Peter Gulia

Gina Alsdorf, thank you. And BenefitsLink neighbors, I apologize for not saying: my query is focused on small-business employers with small plans.

guestdelta, along with others’ pointers, consider these to ask your lawyer about: Read the IRA agreement. Many of these include provisions about beneficiary designations, primary and contingent beneficiaries, and default beneficiaries. Don’t assume Florida law governs. Many IRA agreements include a choice-of-law provision. That choice often is the State a bank, trust company, insurance company, or broker-dealer prefers, or the State some investment funds’ manager or adviser prefers. Some frequent choices are California, Delaware, Massachusetts, and New York. JPMorgan Chase might prefer New York law. Don’t assume, without reading, that any State’s simultaneous-death statute for decedents’ estates applies. Consider that a State’s statute might not apply to determine the beneficiary under an IRA agreement, a contract right. Consider that an IRA agreement might state its provision about simultaneous deaths and the orders of deaths. Consider that a simultaneous-death provision might apply only between or among beneficiaries, and might not apply an order of deaths regarding the originating IRA holder’s death. As MoJo notes, a simultaneous-death time need not be limited to minutes, hours, or days. It might be months. Up to six months is not unusual. See, for example, I.R.C. (26 U.S.C.) § 2056(b)(3). Consider that a simultaneous-death provision might be irrelevant because the IRA agreement might provide who is a contingent beneficiary and who is a default beneficiary without using any such concept about the order of deaths. For these and other points, remember a beneficial interest in an IRA is about contract rights. If the default beneficiary is the personal representative of a decedent’s estate, ask your lawyer about whether one might persuade JPMorgan Chase to pay the applicable decedent’s estate’s takers instead of the personal representative, on satisfactions, releases, and indemnities all around. Yes, there are some IRS rulings and other nonprecedential guidance your lawyer could read to suggest potential courses of action for a situation in which there is only a default beneficiary. This is not advice to anyone.

For a single-employer individual-account (defined-contribution) retirement plan, typically the employer, or some committee or officer of it, is the plan’s administrator. Of those, for some a bank or trust company is the plan’s trustee, but for others only people associated with the employer are trustees. (For the question I ask here, let’s leave aside an investment adviser, even if it is a fiduciary.) So, how often does it happen that both the administrator and trustee roles are filled by the employer? My query is only to support a lesson I teach my law school students. Any information you share I’ll use only with nothing identifying, and only in a very wide generalization.

And consider preferring a service provider that has a capability to treat a portion of payments to a retired minister as I.R.C. § 107 parsonage allowance, with Form 1099-R showing the taxable portion of a non-Roth distribution as less than the gross distribution, subtracting the amount the church specifies as the § 107 allowance.

To the extent that a nondiscrimination rule might be among factors to consider in evaluating whether § 401(k) or § 403(b) better serves a church’s and its employees’ interests, a church has no owner, might have no employee with compensation reaching $155,000 [2024], and so might have no highly-compensated employee. While I often prefer § 403(b) over § 401(a)-(k), the distinction can affect the availability of some investment alternatives, and even some service providers. For example, some collective investment trusts do not admit any § 403(b), even if both tax law and securities law could allow a church’s § 403(b)(9) retirement income account. And some unregistered group variable annuity contracts are offered only to a § 401(a)-(k) plan, and are unavailable for a § 403(b). Likewise, some recordkeepers won’t offer a service to a plan that doesn’t fit neatly into one of the provider’s established service models. On some of my charity engagements with churches, what was better from a tax law or plan-design perspective was the opposite of what was better from an investment or service perspective. For these and other reasons, one carefully considers all the surrounding facts and circumstances.

As ever, RTFD—Read The Fabulous Document. To state provisions that meet ERISA § 205, an ERISA-governed plan typically calls for a notary to witness a spouse’s consent, and (sometimes) officiate an acknowledgment of a participant’s qualified election. Many ERISA-governed plans do not otherwise call for a notarial act. For example, a beneficiary designation that does not deprive the participant’s spouse. But some plans provide that some claims, directions, or instructions require a participant to make and acknowledge the writing before a notary, even when that’s unnecessary to meet an ERISA command or an Internal Revenue Code tax-qualification condition. For a governmental plan, a non-ERISA church plan, or a plan that covers no employee, check not only “the” plan document but also applicable State law. This is not advice to anyone.

“[Internal Revenue Code § 414A](a) shall not apply to . . . any church plan (within the meaning of [I.R.C. §] 414(e)). I.R.C. (26 U.S.C.) § 414A(c)(3) https://uscode.house.gov/view.xhtml?req=(title:26%20section:414A%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true. And here’s the referred-to definition: I.R.C. (26 U.S.C.) § 414(e) 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. Is the plan sponsor the church itself? Or if something else, does the church sufficiently control the something else? Also, consider whether § 401(k) or § 403(b) better serves the church’s and its employees’ and ministers’ needs. Which of those is the better fit turns on carefully considering all the surrounding facts and circumstances.

If an ERISA-governed pension plan does not provide that a participant may change an annuity that began, the plan does not recognize as a QDRO an order that tries to change the annuity. “If a participant dies after the annuity starting date, the spouse to whom the participant was married on the annuity starting date is entitled to the QJSA protection under the plan. The spouse is entitled to this protection . . . even if the participant and spouse are not married on the date of the participant’s death, except as provided in a QDRO.” 26 C.F.R. § 1.401(a)-20/Q&A-25(b)(3) https://www.ecfr.gov/current/title-26/section-1.401(a)-20. See also, for example, Jordan v. Federal Express Corp., 116 F.3d 1005, 1009 (3d Cir. June 19, 1997) (“In response [to a domestic-relations order], Federal Express canceled Linda Jordan’s [who was the participant’s spouse as at the annuity starting date] right to receive the [survivor] benefits under the plans without either increasing [participant John Paul] Jordan’s monthly benefits or designating Patricia Jordan [the participant’s current spouse] as the new beneficiary [survivor annuitant].”) (emphasis added). DSG, consider (perhaps turning on which one, if either, is your client or your client’s client) whether the divorcing parties might negotiate and adjust property interests other than the commenced pension annuity to reflect that the husband’s pension annuity was lessened by providing a survivor portion (or that the nonparticipant obtained a survivor annuity). Likewise, consider how much or how little value the then-wife puts on her survivor annuity. Her personal sense of its value could be more than or less than what an actuary, economist, financial planner, or other adviser says the or a value is. And one might consider the creditworthiness of the pension obligor. This is not advice to anyone.

There are important differences between and among a letter-of-intent stage, a due-diligence time, receiving a conditional offer, negotiating a definitive agreement, required or permitted announcements of the agreement (if any), and seeking approvals. Yet, Paul I is right that knowing what would be called for in one or more of the later stages might influence a decision-maker’s thinking for one or more of the earlier stages.

Will the revised automatic-contribution arrangement call for a notice, perhaps 30 days before the new year begins? If so, is that an opportunity to specify a new default that, unless the participant opts out, applies starting with the first pay date in the new year? Might such a default, regarding a participant who already has a cash-or-deferred election in effect, be the greater of the usual default under the revised automatic-contribution arrangement or the election (whether affirmative or a default) in effect just before the revised takes effect? These are open questions. I do not know the tax law, plan documents, or other practicalities of how automatic-contribution arrangements work.

Concur with QDROphile that an ESOP involves conflicting interests at every turn. Concur with ESOP Guy’s observation about considering a letter of intent and any other express or implied agreement for not revealing confidential information. Concur with ESOP Guy’s observation about considering a fiduciary’s duty of communication. Also, impartiality. Consider that some employees can be helped by disclosure, and some employees can be harmed by disclosure. Here are a few of many further questions one might suggest to help the fiduciaries get lawyers’, accountants’, appraisers’, and others’ advice and think through some of the many conflicting duties: When is the next day a participant can do (or choose not to do) something? Is that day before, on, or after the next regularly scheduled valuation date? Might there be a need for an earlier valuation? If the dealmaking with the might-be acquirer proceeds to a due-diligence phase, how many of the target’s employees would be involved in collecting information to furnish to those executives who communicate with the acquirer? Is it feasible to restrict the target’s communications from and to the might-be acquirer to only the CEO, CFO, and CLO? Might disclosing the acquirer’s interest harm the company’s value because some executives and some talented employees might leave before the acquirer delivers an offer and before the target gets stay agreements? Might not disclosing the might-be acquirer’s interest harm the company’s value because some executives and some talented employees suspect an acquisition and, not knowing the acquirer’s identity, might leave quickly? How much or how little protection does the company get from nondisclosure, nonsolicit, noncompete, and garden-leave agreements. Recognizing conflicts between the company’s interests and the ESOP’s interests, should those people who will negotiate or communicate with the acquirer resign, recuse, or be removed from the plan fiduciary committee? Recognizing conflicts between a human’s interests, including her interests regarding future employments or engagements and compensation, and the ESOP’s interests, should those people who are so conflicted resign, recuse, or be removed from the plan fiduciary committee? Does a lawyer or accountant who regularly advises the company have a personal-interest conflict regarding the circumstances of a might-be acquisition? Does a lawyer or accountant who regularly advises the ESOP have a personal-interest conflict regarding the circumstances of a might-be acquisition? If the ESOP owns the company, is it feasible, to distinguish between what otherwise might be settlor decisions (including those EBECatty invites) and fiduciary decisions. Every decision deals with the plan’s asset and management of it. This is not advice to anyone.

That the plan is discontinued or even ended, or that the employer dissolves, is not an excuse from ERISA § 103’s command for an audit of the plan’s financial statements. Consider whether a plan-accounting year ends when the plan pays or delivers the plan’s final distributions. For each plan, consider whether the employer or the plan needs a reserve of amounts to pay the independent qualified public accountant’s fee.

Even if one assumes a member of a cooperative might be a highly-compensated individual, an employer might ask its service provider what comparisons the software applies when all employees are highly-compensated and none is other than highly-compensated. This is not advice to anyone.

Is the plan a defined-benefit pension plan or an individual-account retirement plan?

Internal Revenue Code § 7503 refers to “the last day prescribed under authority of the internal revenue laws for performing any act[.]” There are many possible interpretations of the statute and the Treasury’s rule. See 26 C.F.R. § 301.7503-1 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-F/part-301/subpart-ECFR94f366dd75fae71/subject-group-ECFRd06c5ed639eb8dd/section-301.7503-1. There was a BenefitsLink discussion about this in July 2022. https://benefitslink.com/boards/topic/69382-effective-date-of-cycle-3-restatement-1-day-after-deadline/ If I may summarize: No one expressed a conclusion about whether the holidays rule applies to signing a document amending a retirement plan. Practitioners suggested getting one’s client to sign before the specified date, without a Saturday-Sunday tolerance. I mentioned the holidays statute as a face-saving argument an advocate might research and might consider presenting. That the IRS might be called to explain or consider an interpretation sometimes helps avoid an issue or negotiate a closing agreement. Perhaps David Peckham’s client won’t need to argue a Saturday-Sunday tolerance if no one asserts that the 2022 amendment was not timely.

The Internal Revenue Code’s regimes and remedial-amendment periods about whether a plan is tax-qualified assume “the” written plan. ERISA § 404(a)(1)(D) recognizes that a plan’s provisions might be stated by “documents and instruments[.]” Imagine the plan’s sponsor/administrator sends its third-party administrator or recordkeeper an email to inform the service provider that the sponsor has changed the plan’s involuntary-distribution threshold from $5,000 to $7,000, and has changed the plan so a participant loan from a participant’s account less than the plan’s involuntary-distribution threshold does not require a qualified election with the spouse’s consent. Imagine the email’s sender is someone who has authority to amend the plan. Consider whether that email might be a “document[] . . . governing the plan” within ERISA § 404(a)(1)(D)’s meaning. This is not advice to anyone.

I’ve learned that some practitioners worry that some IRS examiners won’t follow the law. But if the IRS (including raising an issue to an examiner’s supervisor, and if that doesn’t work getting Chief Counsel advice) follows the law, the IRS would not assert that a plan is tax-disqualified because the plan allowed a distribution when the plan’s hardship standard was not met unless the evidence shows “the plan administrator ha[d] actual knowledge to the contrary of the employee’s certification[.]” Internal Revenue Code § 401(k)(14)(C) https://uscode.house.gov/view.xhtml?req=(title:26%20section:401%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section401)&f=treesort&edition=prelim&num=0&jumpTo=true. If a plan’s sponsor or administrator adopts a self-certification claims procedure, one might design the form and procedure not to ask for any unnecessary information. And if one receives extra information, to act on it. I’m aware that plan sponsors and practitioners have a diversity of views about whether to provide self-certification for hardship claims.

Yes, self-certification removes an employer/administrator from judging a participant’s circumstances. That’s why I like it. But I suggest also repealing—for § 401(k), § 403(b), and governmental § 457(b)—the tax law restraints against a distribution before severance-from-employment or age 59½. Yet, not everything that happens in life calls for an exception from the § 72(t) tax on an early distribution. But I didn’t overcome, or even attempt, the rigors of being elected to Congress.

Consider that some lawyers who work with employee-benefits law or employment law advise an employer/administrator that it can be unwise and harmful to receive too much information about an employee. While outlooks vary, understanding why and how that can matter might influence an employer/administrator’s design of a claims procedure, and might influence whether one tries to help an employee (for example, by suggesting ways to improve her claim, or inviting one to reconsider a claim), or eschews getting involved. Before the 1986 Act, the extra income tax on a before-59½ payout was the regulator of whether the participant needs or wants a payout. Instead of making an employer/administrator or its service provider a judge of the participant’s circumstances, perhaps some might ask Congress for the simpler ways.

Of Internal Revenue Code § 414A and SECURE 2022 § 101, many interpretations are possible. Miscellaneous Changes Under the SECURE 2.0 Act of 2022, Notice 2024-2, 2024–2 I.R.B. 316 (Jan. 8, 2024), at its part II.A, describes some partial interpretations; but none that addresses your question. https://www.irs.gov/pub/irs-irbs/irb24-02.pdf While an employer might like C.B. Zeller’s reasoning, here’s the practical question: How much confidence does your client need or want? How much lack of confidence would your client tolerate? This is not advice to anyone.

If the plan does not yet provide that claims for a hardship distribution are decided by the participant’s self-certification: That the worker missed a student loan repayment suggests she might have used money she budgeted for that purpose on something else. If so, the something else might fit a hardship condition. This is not advice to anyone.

To simplify, let’s assume the Labor department’s rule, Definition of “plan assets”—participant contributions, is a legislative rule that sets a binding interpretation of the statute. Yet, that rule isn’t a bright-line rule. Consider the rule’s general rule: “[T]he assets of the plan include amounts . . . that a participant has withheld from his wages by an employer, for contribution or repayment of a participant loan to the plan, as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets.” 29 C.F.R. § 2510.3-102(a)(1). [Not my formatting.] The subparagraph about the seventh business day is a safe-harbor way to show one met the general rule. Under this safe harbor, an amount so “deposited with [the] plan”—itself an ambiguous phrase—is “deemed to be contributed or repaid to such plan on the earliest date on which such contributions or participant loan repayments can reasonably be segregated from the employer’s general assets.” 29 C.F.R. § 2510.3-102(a)(2)(i). That safe harbor is not the only way to show adherence to the general rule. 29 C.F.R. § 2510.3-102(a)(2)(ii). Even for an amount not yet credited to participants’ individual accounts, or even not yet collected in a bank account of the plan’s trustee or its custodian, a fiduciary might loyally and prudently act in a way that treats the amount as plan assets segregated from the employer’s assets. The plan’s administrator might want advice about whether, considering the particular facts and surrounding circumstances, the participant-contribution amount was segregated from the employer’s assets as soon as that amount could reasonably be segregated from the employer's assets. That an employer usually pays over participant-contribution amounts promptly and encountered a difficulty when adapting to a newly engaged service provider might suggest why what the employer did to segregate the participant-contribution amount from the employer’s assets was reasonable in the circumstances. 29 C.F.R. § 2510.3-102 https://www.ecfr.gov/current/title-29/section-2510.3-102. The Form 550 Part V line 10a question is: “Was there a failure to transmit to the plan any participant contributions within the time period described in 29 CFR 2510.3-102?” If a plan’s administrator decides to answer No on that question, it might make a contemporaneous record of its reasoning, to help show a sincere and prudent effort to report truthfully. This is not advice to anyone.

For reasons other than tax law, a plan’s fiduciary might consider treating Susie no less favorably (yet also no more favorably) than other similarly situated participants. On your description, that might mean estimating investment changes as if Susie’s 5% contribution had been made on January 15 and as if contributions stopped following a § 401(a)(17) cutoff in late October. Likewise, for someone affected by a § 415 cutoff. If the employer/administrator has a good relationship with its recordkeeper, one might get the recordkeeper to run the as-if calculations. Some can do it as a routine function.

That’s why we like citations.

One imagines Nationwide’s 408b-2 disclosures to the employment-based plan’s responsible plan fiduciary described Nationwide’s float compensation. Even when a service provider pays all claims, taxes, and other expenses daily, float can be meaningful money.