Peter Gulia

“A partner’s distributive share of any item or class of items of income, gain, loss, deduction, or credit of the partnership shall be determined by the partnership agreement, unless otherwise provided by section 704 and paragraphs (b) through (e) of this section.” 26 C.F.R. § 1.704-1(a) https://www.ecfr.gov/current/title-26/part-1/section-1.704-1#p-1.704-1(a). A partnership agreement of a professional-services firm, especially an accounting or law firm, often includes allocations with formulas designed so an allocation regarding the firm’s pension expense approximates the expense attributable to each individual partner. For pension expense attributable to people other than partners and their beneficiaries, an allocation might be general regarding a whole firm or a whole department of a firm, or might be particular regarding those associates and other employees accounted for in the partner’s cost structure.

Perhaps another reason for a plan's administrator or its service provider to design a claim form that recites, with text following the tax law rule, the allowable reasons, and calls the claimant to certify she meets one.

Brian Gilmore, thank you for giving so generously to our learning. Even if one accepts the executive agency’s rule as a reasoned interpretation of Congress’s statute: 29 C.F.R. § 1630.14 has 30 uses of the word employee, but no use of spouse, dependent, beneficiary, or participant. If one reads only the text of this rule, there might be some ambiguities about whether an employee-benefit plan’s condition regarding a medical examination of an employee’s spouse is, in particular circumstances, “a subterfuge for violating the [equal-employment provisions of the Americans with Disabilities Act] or other laws prohibiting employment discrimination[.]” 29 C.F.R. § 1630.14(d)(1) https://www.ecfr.gov/current/title-29/part-1630/section-1630.14#p-1630.14(d)(1). Further, ERISA, the Public Health Service Act, the Internal Revenue Code, the Affordable Care Act, and other Federal and (not superseded) State laws might affect the plan sponsor’s choices. These and other laws might matter in how an employer and plan sponsor thinks about questions of the kind Bcompliance2003 describes. It’s complex enough that one would want information and advice from a team of employment, employee-benefits, and other lawyers.

I imagine the questions are about whether “the normal retirement age is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.” 26 C.F.R. § 1.401(a)-1(b)(2)(iv) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)-1#p-1.401(a)-1(b)(2)(iv). Even if this plan is for only one worker, might the employer’s business—and the “industry” in which the business operates—be a little wider than just boxing prizefights? For example, does the worker intend, after retiring from being a boxer, to become a teacher, coach, or trainer? If so, might that business, even if done by a separate business organization, be regarded as the same employer and “industry” (whatever that word might mean in the context) as the prizefighting employer? I have no experience with an issue of this kind, so look to other BenefitsLink neighbors for practical guidance.

Paul I and Bill Presson, thank you for your impressive thinking.

Until recently, many employee-benefits lawyers advised an employer not to provide an automatic-contribution arrangement. Why? Because an employer might administer the arrangement imperfectly, sometimes missing some people, and that would call for corrections and expense. Have law changes made those worries smaller? Are the exposures smaller? Are the fixes less expensive? Here’s why I’m thinking about this: A charity, unadvised until now, provides an automatic-contribution arrangement for its § 403(b) plan. The default is 3% of pay, with yearly increases until 6% of pay. I believe the charity will have lapses and errors that result in failing to start elective deferrals for people to be auto-enrolled. I believe the charity is unable to design and implement work methods to avoid inevitable lapses and errors. The automatic-contribution arrangement is not needed to meet any coverage or nondiscrimination rule. Internal Revenue Code § 414A does not require an automatic-contribution arrangement because the plan’s elective-deferral arrangement was established before December 29, 2022. Should the plan sponsor continue, or get rid of, the automatic-contribution arrangement? If you suggest keeping the arrangement, what can I say about why the charity’s exposure to corrections is only a small risk?

The news release cites sources about which acts might get a delay. Those include: 26 C.F.R. § 301.7508A-1(c) https://www.ecfr.gov/current/title-26/part-301/section-301.7508A-1#p-301.7508A-1(c). A health plan’s administrator might want its lawyer’s or certified public accountant’s advice to find that the PCORI “fee” is an excise tax and is administered by the Internal Revenue Service (unlike a firearms tax or harbor maintenance tax, which are administered by other agencies). This is not advice to anyone.

Another consequence might be an unavailability of a professional—lawyer, accountant, actuary, enrolled retirement plan agent, third-party administrator, or otherwise. Some professionals might accept such a client if one is paid her advance retainer in an amount one estimates as enough to cover more time than one expects to work, after carefully considering the extra difficulties of working for a troublesome client. With the advance retainer periodically replenished, to avoid a risk of nonpayment for the next bit of work. Others might be unavailable no matter how big a fee one might earn.

The Notice points to a rule about the meaning of “officer”. 17 C.F.R. § 240.16a-1(f) https://www.ecfr.gov/current/title-17/part-240/section-240.16a-1#p-240.16a-1(f).

Thank you!!!

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.