Peter Gulia

Based on your experience and your recent observations, what percentage of retirement plans use a balance-forward method to allocate participants’ individual accounts?

I’ve never needed to think about funding formulas regarding a cash-balance pension plan. If the value of the gold is meaningfully down as at a year’s close, could that increase the employer’s funding obligation?

That an employer’s obligation to contribute to a multiemployer pension plan ends in circumstances not of the employer’s choosing is not by itself an excuse from withdrawal liability. Your client needs to lawyer-up, yesterday.

Consider also that what Congress directed the Treasury/IRS to do might not be published before 2024 ends.

Patty, thank you for your useful reminder. Many courts would say: An expression of some Members of Congress, even if they are four ranking Members, does not state the intent of the Congress. Something written after the enactment does not state what was the intent of the Congress when the Members voted. A technical-corrections “discussion draft” has no effect until the Congress enacts it as law (which seems unlikely in the 118th Congress). If nothing is done this year, there’s another four Congresses (eight years) before the ambiguity might result in an involuntary distribution that might have been unnecessary.

A disclosure under ERISA § 408(b)(2) is a service provider’s communication to the fiduciary responsible for deciding whether to engage or continue the service provider. The fiduciary considers the information in the fiduciary’s evaluation of whether the service provider’s compensation is reasonable. Even if a service provider might not be a covered service provider because it expects compensation less than $1,000, could it be simpler to do the disclosure anyhow? Don’t you want a “paper trail” showing the fiduciary approved, at least impliedly by nonobjection, your compensation? Further, consider that the rule’s text might not measure the less-than-$1,000 by a year (a word that nowhere appears in the rule). Rather, it is what the service provider expects “pursuant to the contract or arrangement[.]” 29 C.F.R. § 2550.408b-2(c)(1)(iii) https://www.ecfr.gov/current/title-29/part-2550/section-2550.408b-2#p-2550.408b-2(c)(1)(iii) If your service agreement, instead of only a one-year term, continues until either party gives notice to end the agreement and you “reasonably expect” your open agreement might continue for a few years, might the compensation “pursuant to the contract” be $1,000? This is not advice to anyone.

Some aspects of what you ask involve the public and private law of the business organizations involved. A parent, intermediate parent, or even ultimate parent acting for a direct or indirect wholly-owned subsidiary is usual for many business groups. But you (or your client’s inside counsel) would trace through the ownership interests, formation documents, and bylaws, LLC, or partnership agreements to satisfy yourself that A has power to act for B. If the plan sponsor would use IRS-preapproved documents, consider how to make A’s acts and B’s acceptances fit the form of the documents. A service provider’s plan-documents set might impose conditions beyond those applicable public law calls for. I’m unaware of an on-point court decision. Observe that ERISA § 3(5) defines “employer” to include “any person acting directly as an employer, or indirectly in the interest of an employer[.]”

If the business that established the retirement plan no longer does business, is a remaining participant severed from employment? If so, is such a participant entitled to a distribution (even if the plan is not ended)? Has a remaining participant submitted to the plan’s administrator a claim for a retirement distribution?

Thank you, David Rigby and Paul I. For the notice of proposed rulemaking, what to do about the 59ers is one of several open issues. That the notice includes this issue doesn’t mean the Treasury must decide it soon. If Congress amends the statute by December 2032, it might be unnecessary for Treasury to do anything. There’s almost 8½ years, and four Congresses after the current Congress. For those who know the political process, it might make some sense to say a practical sign of Congress’s intent is that a text means what the budget scorers assumed it to mean when they made their report on a bill’s revenue effects. (For those who might be amused, I attach the Joint Committee on Taxation’s report on the “Revenue Effects” of what became SECURE 2022. In that report, the last year of the budget window is FY 2032—that is, October 1, 2031 to September 30, 2032.) But I doubt a Federal judge would find she ought to interpret I.R.C. § 401(a)(9)(C)(v) according to the budget scorers’ assumptions. First, a court might not know what the estimators assumed because it might be impractical for a court to get testimony or other evidence about those facts. And even if one could get useful evidence, the budget scorers’ assumptions about what the text means could have been mistaken. Even if law that governs Congress’s lawmaking procedures calls for Congress to have received (and ostensibly to have considered) a revenue-effects report before voting on a bill, the servants do not dictate to Congress what Congress’s text means. Now that a court no longer defers to, but might be persuaded by, an executive agency’s interpretation, Treasury’s task in making an interpretive rule (if the agency tries to do anything on this 59er issue) ought to seek the best interpretation of the statute, with reasoning that would persuade a court. BenefitsLink neighbors, to resolve § 401(a)(9)(C)(v)’s ambiguity, are there other ideas for interpreting the statute? revenue effects x-21-22.pdf

Internal Revenue Code of 1986 (26 U.S.C.) § 401(a)(9)(C)(v) provides: “(I) In the case of an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73. (II) In the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75.” This morning’s notice of a final rule to interpret § 401(a)(9) reserves how to interpret that ambiguity, and refers to this morning’s notice of proposed rulemaking. Footnote 7 on page 58891, page 58911 (publishing to-be-codified 26 C.F.R. § 1.401(a)(9)–2(b)(2)(v) [Reserved]). In that notice, the Treasury department proposes to set the applicable age for someone born in 1959 as 73. But the notice explains no reason for Treasury’s choice of 73, rather than 75. BenefitsLink neighbors, if it were your job in the Treasury department to choose 73 or 75 (or something else) and to write a reasoning that explains your choice as the best interpretation of the statute, would you choose: 73? 75? 74? And, most important, why? If you could ground your choice on a canon of statutory construction, which would you use? And if not some legal-sounding reasoning, what explanation could you give that still respects the idea that the Treasury department must seek to give effect to Congress’s intent?

Lois Baker’s link now points to this morning’s Federal Register publication.

This morning’s BenefitsLink news points to the prepublication release of the Treasury’s final rule and a further notice of proposed rulemaking [296 pages], interpreting I.R.C. § 401(a)(9). https://benefitslink.com/news/index.cgi

Many recordkeepers and other service providers contract LanguageLine or another interpreter business to be available on demand. LanguageLine, for example, advertises “240+ languages”. https://470255.fs1.hubspotusercontent-na1.net/hubfs/470255/LL-2023/PDFs/US/LLS-On-Demand-Interpretation_Brochure.pdf?hsCtaTracking=f91db663-bef8-4ea8-918e-005264482470%7Cf25e9f13-1bb9-4ae3-a19c-e9d8f5b18aca A service provider might have a customer-service procedure for how one invokes an interpreter service.

Consider warning one’s client that a Form 5500-EZ classification does not change whether ERISA’s title I governs the plan. An ERISA rule treats a proprietor’s or partner’s spouse as not an employee, but does not provide that interpretation regarding a proprietor’s or partner’s child. 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).

If the plan’s administrator interprets the plan to require no more than what’s minimally needed to the § 401(a)(9) tax-qualification condition: I.R.C. § 401(a)(9)(C)(ii)(I) refers to “an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age[.]” I.R.C. § 416(i)(1)(B)(i) defines a 5-percent owner by reference to “the employer”. Likewise, 26 C.F.R. (Treas. Reg.) § 1.416-1/Q&A T-17 refers only to “the employer”. I.R.C. § 416(i)(1)(C) provides: “The rules of subsections (b), (c), and (m) of section 414 shall not apply for purposes of determining ownership in the employer.” Even within a single employer, many practitioners assume a person is a 5-percent owner if she owns (or is treated as owning) more than 5% of any one of the organizations that count together as a single employer. Further, the text “the employer” (rather than “the employers”) does not logically apply to more than one employer. A multiple-employer plan has—after treating together organizations, trades, and businesses that count together as a single employer under § 414(b)-(c)-(m)-(n)-(o)—more than one employer. IRS website FAQs are not guidance. “[I]f an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Only guidance that is published in the [Internal Revenue] Bulletin has precedential value.” IRS, General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulletin and FAQs (updated Apr. 15, 2024), available at https://www.irs.gov/newsroom/general-overview-of-taxpayer-reliance-on-guidance-published-in-the-internal-revenue-bulletin-and-faqs. See also 26 C.F.R. (Treas. Reg.) § 1.6662-4(d), § 1.6664-4(b). Likewise, an IRS Publication is no authority. Adler v. Commissioner of Internal Revenue, 330 F.2d 91, 93, 64-1 U.S. Tax Cas. (CCH) ¶ 9388 (9th Cir. Apr. 2, 1964) (Responding to a taxpayer’s argument that he relied on a statement in the IRS’s Publication 17, the court observed: “Nor can any interpretation by taxpayers of the language used in government pamphlets act as an estoppel against the government, nor change the meaning of taxing statutes[.]”). This is not advice to anyone.

Before considering what Internal Revenue Code sections 401(a)(9) and 416 might call for or tolerate, what provisions are stated by the plan’s governing documents?

Brian Gilmore’s reasoning makes even more sense if one sees that the typical facts of a sale of business assets (dabram09’s query says A sells “Division Z” to B) is that the workers who relate to the assets sold end employment with the seller, and might become employees of the buyer (or its subsidiary or affiliate). This is not advice to anyone.

I have not advised anyone about whether a health plan is grandfathered, and I don’t know the three agencies’ rule (attached below). If the employer is confident that the correct interpretation of the statute supports the employer’s position and the employer has the aptitude, resources, and patience to litigate, a Federal court no longer is bound by precedent to defer to the Labor department’s interpretations, even those made in an Administrative Procedure Act rule. But recognize that courts often voluntarily defer to an executive agency’s interpretations. That has often been so for questions in employee-benefits law. This is not advice to anyone. grandfather group health plans 2020-27498.pdf

Yes, a nonqualified deferred compensation plan might result in a security under one or several Federal laws and State laws. Further, such a security might not be an exempt-from-registration security. For some kinds of obligations, rights, or interests, the analysis often varies with which of the several Federal securities laws one seeks to apply or avoid. About plans for a nongovernmental tax-exempt organization’s employees, 457 Answer Book devotes a whole chapter, Application of Federal Securities Law to 457 Plans, to these questions. Likewise, some treatises on deferred compensation of a nonexempt organization’s employees discuss the topic. For an unfunded plan, the SEC’s staff might see the employer as the security’s issuer. An employer might want its securities lawyers’ written opinion about whether an interest is a security, and about whether the security is exempt from registration. This is not advice to anyone.

Knowing neither the plan’s provisions nor this situation’s facts: Has the remaining beneficiary’s required beginning date arrived? What does the plan’s governing document provide? Are there provisions the plan’s administrator should or may presume will later be added or changed in a remedial amendment and will have retroactive effect? Might the son be an eligible designated beneficiary?

If the independent qualified public accountants delivered an “unmodified” report the IQPA authorizes the plan’s administrator to upload in the Form 5500 report, that the administrator received a management-weaknesses letter (see below) is not itself a distinct disclosure item in Form 5500. What is a management-weaknesses letter? Under certified public accountants’ professional standards, an auditor must communicate to “management”—for an ERISA-governed employee-benefit plan, the plan’s administrator—about “significant deficiencies” and “material weaknesses” in the plan’s internal control. (Internal control is auditor-speak for ways of making sure you do things correctly, and ways of preventing, or at least detecting, what someone does wrong.) If the accountants during their audit of a plan’s financial statements found an internal-control problem, the firm typically sends a “management weaknesses” letter. The letter usually includes at least the deficiencies and weaknesses the CPAs’ professional standards require them to tell you about. Also, the rules permit an auditor to tell “management” about other control-related matters. Why you should read the management-weaknesses letter Instead of just filing away the letter, read it. First, receiving information and failing to consider it likely is a breach of a fiduciary’s duty of care. And one might as well use something the retirement plan or its sponsor already has paid for. Look for a “false positive” When you read the auditor’s letter, use some prudent skepticism yourself. Even a careful auditor obtains only an incomplete, and sometimes incorrect, understanding of a plan’s provisions and operations. A finding about a deficiency or weakness might be wrong. If you have even a slight doubt about a finding, check the source documents and records yourself, or get a careful worker to test the auditor’s finding. If you see a mistake, don’t ignore it. Instead, write an explanation of your plan’s procedure for the task involved. Or if the mistake is that your auditor’s finding is that you lack a control that’s unnecessary for your plan, write a cogent explanation about why the control is unnecessary. Respond to every mistake; doing so can help avoid wasted time and effort in the next audit. Look for procedures that need improvement On some points, you might concur with your auditor’s finding that a procedure or control could be tighter. If so, start work on the needed improvements. Aim not only to design but also to implement the improvements before the next audit engagement begins. (Many auditors use the preceding years’ management-weaknesses letters, and a client’s responses to them, as tools to help evaluate risks the auditor must consider in planning an audit.) But if making a new procedure or control would require the retirement plan to incur an expense, you must as a prudent fiduciary evaluate whether the value of the improvement makes the expense worthwhile. Get help from your advisers A plan’s administrator might ask its lawyer for advice about the management-weaknesses letter and how the administrator should act on the information. After considering the lawyer’s advice, an administrator might consider sharing the auditor’s letter with its third-party administrator, recordkeeper, and other service providers. They might suggest ways to improve the plan’s procedures. A TPA’s or recordkeeper’s way to fix a problem might be more efficient than a method the employer/administrator alone would have found. Using good sense Even if a list of problems feels unwelcome, an employer/administrator can evaluate and act on an auditor’s management-weaknesses letter to keep making improvements in how one administers the retirement plan. This is only general information, and is not advice to anyone.

For a governmental § 457(b) plan, a cure period and correction method have been in the statute since 1978: A plan which is established and maintained by an employer which is described in subsection (e)(1)(A) and which is administered in a manner which is inconsistent with the requirements of any of the preceding paragraphs shall be treated as not meeting the requirements of such paragraph as of the 1st plan year beginning more than 180 days after the date of notification by the Secretary of the inconsistency unless the employer corrects the inconsistency before the 1st day of such plan year. . . . . Internal Revenue Code of 1986 (26 U.S.C.) § 457(b) (flush language). https://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

Belgarath and C.B. Zeller, thank you for your helpful thinking. There are businesses for which the employer and each executive negotiate the executive’s compensation, including health coverage (or not), employer-provided retirement contribution (or not), other employee benefits, fringe benefits, and other elements. While a plan’s sponsor might welcome discretion, an executive might insist that each employee-benefit plan’s governing documents unambiguously state promises that follow one’s negotiated employment agreement. An incautious executive might accept an employment agreement alone. But a careful executive might want, in addition, employee-benefit plans’ documents that provide ERISA § 502(a)(1)(B) rights one can enforce in Federal and State courts. So, for example, if three of four executives get the retirement plan’s nonelective contribution, and only one negotiated for something else, a retirement plan that excludes by name only the one and includes the others might serve such a purpose. I see there might be several ways to accomplish an intended provision, and I’m glad to learn that it’s possible even within an IRS-approved document.

Imagine a plan’s sponsor seeks to exclude from a nonelective contribution (prospectively, beginning with the next plan, business-accounting, and calendar year that begins after the plan amendment), not all highly-compensated employees but one particular HCE specified by name. May a plan’s documents provide that? Or is there some IRS guidance against doing that?

DSG, it’s unclear whether the other spouse’s lawyer is ignorant or trying a negotiation ploy. Either way, you won’t fall for it. Consider drawing on your deep experience with the different law that governs the Federal Civil Service Retirement System and the Federal Employees Retirement System and their regimes for a court order acceptable for processing (COAP). 5 U.S.C. §§ 8339(j)(4), 8419; 5 C.F.R. §§ 831.601 to 831.685, 838.101 to 838.1121. An attempt to specify a former spouse’s shares by reference to a factor other than a percentage of the employee annuity would get rejected as not a COAP. And even if one were to imagine that the former spouse’s COAP-paid benefit might be the employee’s income, an attempt now to negotiate the former spouse’s fixed percentage of the employee annuity by using assumptions about the employee’s marginal income tax rates for Federal, State, and local income taxes is nonsense because not only might incomes changes but also any of the tax rates might change. What might Maryland’s income tax rates be in 2034, 2044, or 2054? What if the former employee retires to Texas? What if the US decreases Federal income tax rates?