Peter Gulia

Over the 40+ years I’ve been working with retirement plans, the Internal Revenue Service has been remarkably consistent about recognizing an employer’s honest effort to meet tax law, especially when the relevant law is ambiguous and the IRS has not published guidance. It might help for the plan’s sponsor/administrator to document its reasoning for its good-faith interpretation.

As you note, we lack a Treasury or IRS interpretation on the “sweep” question you raise. Without that guidance, an affected plan sponsor might decide which participants to apply an automatic-contribution arrangement to. And if a plan’s sponsor doesn’t decide, the plan’s administrator might use its discretionary power to interpret the plan, including the unwritten but implied provisions. (Yes, I know that for a small-business employer both roles practically are filled by Jane B. Owner, and she often doesn’t get a lawyer’s advice.) I can’t remark on the reasoning you describe because no client has asked me to interpret § 414A, and it’s not in the topics I regularly publish on. Might the lack of agency guidance help? It might set up a tolerance for employers, TPAs, and recordkeepers to sort out what makes sense.

Patricia Neal Jensen’s explanations and observations are consistent with my notes above. Federal income tax law (but not ERISA’s title I) might permit a plan sponsor some delay to document provisions implemented during a remedial-amendment period. But if an employer—for a 403(b) not established before December 29, 2022 (and not otherwise excepted)—will begin an automatic-contribution arrangement as soon as January 2025: Shouldn’t the employer already have considered its lawyers’ advice about whether the employer establishes or maintains an ERISA-governed plan? Shouldn’t the employer have decided its plan’s default contribution percentage? Shouldn’t the employer have decided when and to whom to send the opt-out notice? Shouldn’t the employer have written the text of the opt-out notice? Congress wrote the statute Congress wrote. Congress decided not to change ERISA § 3’s definition of an employee-benefit plan which, if not a governmental plan or a church plan, is ERISA-governed. The Internal Revenue Service lacks authority to interpret whether ERISA’s title I governs a plan. Any interpretation the US Labor department might make does not control what Federal courts decide, and does not control what a State’s courts or executive agencies decide. All those points observed, a service provider need not take on an unfair burden.

An employer that otherwise might assume it neither established nor maintains a plan within ERISA’s meaning might consider, with its lawyers’ advice, whether to document that the plan is ERISA-governed (and file Form 5500 reports). Without ERISA § 514(e) supersedure of States’ laws, applying an automatic-contribution arrangement’s implied assent to take a wage-reduction contribution from a worker’s pay could be contrary to many States’ wage-payment laws, and could be a crime under some States’ laws. That’s in addition to the many other reasons for recognizing that ERISA might govern a plan.

Further, § 414A(a) generally applies, with the § 414A(c) exceptions, to a § 403(b)(16) safe-harbor-deferral-only plan. See I.R.C. § 403(b)(16) and Notice 2024-2 at A-6 https://www.irs.gov/pub/irs-drop/n-24-02.pdf. At least that’s the IRS’s reading. Are you helping a nongovernmental charitable organization that had no 403(b) before December 29, 2022?

Internal Revenue Code § 414A(a) states a condition on whether an arrangement for elective-deferral or salary-reduction contributions gets § 401(k) or § 403(b) Federal income tax treatment. 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 Internal Revenue Code § 414A(c)(3) excuses governmental plans and church plans. But it does not excuse a payroll practice that is not a plan described in ERISA § 3 because the arrangement is neither established nor maintained by an employer (or a labor union). Consider that § 414A’s references to “any annuity contract purchased under a plan” use that term-of-art phrase for its Internal Revenue Code § 403(b) meaning, which treats an employer’s payroll practice and limited role as a convener regarding § 403(b) annuity contracts and custodial accounts as a “plan” in applying § 403(b) and related Internal Revenue Code provisions. See 26 C.F.R. § 1.403(b)-3 https://www.ecfr.gov/current/title-26/section-1.403(b)-3

The “American Relief Act, 2025” is law. https://www.congress.gov/118/bills/hr10545/BILLS-118hr10545eh.pdf The next shutdown threat is March 14, 2025.

Having a minimum-distribution requirement is not a condition to a qualified charitable distribution. If other conditions are met, an IRA holder whose § 401(a)(9) applicable age is 73 or 75 might make a QCD as soon as she “has attained age 70½.” Internal Revenue Code (26 U.S.C.) § 408(d)(8)(B) 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 This is not advice to anyone.

About Connor’s observation: Under the Treasury’s interpretation (which under the 1978 Reorganization Plan also is persuasive authority to interpret ERISA § 203(a), except for § 203(a)(3)(B)): “[Y]ears which may be disregarded under [Internal Revenue Code §] 410(a)(5)(D) may be disregarded in determining when participation commenced [to determine the applicable “anniversary of the date the plan participant commences participation in the plan”].” 26 C.F.R. § 1.411(a)-7(b)(1)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.411(a)-7#p-1.411(a)-7(b)(1)(ii). EBECatty: IF one treats the Treasury’s rule as a persuasive interpretation of the statute or the plan, might specifying something a plan may disregard mean that a period not meeting that § 410(a)(5)(D) standard is not disregarded in counting the normal retirement age participation period? (I have never considered your question and have not read the relevant law; I express no view.) This is not advice to anyone.

When there is a US government shutdown not only are many Federal employees put on furlough but also some government contractors might furlough some employees if the shutdown is more than a few days and it slows down the contractor’s performance (because, for example, overseeing government people are unavailable to give approvals or change instructions). Some practitioners might need to relearn some tax law and plan rules about what to do regarding a participant who is not severed from employment and is not on a leave but is not currently working.

I’m curious: Of those plan administrators, TPAs, and recordkeepers that furnish a model QDRO to a domestic-relations litigant’s attorney: Does your model order include, for a segregation specified as an amount rather than as a percentage, text setting the alternate payee’s subaccount as the specified amount or 100% of the participant’s account, whichever is less?

DSG, some Federal courts have criticized an ERISA-governed plan’s administrator’s use of an interpleader when the arguable uncertainties could have been resolved using the plan’s claims procedure or QDRO procedure.

That 34 days’ shutdown delayed some guidance, but I don’t remember that practitioners were particularly upset.

Thank you for adding some helpful information. Please recognize this is an ignorant, and so innocent, question (because I lack experience with the correction programs): If one has submitted an application so as to get a program’s relief from what otherwise could happen on EBSA’s investigation or an IRS examination, does it matter much—to one’s client, or to the practitioner herself—when the closing letter comes?

Or, some administrators might not interpret such an order to provide something it does not “clearly specify.” One might find that an order is not a QDRO, and send denial letters to the participant, proposed alternate payee, and each’s representative. I recognize there are difficult tradeoffs between insisting on a tidy administration and guarding a plan’s administration from wasting time and money because of less-than-perfect domestic-relations practices. These are choices for discretionary plan administration. And the choices might involve risk and expense management. This is not advice to anyone.

Does EBSA or IRS do something we as employee-benefit practitioners need (that would be delayed by a U.S. government shutdown)? Or does our work not depend on the executive agencies? (We likely care as citizens, many might care about friends and neighbors who could be without paychecks for a while, and some might care as investors.) In the law of U.S. government shutdowns, some executive agency functions are treated as essential, allowing a government employee to keep working; but nonessential functions don’t get that tolerance. For example, about 70% of Treasury employees are not permitted to work. In some agencies, it’s around 95% of employees. Further, many executives play “out of position”, taking on emergency functions and unusual activities. A shutdown precludes work on writing rules, regulations, and other guidance; issuing ERISA advisory opinions or IRS letter rulings and other written determinations; almost all legal advice (except as needed for EBSA or IRS to preserve the U.S. government’s rights and other property); and customer service. But have the guidance-writing functions become so sparse that we no longer depend on them?

If you’re explaining to a public-school employer a choice between a correction submission that might involve an IRS user fee and a representative’s fee and a self-correction that might involve neither, consider that a public-school employer often lacks a budget to pay, or even legal authority to incur, an expense beyond the incidental expense of determining employees’ elected contributions and remitting them to the § 403(b) insurers and custodians. This is not advice to anyone.

Maybe in a budget-reconciliation bill, perhaps in December 2025, when many expect Congress to deal with some 2017 tax law changes that otherwise would expire.

RatherBeGolfing, thank you for adding some helpful information. About the IRS telling document sponsors to remove text about a party to a civil union or a domestic partnership, was that only for provisions designed to meet a tax law condition that refers to a spouse? Or, did the IRS tell document sponsors to delete references to a domestic partner even for an optional provision that would not interfere with a tax-qualification condition? For example, for a participant who made no beneficiary designation and had no spouse, a plan might put a domestic partner somewhere in the order of default beneficiaries (and an adoption agreement might give a user a choice to specify that or a different default-beneficiary provision). Did the IRS object to a provision like that?

Read carefully all documents governing the plan AND all agreements between the worksite employer and the professional employer to discern whether they agreed that the worksite employer is responsible to deliver the summary annual report (and perhaps some other plan-administrator communications). This is not advice to anyone.

Here’s the statute, California Secure Choice Retirement Savings Trust Act, compiled as California Government Code §§ 100000 to 100050. https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=GOV&division=&title=21.&part=&chapter=&article= Section 100032(h)(1): “An employer that provides an employer-sponsored retirement plan, such as a defined benefit plan or a 401(k), Simplified Employee Pension (SEP) plan, or Savings Incentive Match Plan for Employees (SIMPLE) plan, or that offers an automatic enrollment payroll deduction IRA, shall be exempt from the requirements of the CalSavers Retirement Savings Program, if the plan or IRA qualifies for favorable federal income tax treatment under the federal Internal Revenue Code.” To interpret that paragraph, the board’s regulations state: “Tax-Qualified Retirement Plan” means a retirement plan that qualifies for favorable federal income tax treatment under Sections 401(a), 401(k), 403(a), 403(b), 408(k), or 408(p) of Title 26 of the United States Code. An employer-provided payroll deduction IRA program that does not provide for automatic enrollment is not a Tax-Qualified Retirement Plan.” Also: “Exempt Employer” means an Employer that . . . (ii) maintains or contributes to a Tax-Qualified Retirement Plan[.] https://www.treasurer.ca.gov/calsavers/regulations/final-regulations.pdf How confident are you that the plan, despite exclusions, meets all Internal Revenue Code conditions for tax-qualified treatment? This is not advice to anyone.

Congress seems unlikely this week to legislate anything for retirement plans. In the 1,547 pages of what might become this week’s appropriations, here’s what so far I see: 555 pages with provisions that affect health care or health plans: division E—the “Health Improvements, Extenders, and Reauthorizations Act”. That includes additions to, and amendments of, the Employee Retirement Income Security Act of 1974. Those include new and amended text in ERISA § 408(b)(2), some of which might affect how that prohibited-transaction exemption applies regarding retirement plans. Only eight amendments of the Internal Revenue Code, none of which refers to a retirement plan (unless a retirement plan engages a pharmacy benefit manager). An amendment of the Defense Production Act of 1950 would prohibit, and impose penalties on, a covered national security transaction in a prohibited technology. https://docs.house.gov/billsthisweek/20241216/CR.pdf The next government-shutdown threat would be March 14, 2025.

A rule to interpret ERISA § 3’s definition of an employee-benefit plan treats a plan as outside that defined term if the plan covers no employee. That rule includes these interpretations: “An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse[.]” “A partner in a partnership and his or her spouse shall not be deemed to be employees with respect to the partnership.” 29 C.F.R. § 2510.3-3(c) https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-3#p-2510.3-3(c) For better or for worse, law sets up categories and classifications. For example, spouse or not; employee or not. IF the worker who is not the owner is not the owner’s spouse, one might be reluctant to assume that a plan that covers the worker is not an employee-benefit plan. While recognizing that TPAs that serve regarding retirement plans provide lots of legal advice, advising about whether two people are (or are not) spouses might be beyond a TPA’s scope. Likewise, advice about whether a person has an ownership interest because of the person’s relationship to a title-holding owner might be beyond a TPA’s scope. While the person who or that wants to consider not getting fidelity-bond insurance could consider getting a lawyer’s advice about these and related questions, a fee for that advice might be more expensive than the price of the insurance. Also, a retirement plan’s fiduciary might consider not treating the two people as spouses for not-ERISA purposes if either person files one’s Federal income tax return as a single person. This is not advice to anyone.

The recently released Fall 2024 regulatory agenda has no mention of a project on Internal Revenue Code § 401(k)(14)(C) or SECURE 2022 § 312. https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPubId=202410&showStage=active&agencyCd=1500 That’s another reason I suggest an opportunity for third-party administrators and recordkeepers—and the plan sponsors and plan administrator that follow those service providers—to form an interpretation, perhaps with some reasoned suspicion to restrain how much a participant can get with a false certification.

If a service credit or allocation regarding XYZ Inc for 2023 is mistaken: Does anything restrict counting 2024 if XYZ Inc. and ABC Inc. this month make documents providing for XYZ Inc.’s participation in ABC Inc.’s plan beginning with January 1, 2024?