Peter Gulia

Consider also circumstances in which an administrator may or must not rely on a participant’s self-certification that she is a qualified individual.

Paul I mentions an important reminder: It’s now no more than 23 business days before December 2. (It might be fewer if an employer or its service provider treats Election Day or Veterans Day as a holiday. Veterans Day is a holiday for Federal and many State and local government employees, and for businesses that follow Federal, rather than New York Stock Exchange, holidays.) Have recordkeepers yet programmed the computers for which people (maybe including LTPT employees) to send an automatic-contribution arrangement’s opt-out notice to? Or, does a recordkeeper leave it to its customer, an employer/administrator, to decide which people to send a notice to? And if a recordkeeper leaves it to the plan’s administrator, does that practically mean its third-party administrator?

While recognizing your aim of not putting too much information on a public website, it might help if you can, without risking privacy, mention: Is the retirement plan buying? Is the retirement plan selling? Is the company buying? Is the company selling? Is the buyer not a party-in-interest regarding the retirement plan? Is the seller not a party-in-interest regarding the retirement plan? Is the real property employer real property? Is the search for a lawyer to advise the buyer? Or a lawyer to advise the seller? Or a lawyer to advise the plan’s fiduciary, even if the plan is neither the buyer nor the seller? Which expertise does the advisee seek? Planning for ERISA-prudent decision-making? Or experience in real-property transactions? Or a firm with lawyers in both practices?

For what the Labor department describes as a safe-harbor rule regarding “a plan with fewer than 100 participants at the beginning of the plan year”, it’s “the 7th business day following [a measured-from date].” 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 those who use an invented presumption of one, two, or three days, one imagines it might make sense to count it in workdays, business days, or banking days. This is not advice to anyone.

Some plans’ administrators might distinguish between employees who become LTPT-eligible on or after January 1, 2025 (or the later effective date of the new cash-or-deferred arrangement) and those who became LTPT-eligible before 2025 (or the later effective date of the new cash-or-deferred arrangement). Consider this BenefitsLink discussion: https://benefitslink.com/boards/topic/71407-auto-enrollment-for-new-plans-auto-enroll-everyone-or-new-hires/. American Retirement Association’s February 20, 2024 letter to the Internal Revenue Service “recommends” the IRS “Confirm that the mandatory [eligible automatic-contribution arrangement] applies only for employees who are enrolled in the plan on or after the plan becomes subject to the [I.R.C. § 414A] mandate.” And: “ARA recommends the Service provide that the automatic enrollment need only apply to participants who enter the plan after the effective date of the plan’s EACA provision in order to provide small employers with the maximum flexibility to comply with the mandate.” https://araadvocacy.org/wp-content/uploads/2024/02/ARA-Comment-re-Notice-2024-02-SECURE-2.0-Grab-Bag.pdf. I have not formed any interpretation of Internal Revenue Code § 414A. (I have no client with a cash-or-deferred arrangement not established before December 29, 2022.) Perhaps some customary practices might emerge from whether recordkeepers’ and third-party administrators’ software tools can identify for an automatic-contribution arrangement those who became eligible before the cash-or-deferred arrangement began or begins.

Has the bank or trust company told the employer the reason for not opening an account? Might the reason relate to a mismatch about a Social Security Number or Individual Taxpayer Identification Number?

In an Act of Congress revising Federal tax law, especially legislation enacted under a budget-reconciliation or appropriations procedure, an amount or other measure might relate to what the legislators sought in the Joint Committee on Taxation’s and Congressional Budget Office’s scoring of the legislation’s revenue, expenditure, and other budget effects. For example, JCT’s December 22, 2022 estimates on the Senate-passed Consolidated Appropriations Act show the disaster provisions’ revenue loss as $1.981 billion for fiscal years 2023-2032.

Consider also that a lawyer who has a right to practice law in Texas or California might lack a right to practice law in the Republic of the Philippines.

Two further thoughts: Don’t assume a multiple-employer plan allows a spin-off; some might not. When an employer or service recipient considers a pooled employer plan, association retirement plan, professional employer organization’s MEP, or other multiple-employer plan, recognize that one might become discontent with the arrangements; and evaluate the exit rights before signing the participation agreement.

I have not researched the wage-reporting and tax-reporting questions. (No client has done a transfer of the kind described above.) Some sources an employer/obligor or its lawyer or other tax practitioner might consider include: Internal Revenue Code of 1986 § 457 http://uscode.house.gov/view.xhtml?req=(title:26%20section:457%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section457)&f=treesort&edition=prelim&num=0&jumpTo=true 26 C.F.R. § 1.457-10(c) https://www.ecfr.gov/current/title-26/part-1/section-1.457-10#p-1.457-10(c) I.R.C. (26 U.S.C.) § 1041 http://uscode.house.gov/view.xhtml?req=(title:26%20section:1041%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section1041)&f=treesort&edition=prelim&num=0&jumpTo=true 26 C.F.R. § 1.1041-1T https://www.ecfr.gov/current/title-26/section-1.1041-1T; and because tax law sometimes requires reporting even when something is not yet income: Form W-2 Instructions https://www.irs.gov/pub/irs-pdf/iw2w3.pdf Form 1099-MISC Instructions https://www.irs.gov/instructions/i1099mec. A lawyer, certified public accountant, enrolled agent, or other practitioner who follows the Circular 230 rules for practice before the Internal Revenue Service could not provide advice until she has read (at least) the plan’s documents and the divorce documents, even if there is no distinct order beyond the divorce and the divorcing parties’ settlement agreement. This is not advice to anyone.

The notice was published in this week’s Internal Revenue Bulletin. So: Additional Guidance with Respect to Long-Term, Part-Time Employees, Including Guidance Regarding Application of Section 403(b)(12) to Long-Term, Part-Time Employees under Section 403(b) Plans, Notice 2024-73, 2024-43 I.R.B. 1007 (Oct. 21, 2024), https://www.irs.gov/pub/irs-irbs/irb24-43.pdf.

For two of several interpretations of a before-ERISA funding condition, consider: IRS Publication 778 (Feb. 1972), part 2(b); IRS General Counsel Memo. 36813 (Aug. 16, 1976). If a church plan has not elected to be ERISA-governed, ERISA’s remedies for causing an employer to fund a pension plan do not apply. Whatever tax law condition might apply might not motivate an employer to fund a plan. If a plan does not meet a condition for I.R.C. § 401(a) treatment, the IRS could apply Federal tax laws as if a plan is not a qualified plan. But the IRS might be reluctant to do so: Initiating an examination that relates to a church requires extra supervisory and executive approvals within the IRS. Developing proof that a plan is insufficiently funded such that it does not meet a condition of § 401(a) treatment under the Internal Revenue Code of 1954 as amended through September 1, 1974 involves unusual and burdensome work. Denying an employer an income tax deduction for contributions to a plan might have little or no practical effect on a church. Treating a plan as not tax-qualified might burden employees, retirees, and beneficiaries.

Even for a plan that is none of a governmental plan, a church plan, or an excess-benefit plan (and meets no other exception from ERISA’s title I), ERISA § 206 [29 U.S.C. § 1056] (which includes ERISA’s provision for following a qualified domestic relations order) does not govern “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 201(2), 29 U.S.C. § 1051(2). Yet, if the plan is ERISA-governed (for parts 1 and 5 of subtitle B of title I), ERISA supersedes State law. ERISA § 514(a), 29 U.S.C. § 1144(a). A nongovernmental tax-exempt organization’s unfunded deferred compensation for select-group executives need not provide for recognizing a State’s domestic-relations order, and many do not. But even with no Federal law command, an organization administering its deferred compensation obligations might voluntarily recognize a domestic-relations order if the order satisfies the obligor. For those plans regarding which an organization recognizes an order, some require more detailed conditions than ERISA § 206(d)(3) sets for a QDRO, but some tolerate a less detailed order. Some might rely on a court’s acceptance of the divorcing parties’ settlement agreement, even without a separate order. (Some might be surprised by how often an organization acts contrary to its lawyer’s advice, or without any lawyer’s advice.) A nongovernmental tax-exempt organization might allow a transfer between divorcing spouses if the organization finds its obligation to the original participant is satisfied or released. This is not advice to anyone.

About an employer’s W-2, 1099-MISC, or other wage or tax-information reporting and withholding (if any might be or become needed), consider that there might be no service provider obligated to provide a service regarding the employer’s obligations for deferred wages. Or if a service provider is engaged to tax-report payments of deferred wages, consider the scope and conditions of the service engaged. Those might leave with the employer anything that did not involve a payment processed through the service provider’s system. This is not advice to anyone.

At least for an ERISA-governed employee-benefit plan, a plan’s governing documents might state provisions about what’s recognized or precluded as a plan amendment. Following those provisions, many kinds of writings might amend (or amend again) an employee-benefit plan. To show differing ends of a spectrum, imagine “the” plan document states this: “The Plan Sponsor may amend the Plan by any writing that is under relevant law an act of the Plan Sponsor.” Under a Supreme Court precedent, that’s enough to state an ERISA § 402(b)(3) plan-amendment procedure. Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 18 Empl. Benefits Cas. (BL) 2841 (Mar. 6, 1995) (by O’Connor, J. for a unanimous Court) (Stating as little as “[t]he Company” may amend the plan is enough to meet ERISA § 402(b)(3)’s two requirements—that a plan “provide a procedure for amending [the] plan, and [a procedure] for identifying the persons who have authority to amend the plan[.]”), available at https://tile.loc.gov/storage-services/service/ll/usrep/usrep514/usrep514073/usrep514073.pdf. Or imagine a custom-drafted plan states this: “Only the Plan Sponsor can amend the Plan, and can do so only by a writing that (i) includes a caption that describes the writing as an amendment of this Plan; (ii) is signed by the Plan Sponsor’s duly appointed and then currently serving president; and (iii) states on that writing, not as an attachment, that signer’s acknowledgment of that writing in the physical presence of a Notary Public.” Many plans, perhaps especially those stated using a recordkeeper’s or third-party administrator’s IRS-preapproved document, likely are somewhat closer to the first illustration. As QDROphile suggests, an answer might turn on reading a whole series of writings that might state or amend the plan. And as QDROphile reminds us, the law of corporations (or other business organizations), agency, and contracts all could be relevant to discern what is or isn’t a plan amendment. (The underscoring is not mine.)

The 404a-5 rule distinguishes plan-related information [paragraph (c)] and investment-related information [paragraph (d)]. If a plan has no designated investment alternative, that might make unnecessary much of the investment-related information. “The term ‘designated investment alternative’ shall not include ‘brokerage windows,’ ‘self-directed brokerage accounts,’ or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan.” 29 C.F.R. § 2550.404a-5(h)(4). Yet, a 404a-5 disclosure would include: “[a] description of any ‘brokerage windows,’ ‘self-directed brokerage accounts,’ or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan.” 29 C.F.R. 2550.404a-5(c)(1)(i)(F). “fees for brokerage windows[.]” 29 C.F.R. 2550.404a-5(c)(3)(i)(A). 29 C.F.R. § 2550.404a-5 https://www.ecfr.gov/current/title-29/section-2550.404a-5 Consider whether the plan’s administrator might engage its third-party administrator to provide services to assemble a 404a-5 disclosure that comprises mostly plan-related information. This is not advice to anyone.

Think carefully about how to write the releases.

A sensible way to interpret § 1563(e)(3)’s reference to a trust might be to recognize that an IRA custodial account is a trust substitute. Internal Revenue Code § 401(f) treats a bank’s or trust company’s custodial account as a qualified trust if “the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under [§ 401][.]” Likewise, § 408(h) treats a bank’s or trust company’s IRA custodial account as an IRA trust. http://uscode.house.gov/view.xhtml?req=(title:26%20section:408%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section408)&f=treesort&edition=prelim&num=0&jumpTo=true

Without doing the whole analysis for your questions: Subparagraph 1563(e)(3)(C) excuses from paragraph 1563(e)(3) only “stock owned by any employees’ trust described in section 401(a) which is exempt from tax under section 501(a).” If one looks only at that tiny bit of the Internal Revenue Code, might one infer that stock owned by something that is not a § 401(a) plan’s trust does not get § 1563(e)(3)(C)’s excuse, leaving § 1563(e)(3)(A)-(B) to apply as they otherwise might apply? http://uscode.house.gov/view.xhtml?req=(title:26%20section:1563%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section1563)&f=treesort&edition=prelim&num=0&jumpTo=true

About the point fmsinc mentions, here’s a Q&A from one of my Wolters Kluwer treatises: Must a beneficiary designation express beneficiaries’ shares in whole percentages? Yes, a beneficiary designation must express beneficiaries’ shares in whole percentages if the plan or a plan-administration procedure, which might include a beneficiary-designation form, so provides. Example. The plan’s beneficiary-designation form’s instructions stated: “The Allocation % must be whole percentages.” After her divorce, the participant, seeking to specify new beneficiaries, submitted a form that named her three siblings and specified “33 1/3%” for each. The plan’s administrator rejected that form and treated it as having no effect. After the participant’s death, the plan paid almost $600,000 to the previously designated beneficiary, the participant’s former spouse. Gelschus v. Hogen, 47 F.4th 679 (8th Cir. 2022). Even if a plan’s administrator has discretion to accept a not-in-good-order designation, rejecting a participant’s attempted designation might be no breach because a fiduciary administers a plan according to the plan’s documents. Further, that a plan’s whole-percentages provision frustrates a participant’s clear intent does not undo or relax the provision. See Gelschus v. Hogen, 47 F.4th 679 (8th Cir. 2022) (applying the plan-documents rule regarding a plan governed by part 4 of subtitle B of title I of ERISA). Likewise, some plans treat as having no effect an attempted beneficiary designation with shares that do not sum to 100 percent. Practice Pointer. Some plans’ documents expressly provide ordering rules, or expressly grant an administrator discretion, to adjust a beneficiary designation not expressed in whole percentages or that does not sum to 100 percent. But nothing requires a plan to provide this, and a court might defer to a plan’s provisions or a plan administrator’s procedure. (As the publication warns, no one may rely on this.)

For some courts’ decisions about whether a health plan’s participant lacks Article III constitutional standing to pursue a claim on a fiduciary’s breach of its responsibility to the plan, see, for example: Cox v. Blue Cross Blue Shield of Mich., 216 F. Supp. 3d 820, 62 Empl. Benefits Cas. (BL) 2465, 2016 BL 360306 at *4-5 (E.D. Mich. Oct. 28, 2016) (“Here, the fourth amended complaint does not clearly allege facts that Plaintiffs suffered any particularized and concrete injuries as a result of BCBSM’s alleged charging of hidden fees, such that they were affected ‘in a personal and individual way.’ For instance, there are no allegations that the amount of Plaintiffs’ contributions to their plans were affected in any way by the hidden fees, that Plaintiffs themselves paid the fees to BCBSM, that Plaintiffs were denied or received fewer benefits because of the fees, or that the plans passed on to Plaintiffs any increase in the fees. . . . . At most, it is Plaintiffs’ healthcare plans that suffered concrete and particularized injuries when they paid BCBSM the hidden fees. This is not concrete or particularized harm to Plaintiffs. And even if returning funds to the plans might, in some unspecified way, benefit Plaintiffs, that would not establish that Plaintiffs had been harmed by BCBSM—any more than a windfall establishes a preceding injury, even though the windfall would surely benefit the recipient.”). Kauffman v. General Elec. Co., No. 14-CV-1358, 2017 BL 204157 (E.D. Wis. June 15, 2017) (finding that plaintiffs had not enough alleged enough facts to show how a fiduciary’s supposedly inaccurate or misleading communications—about an intent to continue a health benefit—harmed the plaintiffs for “concrete injury” Article III standing) (“[P]laintiffs argue that GE deprived them of wages or other compensation that they may have sought or received if they’d understood that the benefits they expected to receive under the plans were not as secure as GE said they were, but plaintiffs have not submitted adequate evidence of any such injury to themselves or anyone else.”). Scott v. UnitedHealth Group, Inc., No. 20‐CV‐1570 (PJS/BRT) (D. Minn. May 20, 2021) (applying Thole, and finding no Article III standing; the plaintiffs had alleged injury to the plan, not to themselves). Winsor v. Sequoia Benefits & Ins. Servs., LLC, 62 F.4th 517, 524, 528 (9th Cir. Mar 8, 2023) (“Plaintiffs have not alleged that RingCentral has changed or would change employee contribution rates based on Sequoia’s alleged breaches of fiduciary duty, or that employee contribution rates are tied to overall premiums.”) (“Here, plaintiffs have not established that they have some equitable interest in plan funds {the self-insured health plan is unfunded} that the Thole plaintiffs lacked, or that the comparison to trust law can have purchase here when it did not in Thole.”). Knudsen v. MetLife Group, Inc., No. 2:23-cv-00426 (WJM), 2023 U.S. Dist. LEXIS 123293, 2023 WL 4580406 (D.N.J. July 18, 2023) (complaint dismissed because the plaintiffs lack Article III constitutional standing) (“Plaintiffs do not contend that they did not receive their promised benefits, Instead, Plaintiffs allege that they paid excessive out-of-pocket costs, which in the context of this kind of defined[-]benefit-type {health and welfare benefits} Plan, is not an individual injury.”), affirmed, No. 23-2420, --- F.4th --- (3d Cir. Sept. 25, 2024) (“Given the standing theory that Plaintiffs advance, their Complaint must include nonspeculative allegations, that if proven, would establish that they have or will pay more in premiums, or other out-of-pocket costs, as a result of MetLife not applying the $65 million in rebates to the Plan. . . . . To do so, Plaintiffs’ ‘pleadings must be something more than an ingenious academic exercise in the conceivable.’”). In my view, some of these cases likely were wrongly decided. But judges and lawyers might read them as consistent with a Supreme Court opinion: Thole v. U.S. Bank N.A., 590 U.S. 538 (June 1, 2020) (A defined-benefit pension plan’s retiree who does not show a palpable risk that the plan will become unable to pay her promised benefit lacks constitutional standing to sue in courts of the United States.).

If it is obvious that all steps are about the employer dealing with the employer’s money with no risk of loss or harm to the employee-benefit plan, someone acting for a self-funded (that is, unfunded) health plan’s administrator might approve the settlements without independence from the plan’s other fiduciaries who might have breached. Perhaps the plan’s release of its rights to reimbursement from the participant might not meaningfully release much of anything if the employer has paid in and satisfied the amount the plan would have obtained from the participant. The employer might pay the amount into the plan’s bank account before the plan or its fiduciary signs the agreement that releases the plan’s right to reimbursement. Likewise, there might be less need for a lawyer advising the plan to be independent of the fiduciaries and the employer if the plan’s legal and equitable rights and remedies have been satisfied. (A lawyer might consider whether each of the plan and the employer waives a professional-conduct conflict of the lawyer advising, and maybe acting for, both the employer and the plan. But again, there might be no real economic consequence the plan bears.) There would still be a need for some lawyering because the employer that indemnifies the plan’s administrator and other fiduciaries wants good releases of the participant’s claims, including a claim grounded on the administrator’s failure to furnish documents. And while a lawyer (who might be inside counsel) is on task, she might write the memo to explain that the plan’s release of reimbursement from the participant was not a giveaway because the employer satisfied the participant’s obligation. This is not advice to anyone.

If this § 403(b) retirement plan is an individual-account (defined-contribution) plan, why would a participant’s or beneficiary’s account be less than 100% funded?

Without reading the health plan (including its provisions for the plan’s or the employer’s equitable liens and other recovery rights), the employer/administrator’s contract with its third-party administrator, and the stop-loss insurance contract (if any), it’s hard to know what set of compromises, satisfactions, and releases might make sense. If anyone would release or compromise a claim that belongs to the plan: Consider whether the analysis and decision-making must or should be done by a fiduciary who is independent of those who breached a duty to furnish documents and those who might have breached a duty to oversee or monitor other fiduciaries. Consider whether advice must or should be from a lawyer who advises only the plan and is sufficiently independent of the possibly breaching fiduciaries. Consider whether a settlement needs prohibited-transaction relief, whether under PTE 2003-39 or in some other way. If the plan might have claims against the possibly breaching fiduciaries, the employer with its counsel might evaluate whether the conduct was within or beyond the standard (usually, in or not opposed to the employer’s interests) for the employer’s indemnification provided to its executive and employees asked to serve as the plan’s fiduciaries. Yet, consider too whether the employer’s obligation to fund the self-funded health plan washes the plan’s loss that otherwise might be a subject of the plan’s claim against a breaching fiduciary. These points might seem odd if the employer provides most of the plan’s funding. But it’s useful to analyze all the roles and relations, including recognizing the health plan as a distinct person, even if that results in finding that the employer exclusively or primarily is dealing with the employer’s money. It’s much better to have a written analysis showing the plan suffers no loss or harm because the employer is obligated (and has financial capacity) to meet everything that could have been recovered from the participant. This is not advice to anyone. Class Exemption to release claims 2010-14381.pdf

Mercer’s recent writeup of the anticipated indexing (helpfully furnished by BenefitsLink’s Bakers) includes an explanation that the $11,250 amount assumes Congress’s technical correction or an Internal Revenue Service interpretation.