Peter Gulia

The Instructions state: “File Form 1099-R . . . for each person to whom you have made a designated distribution[,] or are treated as having made a distribution[,] of $10 or more[.]” Bri, it seems right that the $10 refers to the sum of all payments and deliveries made to the distributee during the reported-on year. Let’s consider a situation Basically describes, but applying ratherbereading’s mention of a fee resulting in a distribution of $0.00. A participant’s account is $20.03. The plan’s fiduciary had approved the service provider’s $25 distribution-processing fee. On receiving the plan administrator’s instruction to process a distribution, the service provider collects $20.03, leaving $0.00 available to pay the distributee. Is a 1099-R showing a gross distribution of $0.00 permitted?

Is buying out the former spouse “[c]osts directly related to the purchase of a principal residence for the [participant]”? 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(2). Is buying out the former spouse “necessary to prevent the eviction of the [participant] from the [participant’s] principal residence”? Is buying out the former spouse “necessary to prevent . . . foreclosure on the mortgage on [the participant’s principal] residence”? 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(4) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(4).

If you’re a law student (as your May 25 post mentions) and not an admitted attorney-at-law, you should seek the guidance and supervision of the faculty person responsible for your law school’s clinic or other program.

What Bill Presson said. Unless the trustee is ready to: resign or recuse, spend the time and lawyers’ fees to get an individual prohibited-transaction exemption, spend the fees for independent fiduciaries to make all decisions (which might include that the real property is not a prudent investment for the plan’s trust), spend the fees for independent appraisers—to estimate each fair-market value for the initial purchase price, each year’s valuation, and the price at which the plan may sell the property, pay the plan’s successor or separate trustee the fair-market rent the independent persons set, and meet other conditions the Labor department likely would require, isn’t this a nonstarter?

Let’s assume that whatever survivor annuity or other death benefit the plan provides a surviving spouse to meet ERISA § 205 is inapplicable or exhausted. And let’s assume that, in the circumstances, the plan provides a benefit for which it might matter to identify a beneficiary. An ERISA-governed plan’s administrator must administer the plan “in accordance with the documents and instruments governing the plan[.]” ERISA § 404(a)(1)(D). That means the governing documents, not the summary plan description (unless the plan sponsor specified the SPD is a governing document). See CIGNA Corp. v. Amara, 563 U.S. 421, 50 Empl. Benefits Cas. (BL) 2569 (May 16, 2011). But let’s imagine the plan’s governing documents too might be ambiguous. (The ways plan sponsors make plan documents, especially when using IRS-preapproved documents, often result in provisions that do not make sense using only textual interpretation.) Plan documents typically grant the plan’s administrator broad discretion to interpret a governing document and the plan’s provisions. Many BenefitsLink mavens use the shorthand RTFD for Read The F . . . abulous Document (as RatherBeGolfing recently explained it). I propose a new shorthand: ITFD for Interpret The Fouled-up Document. If the plan’s documents grant discretion, courts defer to the administrator’s reasoned interpretation. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 10 Empl. Benefits Cas. (BL) 1873 (Feb. 21, 1989). Not seeing the whole set of documents you mention, I won’t speculate about the interpretation. This is not advice to anyone.

But does that rule preclude a payer from volunteering Form 1099-R reports no matter how small the amount?

Until the law changes for years after a plan’s first year, consider that this point is one on which a third-party administrator might add value. A recordkeeper might have no facility to record a deferral election expressed with anything beyond the deferral’s amount or percentage of compensation. And a recordkeeper might not explain that if a participant’s deferral is expressed in part with other terms or conditions, the plan’s administrator must keep that record without relying on the recordkeeper. A good TPA might explain how a deferral election might be stated with conditions, if the plan’s governing documents allow it. I’m aware that many self-employed individuals manage this point by falsely dating a deferral election as having been made in the preceding December. But why do that if a needed or desired flexibility in the elective-deferral amount can be specified with a proper election?

If a fee lowers a participant’s distribution to $0.00, is there an information and communication value in generating and sending a Form 1099-R report to show the distribution paid as $0.00? Or do plans’ administrators use other ways to preserve evidence that the account-closing distribution was provided? And for the year or quarter-year in which the account becomes $0.00, does one send the participant a final account statement?

Avoiding unwelcome information about an employee’s living situation is among the reasons an employer/administrator might prefer that claims for a hardship distribution be processed from a self-certifying claim form.

Perhaps a plan’s governing documents might not preclude an individual from specifying her elective-deferral election with conditions beyond those customary regarding an employee’s wages to refer to one or more business conditions. For example, how about: . . . ? My elective deferral is the greatest amount that: (i) does not exceed the IRC § 402(g) limit (with the applicable IRC § 414(v) extension) and, counting the employer’s nonelective contribution, does not exceed the IRC § 415(c) limit; (ii) does not result in any contribution to the plan that otherwise would be deductible under IRC § 404 being nondeductible for 2024; (iii) is limited such that Supportable Inc. does not breach any debt covenant; (iv) is limited such that Supportable Inc.’s net profit for 2024 is no less than $10,000; and (v) is limited such that, immediately after payment into the plan’s trust, Supportable Inc.’s cash-on-hand is no less than $5,000. Could we defend an election like that as determinable and as decided before the year closed? This is not advice to anyone.

To think about how to classify a fee or other expense, one would want to know more about the plan and about what service was provided. Is the plan a health plan? A disability plan? A life insurance plan? Some other kind of welfare benefit? Or is the plan a defined-benefit pension plan? Or an individual-account retirement plan? Was the service about a health insurance contract? A stop-loss contract? Disability insurance? Life insurance? Fiduciary liability insurance? Some other casualty insurance? A fixed annuity contract? A variable annuity contract? And was the service truly advice to the plan? Or was it a service to an issuer or intermediary of an insurance contract?

Just curious: Does Form 5500 software include any programming that sets a presumptive path for reporting based on how an amount is coded for Schedule C? Is there a logical-consistency check between Schedule C and Schedule H?

ERISA § 204(h)(8)(A) defines an “applicable individual” as a participant or alternate payee “whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan amendment.” https://uscode.house.gov/view.xhtml?req=(title:29%20section:1054%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1054)&f=treesort&edition=prelim&num=0&jumpTo=true

Consider also that the Internal Revenue Service would not tax-disqualify a plan for a failure to administer the plan according to the written plan if one administers the plan according to the documents as later changed by a remedial amendment the IRS recognizes. About § 401(a)(9)’s ten-year period regarding a beneficiary who is not an eligible designated beneficiary, for a participant’s minor child the ten-year period does not begin until “the date the individual reaches majority”, which the Treasury department interprets as 21 (even while recognizing that only one of the 50 States has an age of majority that late). minimum-distribution rules proposed FR 2022-02522.pdf

Are both reports for the same period? And even if they are, consider that one report's item might be on an accrual basis of accounting while the other report's similar item refers to an amount actually paid or received. Further, seemingly similar items might not be exactly the same in a particular report's query or instructions.

After we left off this discussion, another state's courts reason against a during-marriage domestic-relations order. Wallace v. Wildensee, 990 N.W.2d 637, 2023 Empl. Benefits Cas. (BL) ¶ 154,219 (Iowa 2023) (When there is no divorce or separate-maintenance proceeding, a court lacks power to issue a domestic-relations order.).

Why is the plan’s administrator so eager to pay? The facts and circumstances you describe suggest that no one submitted a claim. Even if the plan would provide an involuntary minimum distribution because the beneficiary’s required beginning date is a few days away (or the plan otherwise provides an involuntary distribution), an administrator might consider it prudent not to pay if the payee’s identity is not determined. If an administrator needs or wants to put in an effort to identify a minor’s payee, an administrator might consider checking records of the court in which the decedent’s will likely would be admitted to probate and, if different, records of the court that has jurisdiction to appoint the minor’s conservator, guardian, or other fiduciary. A search of publicly available records might be logically consistent, by analogy, with the IRS’s internal guidance directing an EP examiner not to challenge a plan’s tax-qualified treatment for failing to pay a required minimum distribution when the plan’s administrator has not located the distributee. This is not advice to anyone.

Based on how much strength a tax position needs to get the taxpayer an excuse or relief from a tax-reporting penalty, tax practice has developed a special lingo with term-of-art phrases to describe the relative strength of interpretations of tax law. See my table “How strong is this interpretation of tax law?” attached below. One of those term-of-art descriptors—“more likely than not”—applies in generally accepted accounting principles for accounting for income taxes. A less-confident “substantial authority” often lets a taxpayer assert a tax-return position without a particular disclosure that the IRS might view the tax law differently. (Using Belgarath’s illustration, if a practitioner doesn’t nudge her thinking from 50/50 to 51/49, one would write a substantial-authority opinion. That might be enough to omit a particular disclosure from a tax return, but might not be enough to omit an accrual from financial statements.) A practitioner who renders written advice often provides a reasoned opinion that at least alludes to, and often describes, other possible interpretations. Likewise, it’s often useful to present all or some possible interpretations and explain the strengths, weaknesses, and consequences of each choice. This note is about tax advice a practitioner provides to her client that or who is the taxpayer. An opinion or advice that a nonclient third person may read is a different practice. And a lawyer’s advice to an employee-benefit plan’s fiduciary often is burdened by recognizing that an ERISA-governed plan’s fiduciary—and, depending on State law and other circumstances, a governmental plan’s or church plan’s fiduciary—cannot invoke the evidence-law privilege for lawyer-client communications against the participants and beneficiaries of the fiduciary relation. How strong is this interpretation of tax law.pdf

Your inquirer seems to have a good impulse. Regarding a pooled-employer plan, an adopting employer has fiduciary responsibility (at least) for its selection and monitoring of not only the pooled plan provider but also all persons that are a named fiduciary of the PEP, including the PEP’s § 3(38) investment manager. An employer should not use its fiduciary discretion about whether to adopt a PEP to cause itself to get compensation as the PEP’s investment manager. To avoid self-dealing, the conflicted fiduciary might engage an independent fiduciary to decide whether the employer should adopt the PEP, meet the conditions of a prohibited-transaction exemption, or avoid the compensation to the extent of the plan assets (or other portion of the fee) attributable to the adopting employer’s subplan. If a part of the solution is avoiding the compensation, the investment manager and the pooled plan provider might resolve and document their arrangements. Further, avoiding self-dealing about the investment manager’s fee is not the only conflict such a conflicted fiduciary needs to manage. This is not advice to anyone.

If you click on the hyperlink above to read the statute, you’ll see that a domestic relation order (a subset of the defined term qualified domestic relation order) may “relate[] to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant[.]” But a lawyer drafting an order one hopes the retirement plan’s administrator will decide is a QDRO should read carefully the plan’s governing documents so that the order one proposes to a domestic-relations court meets all conditions of ERISA § 206(d)(3), including that the order “does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan[.]” For one example, an order that purports to direct an ERISA-governed individual-account (defined-contribution) retirement plan to pay an alternate payee an amount each month would not be a QDRO if the plan does not provide periodic payments. If a might-be alternate payee’s lawyer, paralegal, limited license legal technician, or other adviser lacks expertise about QDROs, that person might engage help from a lawyer or other practitioner who has the needed knowledge and skills.

For many service businesses, the professional might keep her corporation or other business organization alive at least as long as it might be desired to receive periodic payments from the sale of goodwill and perhaps other business assets, or to receive retired-partner payments, and to receive expert-witness or other consulting fees.

Consider also that bankruptcy exclusions and exemptions might not be the only kind of protection from creditors an inquirer desires. An inquirer might want her lawyer’s advice about other protections, and about before-bankruptcy and beyond-bankruptcy differences between an employment-based plan and an Individual Retirement Account.

And ERISA § 206(d)(3) [compiled as 29 U.S.C. § 1056(d)(3)] includes a command that a retirement plan (if governed by part 2 of subtitle B of title I of the Employee Retirement Income Security Act of 1974) must provide for paying benefits according to a qualified domestic relations order. https://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true

If the plan provides participant-directed investment regarding that contribution: Might not following a participant’s investment direction be a breach of the fiduciary’s ERISA § 404(a)(1)(D) duty of obedience to the plan’s governing documents? Might not following a participant’s investment direction be a tax-qualification defect of not administering the plan according to the written plan? If the securities broker-dealer or a custodian associated with it had the money and the instructions and had an obligation to allocate the contribution among participants’ accounts, should it be the broker-dealer that ought to restore participants’ accounts at the broker-dealer’s expense?

Let’s restate jsample’s query: Is anyone aware of a plan’s administrator that interprets a beneficiary designation by looking to its description of the named person’s relation to the participant as a condition of the designation? For example, might an administrator interpret that a named person the beneficiary-designation document describes as the participant’s spouse is not the participant’s beneficiary if the named person was not or is not at a relevant time the participant’s spouse?