suggest her client follow (at least) the proposed rule Why? The Treasury department explains that the proposed rule is based on decades-ago IRS interpretations. Until there is a Treasury rule, an IRS examiner might assume that the IRS’s interpretations are the correct interpretations of the Internal Revenue Code’s tax-qualification conditions. As ratherbereading suggests, a plan’s administrator might read the plan’s governing documents and seek to follow them as nearly as one can.

Without diminishing respect for Effen’s and other pension practitioners’ methods: What does the text of the court’s order tell its reader about which way to do the computations?

Is an employer's offer of beyond-COBRA continuation coverage merely not covered by stop-loss insurance? Or is an employer's offer of beyond-COBRA continuation coverage a failure of a condition that voids the whole stop-loss insurance contract?

Even if ERISA’s title I does not preclude an appropriately documented health plan from providing more continuation coverage than applicable law requires, an employer, with its lawyers’ help, might consider: Will the extended coverage meet Federal, State, and local laws about civil-rights nondiscrimination? Will the extended coverage meet whichever tax law nondiscrimination rules apply? What Federal, State, and local income tax treatments apply to the extended coverage? Will the employer’s extended coverage be not covered by a group health insurance contract (if the plan has any)? Will the employer’s extended coverage be not covered by a stop-loss insurance contract? What might happen when a continuee fails to pay a continuation premium? Beyond those points, has the employer evaluated the financial and other risks of making continuation coverage more attractive?

Recordkeepers’ proposals I’ve evaluated have included offers to process banks’ electronic payments, at least when the loan obligor is no longer employed or otherwise has no wages from which a wage-deduction payment could be taken. But consider that a service provider’s desires and capabilities might vary with a particular plan’s circumstances. Even within one recordkeeper, not every plan gets the same offer of services.