Peter Gulia

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.

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.