Peter Gulia

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.

Paul I, thank you for noting some difficulties. The employer believes communicating that there is no payout until 65 will result in few of its low-wage workers choosing elective deferrals, so lowering the employer’s obligation for matching contributions. Yet, providing the safe-harbor allows each executive to save her $30,500. I’ve told the employer that the communications go to all eligibles, including those with no account balance. The employer knows that the business or the few with-balances participants will pay for the independent qualified public accountant. The plan would allow Roth contributions. I recognize that the employer’s plan design focuses on the employer’s business purposes, and dissuades workers who might save if the plan would allow some before-retirement access. I’ll advise considering more openness. But I also can be mindful that the employer, not me, bears the burdens of managing its challenging business.

Thanks. I don't advocate the design. My scope is about whether the design meets the two purposes I mentioned. And I'll advise about disadvantages.

An employer’s § 401(a)-(k) plan would have these provisions: Elective deferrals, up to § 402(g) and § 414(v) limits Safe-harbor matching contribution—100% on first 3% and 50% on next 2% Safe-harbor notices; no restraint on opportunity to elect a deferral from pay not yet available No participant loan; no hardship or other early-out distribution No small-balance ($7,000) involuntary distribution. No distribution until end of service and normal retirement age (65 or the latest permitted). Considering those plan-design elements: Does anything about the absence of ways to get money before normal retirement result in the plan losing a safe-harbor treatment for excuses from ADP and ACP tests? For States’ laws that call an employer to maintain a retirement plan or facilitate payroll contributions to Individual Retirement Accounts, is the plan described above sufficient to avoid the State’s arrangement?

If BenefitsLink neighbors have seen no experience, I’ll assume what I intuit: a fiduciary warranty might be nice sales stuff, but does not cover a real risk.

Consider thinking through your question from another direction: What provision in the plan’s governing document (or ERISA-mandated) would empower the plan’s administrator to deny or delay a benefit the plan provides?

Some service providers offer a “fiduciary warranty” that a customer plan’s menu of investment funds meets ERISA § 404(c)’s broad-range condition and is prudently selected. This warranty sometimes is, or is described as, an indemnity. Has any holder of a fiduciary warranty been sued or threatened? Has any service provider paid a loss or expense on its fiduciary warranty?

Or, if the participant and the spouse might still be spouses when the plan’s final distribution is to be paid or delivered, the plan’s administrator might want its lawyer’s advice about whether to obtain a qualified-joint-and-survivor annuity contract (for the portion of the participant’s account that is subject to the QJSA protection), interplead all claims and rights and petition for equitable relief in the Federal court for the district in which the plan is administered (or the Federal court the plan provides as the exclusive forum, if the plan so provides), and deliver the money (if any) and the annuity contract to that Federal court. But, as I imagine Kansas401k suspects, it might be simpler to help the divorcing persons get to conclusion and a QDRO before the plan’s final distribution. This is not advice to anyone.

This pension plan document might help you: https://www.wgaplans.org/pension/plan_doc/pension_index.html. Also, with your client entering her password, she might allow you to see her participant website: https://myplans.wgaplans.org/.

Even assuming all you describe and that the spouse assumes it’s not feasible to obtain a QDRO before the plan’s final distribution, there are opportunities for a spouse to ask the domestic-relations court for its orders to help guard the spouse against risks that the participant dissipates or hides money or other property before the spouse collects the spouse’s share. That’s the business of the domestic-relations court, not the plan’s administrator. Are you sure the plan (as amended) requires a qualified election with the spouse’s consent? Usually, an individual-account profit-sharing retirement plan’s final distribution is an involuntary single-sum distribution, and does not require a spouse’s consent or even a participant’s consent. (Else, how would the plan’s fiduciaries complete the plan’s termination?) If so, it would be unusual to provide that a participant without one’s spouse’s consent cannot instruct a direct rollover, and must get money paid to the participant. If the plan’s administrator furnished to the participant, the spouse, or either’s attorney or other representative the administrator’s QDRO procedures: If those QDRO procedures include a hold when the administrator receives notice that a domestic-relations order is anticipated, the administrator might consider, with its lawyers’ advice, amending the procedures and, if amended, furnishing the revised version. This is not advice to anyone.

Some retirement plans provide no claim for which finding the presence or absence of a participant’s or other claimant’s disability is relevant. And even for a plan under which disability sometimes might be relevant, a distribution might be provided for some other reason. Some payers interpret the Form 1099-R Instructions to suggest one need not report that a distributee is disabled if the plan’s administrator made no such finding. (Even when a plan’s administrator decided nothing about disability to approve the claim for a distribution, some administrators instruct a payer that a distributee is disabled, considering this a courtesy to support the distributee’s tax return.) Disability is one of several situations in which a fact or finding that need not, or even cannot, be shown in a Form 1099-R report can be relevant to a distributee’s Federal income tax treatment. A distributee decides how to state her tax returns.

And consider that the Secretary of the Treasury has no authority to interpret ERISA §§ 401-414.

To be a qualified domestic relations order (as ERISA § 206(d)(3) or Internal Revenue Code § 414(p) defines it), a court’s order must be “made pursuant to a [US] State or Tribal domestic relations law[.]” (Under both those Federal statutes, “State” is a defined term.) If the could-be alternate payee wants to pursue a QDRO, one might proceed in a US State’s court that has subject-matter jurisdiction, and can exercise personal jurisdiction over both former spouses. Thinking of ways to solve those jurisdiction points and other issues might be beyond the ordinary work of some domestic-relations lawyers. To search for lawyers who might have the needed aptitudes and skills, consider https://www.aaml.org/find-a-lawyer/. This is not advice to anyone. This is not a referral, and I have not evaluated any of these lawyers.

Along with considering what might be feasible plan designs under Federal tax law, research what powers the employer has or lacks under State law. A State’s agency, instrumentality, or political subdivision has no more power than State law provides. With State and local government employers, it often happens that an employee-benefit plan’s design might be feasible under Federal tax law but precluded under State law.

Consider that a writing (even a little email) stating or describing a nonelective contribution might be among the “documents and instruments governing the plan[.]” Consider too that what the plan’s governing documents provide is only one of several lanes a claimant might drive in. Among others, a disappointed participant might pursue one or more of the other legal and equitable remedies ERISA’s title I provides. Those can include remedies for miscommunication. The plan sponsor, the plan’s administrator, and other plan fiduciaries each will decide how much risk one wants to assume. If the employer wants to evaluate how relevant law applies and which risks to assume or manage, it might call in a lawyer. This is not advice to anyone.

An employer or a plan's administrator might prefer not to provide guidance on this question. Unless one has extraordinary expertise, an answer in either direction has a potential to harm one or more of an individual’s interests. Beyond knowing the law, an adviser would need to know everything about the individual’s other and surrounding circumstances. Under the part 416 rules of the Supplemental Security Income for the Aged, Blind, and Disabled program, the subpart L rules on “Resources and Exclusions” are at 20 C.F.R. §§ 416.1201 to 416.1266. These rules begin at 20 C.F.R. § 416.1201(a) https://www.ecfr.gov/current/title-20/part-416/section-416.1201#p-416.1201(a). Those rules are only a few of many that could relate to the SSI beneficiary’s situation. And one would research too the rulings and other nonrule guidance. And the guidance the Social Security Administration provides for SSA’s employees. For example: https://secure.ssa.gov/apps10/poms.nsf/lnx/0501120210. One also might consider that some SSI provisions might allow SSA to not count some elements of a beneficiary’s income or resources. In my experience, it’s impractical to advise an SSI beneficiary unless one volunteers an uncompensated engagement and can afford to put in substantial time and attention. This is not advice to anyone.

To avoid a command to provide a qualified joint and survivor annuity, it can be enough (if all other conditions are met) that the participant does not elect an annuity. ERISA § 205(b)(1)(C)(ii) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1055%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1055)&f=treesort&edition=prelim&num=0&jumpTo=true; Accord 26 C.F.R. § 1.401(a)-20 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)-20. As austin3515 notes, many individual-account profit-sharing plans preclude a choice of an annuity. Further, many plans have no form of distribution beyond a single sum.

David Rigby, Albert F, and CuseFan, thank you for helping me think this through. According to both Vanguard and Ascensus, the new fees are, for Ascensus’s directed trusteeship, $20 a year for each participant, and for “Ascensus’s annual account service fee”, $20 a year for each fund. (None of Ascensus’s fees relates to assets under recordkeeping, and the fees are not subsidized by indirect compensation other than float income.) My friend invests in only one target-year fund for each of her two subaccounts. So, she counts her Ascensus yearly fees as $20 + $20 + $20 = $60. She qualifies for no account fee on Vanguard IRAs. While $60 is a higher proportion (300 basis points) of $2,000 than it is of $1 or $2 million, I’m not seeing a less expensive path to getting recordkeeping for her § 401(a)-(k) plan. I fear Ascensus after 2024 might add a distribution-processing fee, even on rollovers. (That’s among the reasons my friend wants to do rollovers now before the transition to Ascensus.) If a processing fee comes, it might influence how often she moves amounts from her Ascensus-recordkept § 401(a)-(k) plan into her IRAs. Ascensus provides the plan-document service. I’ll edit the adoption-agreement choices. And I’ll edit even base provisions as much as can be without defeating the IRS preapproval or causing Ascensus to resign. About creditor protection: A reason for keeping each IRA clean with no contribution beyond the rollovers from the § 401(a)-(k) plan is to get the 11 U.S.C. § 522(b) exemption from the bankruptcy estate without limit. I have not researched other bankruptcy law, nor a creditor’s rights outside bankruptcy. But lacking an ERISA protection or preemption on even the employment-based plan, I’m hoping she doesn’t lose a useful protection by moving to the IRAs. We can check with a debtor’s-rights lawyer. Other points I should think about?

On September 6, 2000, the Treasury department published a final rule to amend the 1988 rule. Under that amendment, a plan sponsor may amend its plan to remove an optional form of benefit (including an optional annuity) if the plan provides a single-sum distribution form otherwise identical to the optional form of benefit eliminated. Such an amendment must not apply to a participant with an “annuity starting date” earlier than the 90th day after “the participant has been furnished a summary that reflects the amendment and that satisfies the requirements of 29 CFR [§] 2520.104b–3[.]” (I’ve simplified those explanations, and omitted some conditions.) For the details: Special Rules Regarding Optional Forms of Benefit Under Qualified Retirement Plans [final rule], 65 Federal Register 53901-53909 (Sept. 6, 2000), https://www.govinfo.gov/content/pkg/FR-2000-09-06/pdf/00-22668.pdf. Also, the Treasury department published further amendments in 2004, 2005, and 2006. https://www.govinfo.gov/content/pkg/FR-2004-03-24/pdf/04-6220.pdf https://www.govinfo.gov/content/pkg/FR-2005-08-12/pdf/05-15960.pdf https://www.govinfo.gov/content/pkg/FR-2005-09-13/pdf/05-17959.pdf https://www.govinfo.gov/content/pkg/FR-2005-09-27/pdf/05-19222.pdf https://www.govinfo.gov/content/pkg/FR-2006-08-09/pdf/E6-12885.pdf