Peter Gulia

I have not considered whether a church is or isn’t an eligible employer within the meaning of Internal Revenue Code of 1986 § 457(e)(1)(B). I have not advised a church about an unfunded deferred compensation plan. So, I have not thought about your income tax questions.

But even if that pledge is not a prohibited transaction, whether a retirement plan should allow the corporation to do the dealings described involves a distinct set of fiduciary-responsibility questions. Each fiduciary of the retirement plan should lawyer-up. And each of them might prefer a lawyer free from others’ interests.

Lou81, thank you for opening some thought-provoking topics. MoJo, thank you for sharing useful further information. Do you think there’s room for a recordkeeper to design a service for hardship claims that deliberately blends concepts from the 2017 guidance and the 2022 statute? For example: A plan’s “first-two” hardship claim form, whether paper or electronic, would state the § 401(k)(14)(C) certification. A participant would not be required, nor permitted, to submit supporting documents for the first two hardship claims in a year. A plan’s administrator could instruct the recordkeeper to treat such a claim as approved, subject only to a good-order review that the form was completed and signed. A hardship claim after the year’s first two would use a differently designed claim form and go to an evaluation—whether outsourced to the recordkeeper using a sufficiently nondiscretionary method the plan’s administrator instructed, or by the plan’s administrator. The knowledge standard in § 401(k)(14)(C) is actual knowledge. If one worries that the IRS might assert that § 401(k)(14)(C) actual knowledge includes knowledge of information that would lead a reasonable plan administrator facing the same or similar circumstances to inquire further, might multiple claims not set up such a duty of inquiry until the third claim? One can read the IRS’s 2017 guidance as suggesting that up to two hardships in a year (including, but not only, two semesters’ tuition payments, or two needs for medical care not 100% met by health coverage) is within a range for which one need not be on alert to suspect a false certification. MoJo and BenefitsLink neighbors, what do you think?

Consider also whether a company that has no employee prefers a plan governed by State law or an ERISA-governed plan.

I just learned from Empower that the recently announced service is not the § 401(k)(14)(C) self-certification, but rather the “summary” method the IRS set in February 23, 2017 guidance to the IRS’s examiners. Under that method, calling for a fuller evaluation of a hardship claim after the first two in a year is logically consistent with that IRS guidance.

Lou81, thank you for helping me learn about what Empower offers. It seems consistent with my point that a recordkeeper likely prefers its customers to fall in with one of the service regimes and available choices the recordkeeper designed. Conversely, a customer might need purchasing power to get a recordkeeper to apply a customer-specific service instruction that’s not one of the programmed choices.

The plan’s administrator ought to Read The Fabulous Document. First, a plan might not provide for a beneficiary to name a further beneficiary. A plan might provide that only a participant may name a beneficiary. On a participant’s beneficiary’s death (even if after the participant’s death), a plan might provide that a remaining benefit goes to the contingent beneficiaries the participant named, if any then is living or in existence, and otherwise to a default the plan specifies in relation to the participant. IF a beneficiary may name a further beneficiary, it’s unusual for a plan to restrict the kinds of persons who or that one may name as a beneficiary. In my experience, some participants name a charity for some or all of a participant’s death benefit. (I have no experience with an employment-based plan that allows a beneficiary to name a further beneficiary.)

Before considering whether the plan’s sponsor or administrator may make such a change, why would an employer want to? The statute provides: “The Secretary [of the Treasury] MAY provide by regulations for exceptions to the rule of the preceding sentence [permitting a plan’s administrator to rely on the employee’s written certification] in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification[.]” I.R.C. (26 U.S.C.) § 401(k)(14)(C). The Treasury department has not yet published (or even proposed) any such rule or regulation. Even if one interprets the statute alone to find that an administrator does not “rely” on a certification if the administrator has actual knowledge to the contrary, merely suspecting a claimant submitted a false certification is not the same thing as having actual knowledge that the certification is false. Further, even if a plan’s sponsor or administrator might invent its dividing line between participants allowed to self-certify and others regarding whom the administrator evaluates a claim without relying on a certification, how likely is it that Voya’s or another recordkeeper’s computers would apply such a customer-specific service instruction? Does an employer that serves as its plan’s administrator want to increase its workload? Consider whether it’s better for an employer not to have too much information about its employee.

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 Also, one might research the State’s income tax law. A State’s law might provide (or be interpreted to provide) an exclusion more generous than Federal law commands.

What Artie M describes likely, depending on the governing documents’ provisions, could fit within my explanation. An administrator might look to a State’s law, the Uniform Probate Code or another uniform or model law the Uniform Law Commission recommends, or common law as an aid in interpreting the plan.

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.