Peter Gulia

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

The Employee Retirement Income Security Act of 1974 does not govern a governmental plan. If a governmental plan’s sponsor seeks the Federal income treatment of Internal Revenue Code § 401(a), § 401(k), § 403(b), or § 457(b), a condition about nonforfeiture varies with the particular subsection one seeks to meet. Those conditions often involve a different rule, transition rule, or variation for a governmental plan. Some Federal tax law conditions relate to law as in effect on September 1, 1974. Consider also that a governmental plan is governed by the State’s constitution, statutes, and other State law, which, under some States’ laws, might include a political subdivision’s law. For more information, read Governmental Plans Answer Book https://law-store.wolterskluwer.com/s/product/governmental-plans-answer-book-pension3-mo-subvitallaw-3r/01t0f00000J4aDTAAZ.

A Labor department rule describes some partial interpretations for some situations you mention. 29 C.F.R. § 2530.206 https://www.ecfr.gov/current/title-29/part-2530/section-2530.206#p-2530.206(a). But consider these cautions: Those interpretations are profoundly incomplete. Some of the interpretations might be contrary to the statute. Whatever deference this agency rule might get could become obsolete tomorrow or in the next few days. To the extent, if any, that Chevron deference continues, some of the rule’s interpretations might not be a permissible interpretation of the statute. As always, a court order that would call the plan to pay something the plan does not provide is not a qualified domestic relations order.

Consider whether the settlement agreement might be wholly or partly void, voidable (by one or more of its parties), legally enforceable, or unenforceable. Consider whether the settlement agreement might be effective or ineffective regarding the retirement plan. Consider whether the settlement agreement might be a plan amendment. (As one aspect of this, consider whether the settlement agreement’s signer also might have had authority under the plan’s governing documents to amend the plan.) Consider whether, if a safe-harbor contribution is not allocated to the participant’s account, a consequence might be that the plan loses whichever safe-harbor relief relates to that contribution. If you’re a service provider, consider how to get the plan administrator’s proper instruction that protects the service provider. This is not advice to anyone.

A Form 5500 report should factually state information according to what happened, or didn’t. To help someone discern what might (or might not) have changed, and how it might have changed, and when: Was the business purchase a purchase of assets from the company? Or a purchase of shares of the company? Recognize that documents governing the plan might include some that don’t look like what many employee-benefits practitioners call a plan document. Might the buyer corporation, limited-liability company, partnership, or other organization have adopted a resolution, written consent, or other act that changed the seller’s plan’s sponsor or administrator? While the instructions for line 3 are ambiguous, some practitioners assume one reports the administrator that is duly appointed and currently serving on the day each signer signs the Form 5500 report’s jurat, not the organization or other person that served as the plan’s administrator on or as of the last day of the reported-on period. The instructions for lines 1 to 4 [pages 16-19], include details about what to do if: ÿ the plan’s name changed, ÿ the plan’s sponsor changed, or ÿ the plan sponsor’s EIN changed. Again, some practitioners assume this refers to changes up to the day the administrator signs the Form 5500 report. It might be possible that nothing changed. This is not advice to anyone. To answer your query, I’ve seen situations that called for reporting short plan years that end and begin with or around the business transactions’ closing date. But that sometimes happens when the m&a deal teams for both seller and buyer include not only business lawyers but also employee-benefits lawyers, who think carefully about the provisions.

If the plan’s administrator seeks to use the IRA issuer regularly used for participants’ default rollovers, one might check whether the administrator’s or its recordkeeper’s contract with the IRA issuer obligates the issuer to accept a rollover of a beneficiary’s distribution. Also, if some portion of what otherwise might be a single-sum distribution is a § 401(a)(9) minimum distribution, that portion is not an eligible rollover distribution.

A small-balance involuntary distribution usually relates to a participant’s severance-from-employment. Even if a plan’s administrator interprets a plan’s governing document to treat a beneficiary as a participant (which I do not suggest), the administrator might doubt that an already-retired participant’s death is the beneficiary’s or the participant’s severance-from-employment. Of the two remaining beneficiaries, won’t each’s required beginning date come soon enough?

My point was this: If, instead of getting the plan administrator’s signatures each year, a service provider were allowed to rely on a standing-instruction authority that continues indefinitely until revoked, a service provider might lack records to prove that the plan’s administrator had read and approved each year’s report. Under ERISA § 3(21)(A)(iii), “a person is a fiduciary with respect to a plan to the extent . . . [the person] has any discretionary authority or discretionary responsibility in the administration of such plan.” Many interpretations of ERISA § 3(21) look past formal labels and consider whether a service provider had or used discretion. Even compiling a Form 5500 report might involve some arguably discretionary choices about how information is reported. If there were no record that the plan’s administrator reviewed and approved a particular year’s Form 5500 report and the available evidence suggests the TPA compiled the Form 5500 report, I can imagine an argument that the TPA was the plan’s fiduciary to the extent of its discretion had or used for that reporting. While I see that a standing-instruction authority is possible, a cautious service provider might prefer a showing that the plan’s administrator granted authority to file the particular year’s report. Consider, an email or fax (perhaps one that sends the manually signed Form 5500 page), if it includes the authorizing person’s name, can be an electronic record, and even an electronic signature. 15 U.S.C. § 7006. This is not advice to anyone.

Many plans provide an involuntary distribution on a participant’s small ($1,000, $5,000, or $7,000) balance. But many plans do not provide an involuntary distribution on a beneficiary’s account, except as needed to meet a § 401(a)(9) required beginning date or minimum distribution, including a continued minimum distribution that began before the participant’s death. For the situation you’re working on, what does the plan’s governing document provide? This is not advice to anyone.

Even if the Labor department might allow such a standing-instruction authority, what records would the TPA keep to prove that, each year, the plan’s administrator had read and approved the year’s report? If the available evidence suggests the TPA compiled the Form 5500 report and does not prove that the plan’s administrator reviewed and approved it, was the TPA the plan’s administrator and fiduciary to the extent of that reporting?

And provide the retirement distribution as nonannuity payments over 14 years?

justanotheradmin, thank you for helping me think thoroughly. “Based on all of the relevant facts and circumstances, the group of employees to whom a benefit, right, or feature is effectively available must not substantially favor HCEs [highly-compensated employees].” 26 C.F.R. § 1.401(a)(4)-4(c)(1) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(4)-4#p-1.401(a)(4)-4(c)(1). But doesn’t that effective-availability concept refer to the right the plan provides? What the plan provides is a right to a distribution on having a severance-from-employment and having reached normal retirement age. That right is provided uniformly to highly- and nonhighly-compensated participants. Whatever expectation a participant had regarding before-amendment provisions is protected under the anti-cutback rule. I see that “the timing of a plan amendment . . . [could] ha[ve] the effect of discriminating significantly in favor of HCEs or former HCEs[.]” 26 C.F.R. § 1.401(a)(4)-5(a)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(4)-5#p-1.401(a)(4)-5(a)(2). Whether it so discriminates “is determined at the time the plan amendment first becomes effective for purposes of section 401(a), based on all of the relevant facts and circumstances.” CuseFan, that some former employees neglect to update email, postal-mail, and telephone addresses might not be too big a problem if, as the employer believes, few low-wage workers will elect deferrals under the after-amendment provisions. Also, when an individual turns 65, she’ll get the Social Security Administration’s you-may-have-a-benefit letter, which directs its addressee to the employer/administrator. About the many subaccounts, I know the employer/administrator would need to negotiate its recordkeeper’s services, and that it might lack enough bargaining power. I concur with everyone that the employer’s plan design challenges the plan administrator’s responsibility and the recordkeeper’s services. As I mentioned, I don’t advocate the design. But BenefitsLink neighbors’ cautions help me volunteer cautions beyond the two questions I was asked.

If the distributee is employed and perceives that Federal income tax withholding on the eligible rollover distribution might result in too much paid-in toward the year’s Federal income tax, the individual might evaluate whether to lower withholding from wages for the remainder of the year. While the plan’s administrator and its service providers might not present such a suggestion, the certified public accountant might consider it.

Except for a required distribution at 70-something, the plan has no involuntary distribution; there is no such cash-out (whether for $1,000 or another amount).

Yup, preserving the before-amendment rights is a pain-in-the-assets.

justanotheradmin, thank you for your helpful observation. The plan was established before 2022, so an automatic-contribution arrangement is not a tax-qualification condition. The evaluation now is about amending the plan to get rid of a hardship distribution, and a distribution on severance or age 59½. Lou S., the owners, and the few executives who are not also an owner, all are old enough and mature enough that being constrained until age 65 is no worry for them.