Peter Gulia

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.

While § 3121(a)’s definition is much more detailed, your shorthand covers the essence for many employees of many smaller-business employers to which the tax credit might apply. Also, one might refer to Form W-2 box 3. I.R.C. (26 U.S.C.) § 3121 https://uscode.house.gov/view.xhtml?req=(title:26%20section:3121%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section3121)&f=treesort&edition=prelim&num=0&jumpTo=true

Have you done anything to check whether the letter is an authentic act of the Social Security Administration?

About Paul I’s last point: It’s EBSA internal policy to open an inquiry (not an investigation) if even one participant complains about an unresponsive employer/administrator. That often results in an explain-yourself letter addressed to the person EBSA sees, from Form 5500 reports and other records, as one who might act for the plan’s administrator or at least respond.

austin3515, you’re right that the proliferation of rules, variations, exceptions, and other complexity is confusing, overwhelming, and dispiriting. It increases disrespect for law. And yet you’re also right that we need more people who aren’t in the business of lobbying to speak up about how Congress legislates.

The rule’s Q&A T-13 says this: Q. For purposes of defining a key employee, who is an officer? A. Whether an individual is an officer shall be determined upon the basis of all the facts, including, for example, the source of his authority, the term for which elected or appointed, and the nature and extent of his duties. Generally, the term officer means an administrative executive who is in regular and continued service. The term officer implies continuity of service and excludes those employed for a special and single transaction. An employee who merely has the title of an officer but not the authority of an officer is not considered an officer for purposes of the key employee test. Similarly, an employee who does not have the title of an officer but has the authority of an officer is an officer for purposes of the key employee test. In the case of one or more employers treated as a single employer under sections 414(b), (c), or (m), whether or not an individual is an officer shall be determined based upon his responsibilities with respect to the employer or employers for which he is directly employed, and not with respect to the controlled group of corporations, employers under common control or affiliated service group. A partner of a partnership will not be treated as an officer for purposes of the key employee test merely because he owns a capital or profits interest in the partnership, exercises his voting rights as a partner, and may, for limited purposes, be authorized and does in fact act as an agent of the partnership. 26 C.F.R. § 1.416-1/Q&A T-13 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.416-1. If the presence or absence of a job title that some might imagine suggests its wearer is an officer is not by itself dispositive: How does a TPA classify whether a nonowner is an officer? Do you: 1. Just let your client fill-in a census using its own sense about who is or isn’t an officer? 2. Write in your census request a plain-language explanation of the rule quoted above? 3. Look at not only the yes-or-no response to the officer query but also the rest of the census information to discern whether your client’s responses seem to make sense? 4. Do something else?

After reading the financial statements of Power Corporation of Canada [TSX:POW] and its indirect subsidiary Great-West Lifeco Inc. [TSX:GWO] (which indirectly holds Empower Holdings, Inc.), I don’t worry about the profitability of the Empower businesses.

Thank you, all, for helping me list provisions and other factors that point in the different directions. Mojo, my motivator for thinking about this is an employment-based plan that hates losing participants to IRAs when those resulting investments are much more expensive than, and the investment advice and other services inferior to, those available with the employment-based plan. (The plan, not yet a billion, has purchasing power and negotiation skills few individuals have or practically can use.)

And filing something gets a statute-of-limitations period running.