Peter Gulia

A year’s qualified charitable distributions, in the right circumstances up to $105,000 [2024], from non-Roth IRAs (but not a § 408(k) or § 408(p)) do not count in the IRA owner’s income for Federal income tax. Regrettably, a “QCD” can be available with an IRA, but not from an employment-based retirement plan. Some § 401(a)-(k), § 403(b), and governmental § 457(b) participants who prefer to stay in those plans make yearly rollovers into the IRA, in amounts one estimates as enough for the next year’s-worth of charitable donations. (Usually, an employment-based plan’s participant may claim a distribution because an opportunity for qualified charitable distributions does not begin until one’s age 70½.) The amounts of the QCDs need not relate to any minimum-distribution amount. Also, some users of QCDs—even a 90-something—have no minimum-distribution requirement, neither from an employment-based retirement plan nor, practically, from one’s IRAs. For details and other information, see Internal Revenue Code § 408(d)(8): https://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 This is not advice to anyone.

What Paul I says. And, if the plan or its administrator is or was advised by a lawyer, consider that the independent qualified public accountant might want, in addition to the administrator’s management-representations letter, the lawyer’s letter to confirm that she has not “given substantive attention” to the plan’s contingent liability (or contingent gain) beyond those management disclosed.

In 2024, July 31 is a Wednesday, and October 15 is a Tuesday, so no weekend favors on those.

Even if the § 403(b) plan BG5150 mentions might be stuck with text of the kind MoJo describes (and BG5150 tells us the “[d]ocument is silent on stopping installments”), a plan’s administrator might consider some other points, including: The text likely grants the administrator a discretionary power to interpret the plan, perhaps including the whole of the plan’s governing documents. One might interpret the plan to recognize that § 401(a)(9) rules permit a § 403(b) participant to meet her minimum distribution regarding all her § 403(b) contracts with a distribution from any of them, even a contract held under a plan other than the plan the employer/administrator administers. One might harmonize an interpretation of a restraint on a form of distribution with one or more provisions about how a § 403(b) participant meets her § 401(a)(9) minimums. This is not advice to anyone. MoJo, I recognize your frustrations about the IRS’s nonsense with IRS-preapproved documents.

Before turning to questions about how to report on a multiple-employer plan, the plan’s administrator might want its lawyer’s confidential advice about whether the plan’s participating charitable organizations are more than one employer or might be one employer for one or more relevant purposes. For charities, no one owns shares of stock, other capital interests, or profits interests. Instead, the Treasury department’s interpretation of Internal Revenue Code § 414(c) looks to powers to elect, appoint, or remove a charity’s director, trustee, or member, including powers to do so indirectly, as a way to look for common control. 26 C.F.R. § 1.414(c)-5(b). Further, “exempt organizations that maintain a plan . . . that covers one or more employees from each organization may treat themselves as under common control for purposes of section 414(c) (and, thus, as a single employer for all purposes for which section 414(c) applies) if each of the organizations regularly coordinates their day-to-day exempt activities.” 26 C.F.R. § 1.414(c)-5(c)(1) https://www.ecfr.gov/current/title-26/part-1/section-1.414(c)-5#p-1.414(c)-5(c)(1). While the law about what is or isn’t one employer varies with each of several ERISA title I, Internal Revenue Code, and securities laws’ purposes, the Treasury department’s rule to interpret and implement Internal Revenue Code might be a useful support. That the retirement plan’s administrator assumed for several years that the distinct charitable organizations comprise one employer perhaps suggests some practical grounds under which they might have been, and might be, one employer. This is not advice to anyone.

If you want to evaluate whether § 414(cc)’s relief might apply, § 414(cc) is the last subsection of Internal Revenue Code of 1986 (26 U.S.C.) § 414. https://uscode.house.gov/view.xhtml?req=(title:26%20section:414%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414)&f=treesort&edition=prelim&num=0&jumpTo=true

Has the health plan’s or welfare plan’s administrator yet done an analysis of whether the two distinct companies or businesses are one employer within the meaning of Internal Revenue Code § 414(b)-(c)-(m)-(n)-(o)?

Perhaps the mistake is an opposite direction. Your description of the facts suggests the participant had made an elective-deferral election, and the employer/administrator implemented the election by paying money to the plan. Is the plan whole for the elective-deferral election the participant had made? Is the mistake that the employer failed to segregate the elective-deferral amounts from the employee’s wages and paid the employee more wages than she was entitled to? If so, the employer might consider how much (if any) of the mistakenly paid wages the employer seeks to recover from its employee. In that, the employer might recover amounts slowly, or find ways to adjust the employee’s wages. Perhaps the mistake might have been an acceleration of what otherwise might have been the employee’s next wage increase? This is not advice to anyone.

The hyperlink in my post points to sets of forms and notices, including two models for a summary annual report.

Chevron deference, before the Supreme Court overruled it, could apply only to an interpretation in a rule or regulation—not nonrule guidance—made in compliance with the Administrative Procedure Act and other Federal law. Many plan sponsors and plan administrators follow the IRS’s nonrule guidance because: Many plans’ sponsors use, without one’s lawyer’s advice, IRS-preapproved documents, which often embed IRS interpretations and even preferences. Many plans’ administrators get no advice from one’s lawyer. A service provider that is not a law firm or accounting firm must pretend not to provide tax or other legal advice. Even when a service provider’s lawyers think an IRS interpretation is wrong, how does a service provider say so without giving legal advice? Even when a plan’s sponsor or administrator has independent advice, many lack resources, or are reluctant to spend them, on fighting the IRS. Even when a plan’s sponsor or administrator has independent advice, has and is ready to use resources, and will accept responsibility for not following the IRS’s interpretation, the administrator might encounter difficulty in getting services to support the not-mainstream interpretation.

If, under the IRA agreement, the IRA beneficiary’s spouse becomes a further designated beneficiary, and If the IRA agreement sets no distribution provisions beyond those needed to meet Internal Revenue Code § 401(a)(9)’s conditions, One might consider whether that spouse is or isn’t an eligible designated beneficiary. That definition has at least two elements: First, one must be a designated beneficiary, which § 401(a)(9)(E)(i) defines as an “individual designated as a beneficiary by the employee.” Yet, the Treasury department’s interpretation might include a beneficiary designated by a preceding beneficiary (if the IRA agreement allows such a beneficiary designation) and might include a beneficiary determined under the IRA agreement’s default-beneficiary provisions. Proposed 26 C.F.R. § 1.401(a)(9)-4(a)(1)-(4). Next, if such a designated beneficiary might be an eligible designated beneficiary because of being someone’s spouse, § 401(a)(9)(E)(ii)(I) refers to “the surviving spouse of the employee[.]” Under the Treasury department’s interpretation: “[T]he IRA owner is the individual for whom an IRS is originally established by contributions for the benefit of that individual and that individual’s beneficiaries.” Proposed 26 C.F.R. § 1.408-8(a)(2). “For purposes of applying the required minimum distribution rules . . . , . . . the IRA owner [as defined above] is substituted for the employee.” Proposed 26 C.F.R. § 1.408-8(a)(3). This is just a starting point; many more defined terms and rules might apply in a particular situation. Among those, the description of the facts does not say whether Harry continues his mother’s IRA, or made a rollover from that IRA to establish another IRA. This is not advice to anyone.

If an ERISA-governed plan’s trustee even considers holding the shares of the limited-liability company that owns a horse, pays the expenses of keeping the horse, and collects prizes and fees of the horse’s work: The plan’s administrator might warn the participant that incremental expenses the plan would not have incurred but for the nonqualifying asset—for example, premiums for extra fidelity-bond insurance or fees for an independent qualified public accountant’s audits, and lawyers’ fees (see next paragraph) are charged to the individual account of the participant who directs investment in the nonqualifying asset. The participant must engage her lawyer at her personal expense. And at least for the initial sets of transactions—forming the company and its LLC operating agreement, the company’s purchase of the horse, and the plan trustee’s purchase of its member interest in the LLC, the participant’s individual account is charged the fees and expenses of the plan’s trustee’s and administrator’s lawyers. (Other individuals should not bear expenses made necessary because of one participant’s directed investment.) Likewise, the plan trustee’s extra fees and expenses for reading the LLC’s financial statements and otherwise monitoring the plan’s investment are charged to the directing participant’s individual account. The plan’s administrator might require that the participant’s account always hold enough daily-redeemable investments so the administrator perpetually can pay all incremental plan-administration expenses without invading any other account. In my experience, a person who thinks about using her retirement plan account to buy an unusual investment considers that way because she lacks money. But many of those also lack an account balance that’s enough to both buy the nonqualifying asset and reserve for the plan’s incremental expenses. This is not advice to anyone.

If one reads the Paperwork Reduction Act Statement, one strains to imagine how its text could impart useful information to a participant, beneficiary, or alternate payee. A plan’s administrator might be amused by: “The public reporting burden for this collection of information is estimated to average less than one minute per notice (approximately 3 hours and 11 minutes per plan).” But it would be an extraordinary participant who might file with the Labor department a comment on the administrator’s burden. And how would a participant know how much time it takes for an administrator to assemble a summary annual report? https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement This is not advice to anyone.

A common reminder among BenefitsLink neighbors is Read The Fabulous Document. While RTFD is often suggest about an employment-based retirement plan, that pointer also can bring information to a question about an Individual Retirement Account. Read the IRA trust, custodial-account, or annuity agreement. Not all IRAs have the same provisions.

About the April 25, 2024 rule to interpret the circumstances in which a person is a fiduciary by providing investment advice, even if none of the pending civil actions seeking to vacate the rule gets such a result: A defendant may argue an interpretation narrower than Labor’s most recent interpretation. A plaintiff may argue an interpretation wider than Labor’s most recent interpretation. A court interpreting ERISA § 3(21)(A)(ii) may consider any interpretation aid, which might include the Labor department’s 1975, 2016, 2020, and 2024 rulemakings (without deference for or against any of them).

Thanks!

When a plan-documents set includes, beyond the Adoption Agreement, a “Special Effective Dates”, an “Appendix” (or a few of them), an “Administrative Procedures”, and perhaps other differently labelled sections, which of them is treated as a part of “the” plan document? May a user decline to fill-in all or some of these parts without losing reliance on the IRS’s opinion letter? May a user change the text of all or some of these parts without losing reliance on the IRS’s opinion letter? Or if these extra parts must be parts of “the” plan document, why are these parts differently labelled and not a part of a whole Adoption Agreement?

Why would a participant object to a correction statement or other IRS closing agreement that preserves the plan’s tax-qualified treatment, imposes no tax on the plan’s trust, and imposes no tax on the participant? If it’s because the tax-law correction might tolerate a correction less than the participant’s rights under the plan, an IRS closing does not impair a participant’s rights under the plan and ERISA to claim the benefits the plan provides. For example, if a plan’s administration of an automatic-contribution provision missed a participant whose account ought to have been credited with elective deferrals, related matching contributions, and attributable investment gains, the participant can claim and, if the administrator denies the claim, a court can order restoration of the participant’s account (and might order the participant to return some amount regarding the wages mistakenly paid to her).

The United States’ courts (often, called Federal courts, to distinguish them from a State’s courts) are a three-layered system, with a trial court—the District Court; an intermediate appeals court—the Court of Appeals; and a court of last resort—the Supreme Court of the United States. District Court Of Article III courts, the United States district courts are the general Federal trial courts. Each of the 50 States gets at least one Federal judicial district. Based on populations and geography, some States get a few districts. For example, Pennsylvania has three districts, and New York has four districts. For a map of the numbered Federal circuits (the next layer) and each’s districts (each of which relates to the whole or a part of a U.S. State or territory), see: https://www.uscourts.gov/sites/default/files/u.s._federal_courts_circuit_map_1.pdf. In thinking about where a case might be litigated, consider that some plans provide an exclusive forum (for example, the Federal court for the district and division that sits in the plan sponsor’s preferred city). A district court’s opinion is not a precedent anywhere, not even in the same district. A district court’s opinion is persuasive authority. Within a district Court of Appeals The United States courts of appeals are the intermediate Federal appellate courts. They must hear all appeals of right from the district courts. The courts of appeals are divided into 13 circuits: the First through Eleventh circuits, the District of Columbia Circuit, and the Federal Circuit. The District of Columbia Circuit has only one district. The Court of Appeals for the Federal Circuit has nationwide jurisdiction of specified claims under Federal law. A court of appeals decision is precedent for all district courts of the circuit’s territory, and for appeals court panels in the circuit. (For the Eleventh Circuit, decisions of the Fifth Circuit before its 1981 split into the Fifth and Eleventh Circuits are precedent.) Everywhere else, a court of appeals decision is only persuasive authority. Supreme Court of the United States The Supreme Court of the United States is the court of last resort. It reviews decisions from the Federal courts of appeals, and from a State’s highest courts. With only a few exceptions for cases with original jurisdiction in the Supreme Court, the Court decides whether to review an inferior court’s decision. (That the Supreme Court chooses not to review a decision does not mean the Supreme Court affirms the decision.) The Supreme Court’s decision is precedent and binding authority for all Federal courts, and for all States’ courts. Circuit splits That separate courts might interpret a national statute differently than other courts have interpreted the same statute has existed for about as long as the US has had interstate commerce. Differing interpretations happen readily when there is no executive agency interpretation on the question of law involved. And even when there is an agency rule, differing interpretations continued during Chevron’s 40 years. Among other possibilities, courts sometimes differed about whether a statute is ambiguous, and differed about whether the agency’s interpretation is permissible. (Eliminating, one hopes, or lessening a plan administrator’s vulnerability to more than one interpretation of a statute’s command or about a plan provision’s meaning is among the reasons some plan sponsors like an exclusive-forum provision. We recognize that, even if this gets uniformity for a plan’s sponsor and administrator, it might not get national uniformity for a service provider.) Some of the Supreme Court’s ERISA cases resolved what lawyers call a circuit split. In trying to persuade the Supreme Court to grant review, many petitions argue that there is a circuit split and that the law needs national uniformity. But some circuit splits are not resolved. For example, on whether ERISA provides contribution and indemnity among fiduciaries, some circuits say yes, some circuits say no, and others have no precedent. That ambiguity has persisted for ERISA’s half-century. Litigation is rare. About all of this, consider that many questions of law recordkeepers and third-party administrators work on are seldom litigated, and many are never litigated. Further, questions of law about what a tax-qualification condition requires are almost never litigated in Article III courts.

Both the majority and dissenting opinions express observations about what likely will result from yesterday’s decision. Time will tell. Even following Loper Bright Enterprises, a Federal court interpreting ERISA § 206(d)(3)—or Internal Revenue Code § 414(p)—might be persuaded by the Labor department’s reasoning in 29 C.F.R. § 2530.206. While several courts’ decisions cite that rule, I’ve seen no Federal court decision that applies Chevron deference to use an interpretation the opinion says would not have been the court’s independent interpretation.

John Feldt is right that the Internal Revenue Service’s discretion to refuse an opinion letter for an IRS-preapproved document can be a way to push an agency’s interpretations, including even unpublished interpretations. A plan’s sponsor might overcome some problems by adding and changing “administrative provisions” to the extent the Revenue Procedure allows without defeating reliance on the IRS’s opinion letter. Or even risking that one has lost reliance. A plan’s administrator might overcome some problems by using the plan’s grant of discretion to interpret the plan. In doing so, knowing that Federal courts interpret statutes without deference to an agency’s interpretation sometimes might help defend a plan administrator’s interpretation of a governing document’s nonsense. Yet, those steps might leave behind some plan provisions that are neither an ERISA command nor a condition of tax-qualified treatment. ERISA § 404(a)(1)(D) calls a fiduciary to meet its responsibility “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [ERISA] title [I] and title IV.” This is not advice to anyone.

austin3515, thank you for helping me with your thinking. Let’s remark on some of your several smart observations (and some I add). “[A]t least you knew what the answers were[.]” For interpretations of the Internal Revenue Code, a plan sponsor, an employer, a plan administrator, and a participant, beneficiary, or alternate payee or alternate recipient still gets at least practical protection in following agency rules. For example, if a retirement plan’s administration follows Treasury interpretations about a tax-qualification condition, the IRS is unlikely to tax-disqualify the plan for failing to meet that condition. It might be capricious if it did so. And in filing tax returns and information returns, a taxpayer or reporter would have “reasonable cause” support for filing a return grounded on an employee-benefit plan’s having followed Treasury interpretations, even those that are not the correct reading of the statute. For Federal taxes, the agency is the enforcer. About ERISA, the Secretary of Labor should not pursue enforcement if the plan’s administrator followed the Labor department’s rule. Although a court does not defer to an agency’s interpretation, for an agency not to follow its own rule-made interpretation might be capricious. How independent interpretations of a statute might help Imagine the Treasury department publishes its final LTPT rule in 2024. Remember, the 1978 Reorganization Plan allocates to the Treasury department some interpretive authority for ERISA’s part 2. Imagine in 2025 a § 401(k) plan’s administrator denies an employee entry for elective deferrals. The plan’s governing document excludes the employee under a classification other than age or service, which the administrator finds is not contrary to ERISA § 202. The employee sues under ERISA § 502(a)(1)(B), asking a Federal court to declare she is eligible. (Or, as you suggest, a big employer/administrator faces an alleged class action for all similarly excluded employees.) The plaintiff asserts ERISA § 202 commands she is eligible as a long-term part-time employee. She argues the Treasury rule, including its interpretation about whether a classification is a subterfuge against the LTPT command, is the persuasive interpretation of ERISA § 202. Yet with no more Chevron deference, the plan’s administrator may argue a different interpretation of the statute. A final decision in a particular case protects the plan’s administrator for whatever was litigated in that case. “Forfeitures cannot be used to fund QNECs[.]” That’s an example of a situation in which being free to argue the interpretation of the statute might have helped some employers—those with the resolve and resources to fight the IRS. Congress’s express direction to make a rule. The Supreme Court’s decision yesterday leaves undisturbed other precedents that allow an agency’s rulemaking to ‘fill-in the details’ if Congress’s Act states a delegation and enacted “an intelligible principle to which the [agency] authorized to take action is directed to conform.” Yesterday’s opinion states: “When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court . . . is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits. The court fulfills that role by recognizing constitutional delegations, ‘fix[ing] the boundaries of [the] delegated authority,’ and ensuring the agency has engaged in ‘reasoned decisionmaking’ within those boundaries[.]” For example, Internal Revenue Code § 401(a)(9) includes six express delegations to rulemaking. For those fill-in-the-details points, a court might recognize that Congress intended a later-made Treasury rule as a part of the statute. “I really think EPCRS is reviewable now.” The IRS’s corrections programs are grounded from Congress’s grant of authority to make closing agreements: “The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period.” I.R.C. (26 U.S.C.) § 7121(a). Even if the IRS oversteps that authority, who would challenge an EPCRS closing agreement? One presumes not the employer/administrator that obtained the correction satisfaction. And who else would have standing to dispute the IRS’s compromise of the taxes the IRS otherwise could assert? No ERISA right to an automatic-contribution arrangement For the reasons mentioned above, it might not matter if the IRS too generously interprets Internal Revenue Code § 414A about whether an automatic-contribution arrangement is a tax-qualification condition. The consequence of a plan’s failure to meet IRC § 414A(b)’s conditions is that the plan’s arrangement that otherwise might be a qualified cash-or-deferred arrangement is not a § 401(k) arrangement. But it’s the IRS, not a private litigant, that applies Federal tax law. ERISA does not generally command that an individual-account retirement plan provide an automatic-contribution arrangement. If a plan’s governing documents omit an automatic-contribution arrangement, there is none. “It seems to me that the risk of administering 401k plans has gone up (as employers).” Many employers and plan administrators might follow an executive agency’s interpretations. When they do, they shouldn’t fear enforcement by the agency. A participant’s, beneficiary’s, or alternate payee’s or alternate recipient’s civil action on an ERISA claim is likely only when the situation calls the litigation resources. For example, almost none of the excessive-fee lawsuits against an individual-account retirement plan’s named fiduciary was about a plan with less than $500 million. Likewise, civil actions asserting that an employer/administrator excluded people the plan or ERISA made participants were mostly against big employers, think Microsoft. “I doubt the result of this will be Congress writing better laws that perhaps need less interpretation.” I think that’s so, at least until the United States returns to having a functioning legislature. And even when a legislature does quality lawmaking, there will be gaps and other ambiguities. “[W]e’re going to need more courts and judges and lawyers. A lot more.” Yes! I tell my current and former students there will be plenty of demand for one’s skills. Yet, for many plans, the practical interpretations might not change much. Many plan administrators do not regularly engage an employee-benefits lawyer. Many tend to administer plans using frameworks set with recordkeepers, third-party administrators, and other service providers. And those frameworks tend to follow (or attempt or purport to follow) the agencies’ interpretations. An employer/administrator needs lawyering when it seeks an interpretation to allow doing something an agency’s interpretation doesn’t allow (or about which there is no agency interpretation), or to get better protection than the agency’s interpretation affords. Others, especially small plans’ administrators, fall in with a mainstream good-enough. Further, many questions of law might never get a court’s decision. For some, that’s a feature, not a bug.

EBECatty explains the frame of removing Chevron deference. To start with two examples of how someone might like to interpret a statute differently than the agency does: ERISA § 3(21)(A)(ii) makes a person a plan’s fiduciary “to the extent he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so[.]” In a dispute, one may seek to persuade the court about the meaning of the quoted phrase and how that meaning applies to the facts and circumstances of the dispute. The arguments could go in either direction; for example, that an insurance producer’s recommendation is not advice, or that even a communication the Labor department’s rule describes as not advice is investment advice. Interpreting ERISA § 104(b), one might reason that the ways to “furnish” a summary plan description or other disclosure are wider than those recognized in the Labor department’s rule.

Here’s BenefitsLink’s hyperlink to the majority opinion, concurring opinions, and dissenting opinion. https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf In interpreting a statute, a Federal court may consider, but must not defer to, an executive agency’s interpretation. For a question not already answered by a precedent, a court must decide a dispute with the court’s interpretation of the statute. BenefitsLink neighbors, which interpretation expressed by the Labor or Treasury department, whether in a rule or in EBSA or IRS nonrule guidance, would you like to argue is not the correct interpretation of ERISA or the Internal Revenue Code?

Beginning today, Federal courts no longer defer to an agency’s rule. Loper Bright Enterprises 22-451_7m58.pdf