Peter Gulia

The Form 5330 Instructions for Schedule C line 5 include this: “For purposes of section 4975(d)(23), the term ‘correct’ means to: Undo the transaction to the extent possible and in all cases to make good to the plan or affected account any losses resulting from the transaction, and Restore to the plan or affected account any profits made through the use of assets of the plan.” https://www.irs.gov/pub/irs-pdf/i5330.pdf I’d say the prohibited transaction is not corrected until the plan’s trust has not only the late participant contributions but also the interest or investment gains the plan would have obtained had the contributions been promptly invested or, if greater, the interest or investment gains the employer made by having the plan’s money.

From the instruction quoted above: “If you are required to file 10 or more information returns during the year, you must e-file.” Consider exactly which person is the “you” in that sentence. Also: “The 10-or-more requirement does not apply separately to each type of form. For example, if you must file four Forms 1098 and six Forms 1099-A, you must e-file.” If the quoted instruction fairly describes the law, the measure is not about whether one files ten 1099-Rs; it’s about whether one files ten information returns, counting several kinds. Consider that it might be impractical for a TPA to get from an employer or a plan’s administrator the total number of information returns it files. Or, that the count varies from year to year, with some years fewer than ten but other years with at least ten.

You should be justly proud of the great community you created.

Retirement plans, of several kinds, have a range of provisions about whether (and the extent to which) severance pay counts in compensation from which a participant might make an elective deferral, or in compensation on which an allocation of a matching or nonelective contribution is determined. As BenefitsLink neighbors say, RTFD—Read The Fabulous Document. Also, if your query relates to an end or discontinuance of a plan, consider how a plan amendment might affect provisions about counting or not counting severance pay.

The Form 5500 Instructions tell a plan’s administrator to report a late contribution until the first plan-accounting year that begins “after the violation has been fully corrected by payment of the late contributions and reimbursement of the plan for lost earnings or profits.” The Instructions call for reporting even if the late contribution and the correction happen in the same plan year.

I’ll start with one of my observations about how a fiduciary might evaluate the choice: If an individual-account retirement plan provides its retirement (or death) distribution only as a single sum (with no periodic payment allowed), the value to the plan of putting in EBSA’s database the names and TINs of not-yet-paid participants 65 and older might be outweighed by the expense of collecting information and submitting it to EBSA’s database. Yet, a loyal and prudent fiduciary ought to do some cost-benefit evaluation of the opportunity.

Some TPAs recommend setting an arrangement’s initial (and only) default contribution percentage at 10%. Their reasoning is avoiding escalations. Your hope that fewer inattentive participants fall into a deferral one regrets might help a little. Setting the contribution percentage is a plan-design, not fiduciary, decision. This is not advice to anyone.

Recently, the US Labor department announced a voluntary information collection request. It invites a retirement plan’s administrator to furnish the name and taxpayer identification number of each separated vested participant owed a benefit (or whose beneficiary is owed a benefit) and is (or would be) 65 or older. See column R on page 91801 https://www.govinfo.gov/content/pkg/FR-2024-11-20/pdf/2024-27098.pdf. Should a plan’s administrator voluntarily do this? If a plan’s administrator evaluates whether to do this, what should such a fiduciary consider?

JA, based on the forum you posted in, is this a plan of unfunded deferred compensation for selected executives?

Before considering any person’s or estate’s disclaimer, first discern which person or estate is the IRA’s default beneficiary (if no named primary or contingent beneficiary survives); it might be the IRA holder’s, not the child’s, estate. Read carefully the IRA’s governing documents. If one is considering a disclaimer, read carefully the IRA’s governing documents to discern whether the IRA allows a disclaimer, and what conditions a disclaimer must meet for the IRA trustee or custodian to accept and follow a disclaimer. If an IRA permits a beneficiary to disclaim a plan benefit, whether that power can be exercised only by the beneficiary personally or by the beneficiary’s executor, personal representative, guardian, or attorney-in-fact as a fiduciary might depend on the IRA’s text, including whether meeting Internal Revenue Code § 2518 conditions is a condition for the IRA trustee’s or custodian’s acceptance of a disclaimer, whether the IRA sets further conditions, and which State’s law governs the IRA. Unless an IRA states that a power to disclaim can be exercised by an executor, personal representative, guardian, or attorney-in-fact, it might be that only the beneficiary personally may exercise the power to disclaim. See, by analogy, R. Scott Nickel, as Plan Benefit Adm’r of the Thrift Plan of Phillips Petroleum Co. v. Estate of Lurline Estes, 122 F.3d 294, 21 Empl. Benefits Cas. (BL) 1762, Pension Plan Guide (CCH) ¶ 23937U (5th Cir. Sept. 22, 1997). If the IRA permits a disclaimer and does not preclude a fiduciary’s disclaimer, consider State law. Don’t assume the applicable State law is the law of the relevant decedent’s domicile. An IRA’s choice-of-law provision might govern more than you imagine. And States’ laws vary. Even if a fiduciary has power under applicable State law to make a disclaimer, such a disclaimer might not be a qualified disclaimer for Federal tax purposes. Compare, for example, IRS Letter Rulings 2000-13-041 (Jan. 4, 2000), 96-15-043 (Jan. 17, 1996), 96-09-052 (Dec. 7, 1995) (disclaimer recognized) with, for example, IRS Letter Ruling 94-37-042 (June 22, 1994) (disclaimer not recognized); see also Rev. Rul. 90-110, 1990-2 C.B. 209 (Dec. 24, 1990) (disclaimer by trustee not a qualified disclaimer). This information is not advice to anyone. As always, lawyer-up. BenefitsLink neighbors, do you have any practical experiences with what an IRA custodian allows or refuses?

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.