Peter Gulia

Luke Bailey and Belgarath, thank you for your further observations. Luke Bailey, thank you for mentioning Kovel translation or explanation, fact-gathering, and other arrangements preparing a lawyer to form her advice. In my course’s lesson about confidences and evidence-law privileges, we’ve considered whether a Kovel (or similar State-law) tolerance applies when a lawyer engages an accounting firm or consulting firm but nothing in that firm’s work involves accounting, actuarial practice, business advice, investment advice, or any discipline other than legal advice. But a lawyer’s engagement of others for fact-gathering should work with no need for any Kovel doctrine.

Towanda, thank you for your helpful information. Because we recognize that a plan sponsor’s representative practices before the IRS, here’s the Circular 230 rule about conflicting interests: § 10.29 Conflicting interests. (a) Except as provided by paragraph (b) of this section, a practitioner shall not represent a client before the Internal Revenue Service if the representation involves a conflict of interest. A conflict of interest exists if— (1) The representation of one client will be directly adverse to another client; or (2) There is a significant risk that the representation of one or more clients will be materially limited by the practitioner’s responsibilities to another client, a former client{,} or a third person, or by a personal interest of the practitioner. (b) Notwithstanding the existence of a conflict of interest under paragraph (a) of this section, the practitioner may represent a client if— (1) The practitioner reasonably believes that the practitioner will be able to provide competent and diligent representation to each affected client; (2) The representation is not prohibited by law; and (3) Each affected client waives the conflict of interest and gives informed consent, confirmed in writing by each affected client, at the time the existence of the conflict of interest is known by the practitioner. The confirmation may be made within a reasonable period after the informed consent, but in no event later than 30 days. (c) Copies of the written consents must be retained by the practitioner for at least 36 months from the date of the conclusion of the representation of the affected clients, and the written consents must be provided to any officer or employee of the Internal Revenue Service on request. 31 C.F.R. § 10.29 https://www.ecfr.gov/current/title-31/section-10.29. As CuseFan suggests, whether a conflict exists turns on the surrounding facts and circumstances, which might include whether the practitioner’s advice is obvious or involves discretion that could an affect an interest beyond the plan sponsor’s interest.

Rocha’s originating post—“no kin to be found”—suggests the plan’s administrator might have already pursued some effort to find someone who might fit the plan’s default-beneficiary provision. It might be impractical to pay or deliver any distribution, even an involuntary distribution, if the identity of the distributee is yet unknown.

Thank you for your thinking, especially about what might or might not set up a conflict of interests. Others with different or further observations?

Please let me preface this request by saying I don’t do corrections work, and my interest is only academic. I’m developing a lesson for my multidisciplinary course on Professional Conduct in Tax Practice. For a Voluntary Correction Program submission to the Internal Revenue Service, a plan sponsor might want a representative, and might find it efficient and effective to be represented by a practitioner who works for the recordkeeper or third-party administrator. Do some offer this service? Must a submission be prepared, or at least supervised, by an owner or employee who is an attorney, accountant, actuary, or enrolled retirement plan agent recognized for practice before the IRS? If the practitioner’s employer was at fault for the to-be-corrected failure, does the practitioner have a conflict of interests? What ways do you use to avoid or manage such a conflict? If the practitioner’s employer was not at fault for but was involved about the to-be-corrected failure, does the practitioner have a conflict of interests? What ways do you use to avoid or manage such a conflict? If a recordkeeper or TPA does not offer a service of letting its employee serve as a plan sponsor’s representative, is that because you see a conflict that can’t be avoided or managed? Because I lack experience, I hope BenefitsLink neighbors will help me learn about real-world practice.

About whether one must pay or deliver an involuntary distribution to meet § 401(a)(9): The Internal Revenue Service instructs Employee Plans examiners not to treat a plan as failing to meet § 401(a)(9) if the plan’s administrator has not found the beneficiary after a search that includes three steps the Internal Revenue Manual specifies. Internal Revenue Manual 4.71.1.4(15)(d) (Examination Objectives and Development of Issues) (Feb. 25, 2022) https://www.irs.gov/irm/part4/irm_04-071-001. That guidance tells an examiner to excuse what otherwise might be a § 401(a)(9) failure if the beneficiary is known but not found. A logical inference is that the IRS ought to excuse the absence of a § 401(a)(9) minimum distribution if the participant named no beneficiary (or all named are deceased or do not exist) and the default beneficiary is not yet known after the plan’s administrator made prudent efforts to find a person who might be the beneficiary under the plan’s default-beneficiary provision.

That is how the statute reads. And the IRS’s Internal Revenue Manual describes the statute: “IRC 6652(e) provides for non-assertion of the penalty if reasonable cause can be shown.” Internal Revenue Manual 20.1.8.4.3(18) (Oct. 6, 2022) (emphasis added) https://www.irs.gov/irm/part20/irm_20-001-008r.

The penalty does not apply if “it is shown that [the] failure is due to reasonable cause[.]” But Congress set the amount.

We can remark on the IRS’s difficulties in processing tax returns, information returns, and other documents—especially those filed by mailing paper, and resulting burdens for a filer to preserve evidence of what was filed and when. But the amount of the penalty is Congress’s Act. Internal Revenue Code of 1986 (26 U.S.C.) § 6652(e), amended by SECURE 2019 § 403(a) http://uscode.house.gov/view.xhtml?req=(title:26%20section:6652%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section6652)&f=treesort&edition=prelim&num=0&jumpTo=true. How Congress sets public policy might be attributed to representative democracy and the United States’ Constitution.

The § 414A(c)(3) exception includes “any church plan (within the meaning of section 414(e)).” http://uscode.house.gov/view.xhtml?req=(title:26%20section:414A%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true Internal Revenue Code of 1986 (26 U.S.C.) § 414(e) states a definition for a church plan. http://uscode.house.gov/view.xhtml?req=(title:26%20section:414%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414)&f=treesort&edition=prelim&num=0&jumpTo=true A rule interpreting some aspects of that definition is: 26 C.F.R. § 1.414(e)-1(a) https://www.ecfr.gov/current/title-26/section-1.414(e)-1. Many books, whether print or internet-delivered, retirement-plans practitioners use include a chapter or unit on church plans. In 403(b) Answer Book, it is chapter 22.

If the only effect of an Internal Revenue Code § 457(b)(3) normal retirement age is to fix which three years get the § 457(b)(3) deferral limit, it’s much simpler for a plan not to specify any age, and to provide that a participant may elect her normal retirement age within the range § 457(b)(3) permits. 26 C.F.R. § 1.457-4(c)(3)(v)(A) https://www.ecfr.gov/current/title-26/part-1/section-1.457-4#p-1.457-4(c)(3)(v)(A). Following a worker’s job classification, defined-benefit pension rights, and other circumstances, a normal retirement age can be as young as 40 and as old as 70½. Example: Martha will turn 70½ in 2027 and elects 2024-2026 as her “special section 457 catch-up” years. Observe that a § 457(b)(3) deferral limit applies on the participant’s tax year, not any plan year. Whether a plan amendment is precluded or must be limited is governed by the United States’ and the State’s constitutions and other State law. But an amendment that does not diminish any participant’s rights should be unobjectionable.

Beyond retirement and health plans, has anyone, perhaps a big accounting firm, done projections on the many tax and other figures that get inflation adjustments?

Although Internal Revenue Code § 414A(a)(1) generally (with some exceptions) applies to a § 401(k) arrangement established on or after December 29, 2022, a plan need not provide an automatic-contribution arrangement until the first plan year that begins on or after January 1, 2025. Some plan sponsors might consider it awkward to omit an automatic-contribution arrangement for 2024, recognizing a need to add automatic for 2025. But others might prefer administering the first year of a new § 401(k) arrangement without the extra complexity of automatic.

Here’s the rule for delaying, not excusing, an independent qualified public accountant’s report. Observe the several mentions about both plan years. 29 C.F.R. § 2520.104-50(b) https://www.ecfr.gov/current/title-29/part-2520/section-2520.104-50#p-2520.104-50(b). Even if a later plan year begins with fewer than 100 counted participants, consider that there are several other conditions for excusing an independent qualified public accountant’s audit of the plan’s financial statements. 29 C.F.R. § 2520.104-46(b) https://www.ecfr.gov/current/title-29/part-2520/section-2520.104-46#p-2520.104-46(b).

With § 72(p) added to the Internal Revenue Code on September 3, 1982 and applying to loans made or revised after August 13, 1982, one would like to think that 41 years later the software ought to apply the rules and calculate a next loan’s limit without us needing to think about it. https://www.govinfo.gov/content/pkg/STATUTE-96/pdf/STATUTE-96-Pg324.pdf But experience teaches us to look for and check all assumptions.

Consider that a termination of plan B, a plan B participant’s severance from former employer B (if B is not part of the same employer as A), or a plan B participant’s age 59½ might not be the only distribution-allowing circumstances. Plan B might provide a limited distribution: to meet the participant’s hardship; as a qualified birth or adoption distribution; or under another early-out provision. Further, plan B’s administrator might carefully administer claims to decide whether a claimant is entitled to what she claims. Incautiously paying an unentitled claim might, in some circumstances, result in a participant’s account not bearing her fair share of the to-be-terminated plan’s final-administration expenses.

Might it be that some record or system treats those participants’ accounts as having an investment receivable on the last day of 2021 and on the first day of 2022?

And here’s the important idea: Don’t be a do-it-yourselfer. Find a good service provider to guide you in doing things correctly and efficiently and effectively.

No one in Congress asked for my view on the public policy merits or weaknesses. I just hope I’m translating accurately the statute Congress wrote.

What is an emergency personal expense distribution? This is a payout to meet unforeseeable or immediate financial needs for necessary personal or family emergency expenses. You may take this only once each year. You may take up to $1,000 [2024] (counting all plans). But you must leave at least $1,000 in your account. You may recontribute to the plan the amount you receive within three years after you receive it. After you get an emergency personal expense distribution, you may not get another in the next three years until you repay into the plan the payout you received, or your later elective deferrals under the plan are at least as much as the payout you received. Allowing for a need to write in plain language, is that an accurate explanation?

A court’s order might be incorrect, or otherwise made under a mistake of fact or a mistake of law. But if a participant or other domestic-relations litigant thinks a court’s order is incorrect, one’s remedies are in the courts. An ERISA-governed retirement plan’s administrator does not evaluate whether a court’s order is fair to the participant, or fair to the would-be alternate payee. Rather, an administrator checks whether a writing submitted as a domestic-relations order seems to be a court’s order, and evaluates whether in form the order specifies a division that can be accomplished within the plan’s provisions (and states no command contrary to the plan’s provisions). A plan’s administrator might have some fiduciary responsibility to act prudently in deciding whether a submitted writing is or is not a QDRO. But that responsibility does not include considering whether a State or Tribal court’s proceeding was fair to that proceeding’s litigants.

For 2024’s emergency personal expense distribution, Internal Revenue Code § 72(t)(2)(I)(iii) states: DOLLAR LIMITATION.—The amount which may be treated as an emergency personal expense distribution by any individual in any calendar year shall not exceed the lesser of $1,000 or an amount equal to the excess of— (I) the individual’s total nonforfeitable accrued benefit under the plan (the individual’s total interest in the plan in the case of an individual retirement plan), determined as of the date of each such distribution, over (II) $1,000. What does this mean? Does it mean a participant whose whole account (let’s assume it’s all 100% vested) is $1,787 is restricted to $787 for her emergency personal expense distribution?

Before doing (or even considering doing) anything, a plan’s administrator might reread its ERISA § 206(d)(3)(G)(i)(I) DRO procedures and its ERISA § 503 claims procedures. If either procedure does not state enough guidance about how the administrator should handle the situation, the administrator, with its lawyer’s advice, might evaluate whether to revise one or both procedures.

If, for all or some employees, service is counted with equivalencies, an employee (or a deemed employee, such as a partner or member) who works only one time each month and does so in six months of a 12-month period would be credited with 1,140 hours. 29 C.F.R. § 2530.200b-3(e)(1)(iv) https://www.ecfr.gov/current/title-29/part-2530/section-2530.200b-3#p-2530.200b-3(e)(1)(iv).

Thank you for remarking on the § 415 rule on when restoration is not an annual addition. 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C). I lobbied for the predecessor—Revenue Ruling 2002–45—and the later rule. In the rulemaking, the Treasury department adopted my suggestion that the rule should cover not only ERISA fiduciary responsibility but also fiduciary responsibility under whatever Federal or State law governs the plan. Limitations on Benefits and Contributions Under Qualified Plans [final rule], 72 Federal Register 16878, 16887 (Apr. 5, 2007) https://www.govinfo.gov/content/pkg/FR-2007-04-05/pdf/E7-5750.pdf. The rule and the Treasury department’s rulemaking explanation of it make clear that the examples about ways a liability might be shown are nonexhaustive and nonrestrictive. In my whole-text and contextual interpretation, a “reasonable risk of liability” does not require a finding that a person harmed by a fiduciary’s breach would or might assert her claim for legal or equitable relief. Rather, it is enough to find that the liability, even on an unasserted claim, exists. Under ERISA § 409(a), a fiduciary that breached its responsibility is “personally liable to make good to such plan any losses to the plan resulting from each such breach[.]” An upright or decent fiduciary corrects accounts without waiting to be asked.