Peter Gulia

It should be feasible to control this with the plan sponsor’s careful writing of the plan’s governing documents and the plan administrator’s careful writing of communications to participants. If the plan sponsor prefers that implied-assent elections in effect just before an amendment’s effectiveness remain in effect (despite the amendment providing no more implied-assent elections), it should be feasible for the documents and communications to specify that. An implied-assent regime presumes, if there is no opt-out, the communicated-to person’s assent to the provisions communicated to her. The rule for a cash-or-deferred election states: “For purposes of determining whether an election is a cash or deferred election, it is irrelevant whether the default that applies in the absence of an affirmative election is [that] the employee receives an amount in cash or some other taxable benefit[] or [that] the employer contributes an amount to a trust or provides an accrual or other benefit under a plan deferring the receipt of compensation[].” 26 C.F.R. § 1.401(k)-1(a)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(a)(3)(ii). If the plan’s governing document is unclear about which election—implied-assent deferral or no-longer-implied-assent, and so “cash”—applies, the administrator might use whatever discretionary authority the plan’s governing document grants to the administrator for it to interpret (loyally and prudently) which election the plan provides. This is not accounting, tax, or legal advice to anyone.

JH, your description suggests there might not have been a change in the plan’s legally named administrator. (The word has different meanings following whether the usage is ordinary English, business English, or the Federal statutes’ specially defined term.) Rather, a change might be about a service provider. Even if there is no change in the plan’s administrator, follow the cautions about a possibility (many might say a likelihood) of change in the plan’s domestic-relations-order procedures. If you want a division processed (or a hold or freeze lifted), consider that a lawyer might navigate the plan’s provisions and procedures (perhaps practically including the service provider’s ways) more skillfully than you might. Nothing in this is accounting, tax, or legal advice to anyone.

Dianna912, if other efforts (including some Effen suggests) don’t result in clarifying the participant’s benefit to her satisfaction, and you seek to help your friend evaluate her potential courses of action: Consider whether the circumstances you describe suggest enough potential for clarifying (and so improving) the participant’s benefit that it could be worthwhile to pay for at least an initial consultation with a knowledgeable employee-benefits lawyer. If the pension plan is ERISA-governed: One possible interpretation of ERISA § 206(d)(3) is that a qualified domestic relations order—to the extent (if any) that an order may provide for a successor-in-interest to an original alternate payee—may so provide only if the order restricts such an alternate payee to a spouse, former spouse, child, or other dependent of the participant. (I’m imagining that the deceased’s nephew is not the participant’s dependent.) See, for example, In re Marriage of Janet D. & Gene T. Shelstead, 66 Cal. App. 4th 893, 78 Cal. Rptr. 2d 365, 22 Empl. Benefits Cas. (BL) 1906 (Cal. Ct. App. Sept. 15, 1998) (interpreting ERISA § 206(d)(3), and applying ERISA § 206(d)(3)(K)). But recognize that this decision is no precedent. One might use it in an effort to persuade a decision-maker—whether the pension plan’s administrator or a reviewing court—that an order is not a QDRO. A further possible interpretation of ERISA § 206(d)(3) is that a qualified domestic relations order cannot designate an alternate payee’s successor-in-interest if, under the pension plan’s provisions, a participant cannot designate the participant’s successor-in-interest. That also might be so if there is no remaining interest to dispose of after the relevant person’s death. Recognize that the pension plan’s provisions might matter greatly. Consider that the participant might use the pension plan’s DRO and claims procedures to question the administrator’s interpretation, and to request the participant’s interpretation. (Some courts might say one must exhaust the plan’s procedures before asking a court to declare that a domestic-relations court’s order is not a QDRO.) Using the plan’s internal procedures might be less burdensome than litigation in a Federal court. None of this is legal advice to anyone.

And let’s remember that executive agencies write a Paperwork Reduction Act explanation because Congress—decision-makers “we the people” elected—decides to require those explanations.

Amen!

About adjusting typefaces, fonts, point sizes, line spacing, margins and line lengths, columns, layout, and other visual elements, a plan’s administrator or payer might evaluate whether the result meets the rule’s command that “[t]he section 402(f) notice must be designed to be easily understood[.]” 26 C.F.R. § 1.402(f)-1 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.402(f)-1. That observed, one might use good typography and layout to manage a page count while preserving readability.

The IRS’s Notice 2020-62 about safe-harbor explanations for eligible rollover distributions warns: “the updated safe harbor explanations will not satisfy § 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after August 6, 2020.” https://www.irs.gov/irb/2020-35_IRB#NOT-2020-62. What changes do you make so a text furnished now explains current law, including SECURE 2022 changes? One imagines some service providers follow SPARK Institute’s suggestions (which SPARK warns is not tax or legal advice): https://www.sparkinstitute.org/wp-content/uploads/2023/03/Special-Tax-Notice-SECURE-2.0-Act-Updates-Final-3.24.23-00391206.pdf. Are there changes not mentioned in SPARK’s suggestions? Which law changes are included in (or omitted from) Relius’ suggested explanation?

MoJo, thank you for your observations about effects for an acquirer’s business. About some plan terminations, I long ago suggested that the terminating plan provide that the default final distribution, for a distributee who is (when the final distribution is distributed) eligible for the assets buyer’s plan, is a direct rollover into that new employer’s plan. Does anyone do that? About perhaps over-cautious lawyering: A century ago, it was common for one law firm to serve as a business’s counsel for all matters, and in lasting relationships over successive generations. That allowed for wider, sometimes almost holistic, advice. Now, a firm that works on a business’s acquisitions—even if it regularly does all of them—might have little or no other relationship with the business (and might not keep the relationship over time). If an avoidable risk happens, the firm will be criticized for not having gotten rid of the risk. But if a firm helps a client get good employees and good business productivity, the law firm won’t share in the win for those results.

Even for an assets-only purchase, some buyers put in the deal agreement a condition that the seller’s plan is terminated before closing. While in theory an assets buyer is not responsible for a retirement plan the buyer never assumed, some buyers fear the many ways a buyer can be stuck with a bad situation. As we remind ourselves to Read The Fabulous Document, sometimes we add RTFD to the deal agreement.

Just curious: How does the system handle a situation in which a § 401(a) plan has more than 120 participants (and more than 120 with an account balance), but all participants are self-employed individuals? That can happen if a firm separates retirement plans—a plan distinctly for working partners (and no employee), and a separate plan for employees. A plan that covers no employee is not ERISA-governed.

Internal Revenue Code of 1986 § 401(k)(14)(C) now reads: Special rules relating to hardship withdrawals For purposes of paragraph [401(k)](2)(B)(i)(IV)— (C) Employee certification In determining whether a distribution is upon the hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is— (i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and (ii) not in excess of the amount required to satisfy such financial need, and that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification, and for procedures for addressing cases of employee misrepresentation. Congress has not enacted anything to repeal or amend that statute. This self-certification change applies to plan years that began or begin after December 29, 2022.

Beyond considering whatever is the before-1974 Federal tax law about vesting: You’ll want to consider whether: (1) the Contracts Clause of the US Constitution [U.S. Const. art. I, § 10], (2) a similar clause of the State’s constitution, or (3) the State constitution’s provision about retirement-plan rights (if any) precludes the change. States’ courts differ widely in how they interpret constitutional provisions of these kinds. That includes differences about when a right against change attaches. Under some provisions and interpretations, a right against change attaches as soon as the employee first became eligible for the retirement plan. The analysis turns on the exact texts of the constitutional provisions and the interpretations the State’s courts have found or would find.

Is your task: Interpreting what the plan now provides? or Evaluating whether it's feasible, and would be effective, to amend the plan?

If a governmental plan seeks to tax-qualify under Internal Revenue Code § 401(a), one considers nondiscrimination and vesting standards as in effect before September 2, 1974. To get into the details, use Carol V. Calhoun, Cynthia L. Moore & Keith Brainard, Governmental Plans Answer Book (Wolters Kluwer 5th ed., updated December 19, 2023), https://law-store.wolterskluwer.com/s/product/governmental-plans-answer-book-pension3-mo-subvitallaw-3r/01t0f00000J4aDTAAZ. Whether service may, must, or must not be counted turns on State law and, if permitted regarding a local government employer’s plan, further local law. Consider that a governmental plan often is not expressed in one fully integrated writing that looks like what pension practitioners call a plan document. Rather, a plan might be stated by some combination of a legislature’s statutes, executive agencies’ (including a retirement system’s) rules and subrule guidance documents, and courts’ interpretations of those law sources.

Whatever responsibility (if any) one might have for providing advice or information, the advisee or information recipient is responsible for what it decides or does. Many practitioners consider it professionally permissible to provide truthful information about nonenforcement. Others suggest omitting information that might lead an advisee or information recipient to noncompliance. A caution: If the information is nowhere published and instead is based only on anecdote or perception, it might be difficult to defend what one said about nonenforcement. Unless one warned the information had only that grounding, and can prove she said it.

The Joint Committee on Taxation’s narrative explanation of SECURE 2022 is a subpart in JCT’s General Explanation Of Tax Legislation Enacted In The 117th Congress, JCS-1-23 (Dec. 21, 2023). Although this is in JCT’s customary form for such a “blue book”, it is website-only. https://www.jct.gov/publications/2023/jcs-1-23/. If you want to extract the SECURE 2022 subpart, it is pages 295-530, which is pdf pages 307-542. In the subpart on SECURE 2022, the explanation notes at least 14 points for which the enacted statute might have an effect different than what the JCT staff assumes might have been Congress’s intent.

justanotheradmin, I suspect your way of letting the software provider find its error without embarrassment, and instead through internal processes, seems likelier to be effective.

For such a restatement that might be done in, for example, December 2028 or January 2029, how far retroactive in tax law changes does the remedial-amendment effect go?

Does the software provider’s license agreement include a warranty that using the software as specified results in legally correct reporting? And if so, does the provider have enough financial strength to pay on breaches of its warranty?

Although ERISA § 403(c)(1) commands that a plan’s assets must never inure to the benefit of any employer, § 403(c)(2)(A)(1) excepts a return, “within one year after the payment of the contribution”, of a contribution an employer made “by a mistake of fact[.]” ERISA § 403, unofficially compiled as 29 U.S.C. § 1103 http://uscode.house.gov/view.xhtml?req=(title:29%20section:1103%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1103)&f=treesort&edition=prelim&num=0&jumpTo=true. Interpretations about what is or isn’t a mistake of fact vary widely.

Unlike some employment-based retirement plans for which a § 401(a)(9) minimum-distribution provision might apply regarding the particular plan, for Individual Retirement Accounts tax law’s minimum-distribution condition applies to an individual, and applies regarding the aggregate of the IRAs an individual holds. A typical IRA custodial account agreement does not obligate (and might not permit) a custodian to pay a distribution the holder has not requested. And an IRA custodial account agreement might provide the custodian a right to delay payment if there are competing claims or other circumstances that raise a reasonable doubt about which person is the proper distributee. A custodian might have a right to wait until the custodian receives a court order or a settlement agreement that protects the custodian.

A person who seeks a New York State court’s order that the Teachers’ Retirement System of the City of New York (NYCTRS) would administer will want one’s lawyers’ advice about New York State law and the Retirement System’s law and procedures. NYCTRS publishes its TRS Guide to Domestic Relations Orders: https://www.trsnyc.org/memberportal/WebContent/publications/TRSGuidetoDRO.

And if you need full information, Ilene Ferenczy wrote the book on Employee Benefits in Mergers and Acquisitions, published by Wolters Kluwer.

Published in today’s Internal Revenue Bulletin, Notice 2024-2 addresses some aspects of remedial-amendment dates. Notice 2024-2, 2024-2 I.R.B. 316, 332-333 [including Q&A-J1] (Jan. 8, 2024), available at https://www.irs.gov/pub/irs-irbs/irb24-02.pdf. But the Notice does not further address the details for using IRS-preapproved documents.

If the first eligibility computation period for counting to 500 hours begins with the first day on which the employee is credited with an hour of service and the plan provides that the second period is the calendar plan year that begins within the first period, your first example might show a generosity in counting two 12-month periods in as little as a year and a day. The Treasury department’s explanation of its proposed rule speaks, indirectly, to your first example. See page 82802. https://www.govinfo.gov/content/pkg/FR-2023-11-27/pdf/2023-25987.pdf You are right that software designers and programmers ought to be accurate, complete, and careful about how one expresses tax law rules in software.