Peter Gulia

I concur with AlbanyConsultant’s observation about too many people reading or hearing about the idea without recognizing how a plan provision fits with coverage, nondiscrimination, and top-heavy rules. Beyond a one-participant situation, allowing employee contributions might fit if all employees are highly-compensated employees. That sometimes happens with a professional-services firm if the firm uses no support staff and even a beginner gets pay above $155,000. I concur also that within-the-plan reallocations to Roth often meet enough of the interest in Roth-ing to make employee contributions unnecessary.

As my early Christmas present, on December 21 the Joint Committee on Taxation released its General Explanation of Tax Legislation Enacted in the 117th Congress, a bluebook. This explains eight Acts of the 117th (2021-2022) Congress. The subpart on SECURE 2022 is pages 295-530 [pdf pages 307-542]. https://www.jct.gov/publications/2023/jcs-1-23/ But I’m still looking for a nongovernmental publisher’s classifications and indexing.

While I haven’t considered whether it’s a good source, here’s an article from the Journal of Accountancy: https://www.journalofaccountancy.com/news/2023/may/how-mega-backdoor-roth-works.html

For decades, practitioners relied on CCH/Wolters Kluwer, RIA/Thomson Reuters, and other tax law publishers to make a book to explain (and put into Code sections) Congress’s recent tax Act. Last December, CCH decided not to publish its customary “Law, Explanation and Analysis” on SECURE 2022. BenefitsLink neighbors, are you aware of any publisher’s book (not electronic-only text) on SECURE 2022?

In those circumstances and if there is no order that commands an employer to garnish or otherwise alienate an obligor’s wages, what the alternate recipient might get is a child-support order that commands only the parent obligated to pay for the alternate recipient’s health coverage.

Brian Gilmore, thanks. Am I right in guessing that a child-support order regarding an ERISA-governed ICHRA plan could not order the employer to pay any more reimbursement than the plan specifies (for example, an amount enough to make a self-only silver contract affordable for the employer to escape the play-or-pay excise tax)? Do you think a National Medical Support Notice could order an employer to deduct from its employee’s wages—and pay over to the employee’s individual health insurance issuer—the incremental amount needed to turn a self-only contract into a self-plus-alternate-recipient contract?

If an individual-coverage health reimbursement arrangement’s only benefit is an amount of money the employer reimburses for the participant’s purchase of individual health insurance (and does not vary that amount following a number of dependents), an ICHRA group health plan’s administrator must respond and meet procedural requirements, but might find relatively little to do regarding the plan’s essential provisions. An order can be a qualified medical child support order “only if such order does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan[.]” ERISA § 609(a)(4). But a QMCSO might set up some duties regarding an individual health insurance contract’s issuer. That’s because a QMCSO may command beyond-the-plan provisions “to the extent necessary to meet the requirements of a law relating to medical child support described in section 1908 of the Social Security Act[.]” ERISA § 609(a)(4), 29 U.S.C. § 1169(a)(4). ERISA § 609 [29 U.S.C. § 1169] https://uscode.house.gov/view.xhtml?req=(title:29%20section:1169%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1169)&f=treesort&edition=prelim&num=0&jumpTo=true. 29 C.F.R. § 2590.609-2 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-L/part-2590/subpart-A/section-2590.609-2. Further, a National Medical Support Notice might set up some duties for an employer as an employer, rather than as a group health plan’s administrator. For example, an employer might have some duties to determine whether a needed amount can be withheld from the employee’s wages. If Brian Gilmore sees your post, you might get more help.

Some recent news stories about Shohei Ohtani’s contract with the Los Angeles Dodgers remark on its deferred payments in 2034-2043. Those payments might be “retirement income” within 4 U.S.C. § 114(b)(1)(I)(i)(II). That might mean California cannot tax those payments if Ohtani then is no longer California’s resident. Further opportunities might be available if Ohtani no longer is a US resident at a relevant time.

And even if the multiple-employer plan’s governing documents might allow a participating employer to specify less than 100% vesting for what happened before a merger or transfer-in, how confident are you that the MEP’s administrator will capably collect and use records to apply such a vesting provision?

Using that example, what’s our guess about how much of a recordkeeper’s or other service provider’s incremental expense won’t be paid or reimbursed by the employer or the plan, or otherwise indemnified?

Here’s a factor we haven’t yet discussed: Might a service provider charge a somewhat higher fee because a particular plan (or a class of plans) poses a risk that the service provider might be dragged into a lawsuit or investigation, or otherwise incur expenses, for something that is not the service provider’s fault but nonetheless results in expenses, which might not be indemnified, and other costs? Is this a factor in real-world pricing?

The statute defines “retirement income”. That definition’s first eight subparagraphs refer to kinds of retirement plans, contracts, or accounts. Subparagraph (I) about nonqualified deferred compensation puts some restraint on which payments are treated as retirement income.

For an ERISA-governed plan, a fiduciary must loyally and prudently evaluate and engage service providers considering only the exclusive purpose of what’s best for the plan “solely in the interest of the participants and beneficiaries[.]” Whether using a local service provider supports an incremental fee might depend on many factors, perhaps including the exact services engaged, how useful and valuable to the plan’s administrator or a participant is the physical nearness of a contact, and how much (or how little) of the work involves using a particular physical location of the service provider or of the employer/administrator. We might never learn how and where a court would “draw the line” because few ERISA litigations are about plans that might have borne an incremental fee because a fiduciary’s selection was based even partly on geographic nearness. Often, what’s important are qualities of the service-provider business and its services.

A Federal statute (4 U.S.C. § 114) restrains a State’s and political subdivisions’ income taxes on a nonresident’s retirement income. In the 1980s and early 1990s, several States assessed State income taxes on people who no longer resided or worked in the State. How? ‘The State provided you an exclusion from income when you lived or worked here and made your before-tax § 401(k), § 403(b), or § 457(b) contributions to those tax-deferred retirement plans. The State gets income tax to the extent your retirement payout is attributable to the accumulation from the exclusion we provided you.’ Often, this resulted, whether legally or practically, in “double taxation” because the State in which a retiree resided imposed its tax on retirement income, often with no credit for the working-years State’s income tax. Congress legislated a Federal supersedure, which applies to amounts received after December 31, 1995. 4 U.S.C. § 114 https://uscode.house.gov/view.xhtml?req=(title:4%20section:114%20edition:prelim)%20OR%20(granuleid:USC-prelim-title4-section114)&f=treesort&edition=prelim&num=0&jumpTo=true.

RatherBeGolfing and ESOP Guy, thank you for explaining the presence or absence of regional differences. BenefitsLink neighbors, are there other factors that result in variations in service providers’ prices (for a same or similar service)?

Another clue is that the Joint Committee on Taxation estimated the provision as having a “negligible revenue effect”, even over the whole ten-year budgeting period.

About healthcare services, a news article this morning describes wide price variations for the same service—even in the same hospital—based on prices negotiated with a health plan. For example, an injection of Rituximab at Rush University Medical Center in Chicago ranged from $899.33 to $9,260.13, and a vaginal delivery with post-delivery care in Los Angeles ranged from $1,183 to $32,563. Sarah Hansard, Hospital Pricing Data Troves Raise Stakes on Employer Plan Costs, Bloomberg Law Daily Labor Deport (Dec. 18, 2023, 5:05 AM EST). Following size and some other factors, there are price differences for most kinds of services a retirement plan buys. But are the ranges as wide as the examples quoted above? I don’t disparage price differences. There are many legitimate reasons for prices to differ. Among them: Some fixed costs are about the same for a plan no matter its size. Some variable costs can be much more for a small plan than for a big plan. And some economies of scale, with either a plan or a service provider, can affect costs and prices. Rather, I hope to learn more about how much prices differ.

In some ways, the added bit in the statute follows a practical reality. When the human who makes an election and the human who receives and records the election are the same human, there might be little or no obvious evidence about exactly when something happened. While a good practitioner doesn’t tell her client to create false evidence, some would suggest: “You should search your records carefully to find the election you signed that December.” Not many IRS examiners have the time and tools to uncover that a paper election dated December 26, 2022 wasn’t signed, or even written, until April 2023. The new tolerance is only for a first year. After, the proprietor or sole member will need to remember the need for the by-the-end-of-the-year election. Some business owners find it’s simpler to elect one’s § 401(k) deferral, declare one’s nonelective contribution, and pay both into the plan trust all before the year ends.

Does the plan’s governing document command, permit, or at least not preclude paying (and reimbursing) plan-administration expenses from the plan’s assets? If so, was the exit fee a proper and prudent plan-administration expense?

Anticipating that the Internal Revenue Service might fail to record the paper received from the US postal service, I often add “Form nnnn” on the green return-receipt card, to set up a little more evidence about what the IRS received. Do others use some method like this? If so, does a response that shows evidence of this kind help persuade the IRS that a notice is mistaken?

The new § 401(b)(2) opportunity (for plan years that begin after December 29, 2022) to make a § 401(k) cash-or-deferred election after the last day of the year to which the election would apply can be available only for the plan’s first plan year, only if the election is made by the person who owns the entirety of an unincorporated business, and only if she is the only employee (a deemed employee) of that unincorporated business. Otherwise, “a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year.” 26 C.F.R. § 1.401(k)-1(a)(6)(iii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(a)(6)(iii). When such an elective contribution must or should be paid into the plan’s trust might be governed and influenced by other law. Other law might include ERISA or, for a plan ERISA does not govern, State law. And other law might include relevant tax law, including about tax returns and tax-information reporting.

Must the plan’s administrator demand a return of amounts the payee’s bank collected after that bank had notice of the payee’s death? The sum is not trifling. The administrator worries that the participant/decedent’s surviving spouse will spend the miscollected money, and the plan might be liable to the rightful beneficiary. Am I right in imaging this situation happens often enough that recordkeepers have routines for what to do, at least when an employer/administrator asks?

For a governmental plan designed to be an eligible deferred compensation plan within the meaning of Internal Revenue Code of 1986 § 457(b), Federal tax law allows (with 2024) a plan to provide these kinds of distributions: § 457(d)(1)(A)(i) age 59½ § 457(d)(1)(A)(ii) severance from employment § 457(d)(1)(A)(iii) unforeseeable emergency § 72(t)(2)(H) qualified birth or adoption distribution § 72(t)(2)(I) emergency personal expense distribution § 72(t)(2)(K) eligible distribution to a domestic abuse victim § 72(t)(2)(M) qualified disaster recovery distribution This is a deliberately incomplete list. For any of these, a plan might limit the amount of a distribution, and for some of these a plan must limit the amount of that kind of distribution. That Federal tax law allows a plan to provide something does not mean a particular State or local government employer’s plan provides that thing. Consider asking your plan’s service provider which provisions your employer’s plan includes or omits.

Thank you for the vote of confidence, but I didn’t state a view. Rather, I said: “I am unaware of any Federal court precedent that holds for or against treating a deceased nonparticipant former spouse’s executor or similar personal representative as an alternate payee within the meaning of ERISA § 206(d)(3)(K).” At least one State court reasoned that an order can be a QDRO only if it restricts its alternate payee—including a successor-in-interest to an original alternate payee—to a spouse, former spouse, child, or other dependent of the participant. 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. [4th App. Dist., Div. 1] Sept. 15, 1998) (interpreting ERISA § 206(d)(3), and applying ERISA § 206(d)(3)(K)). But a State court’s decision is no precedent that constrains a Federal court’s interpretation of ERISA § 206. If an order is submitted, an ERISA-governed plan’s administrator decides whether the order is a domestic relations order and whether it is a qualified domestic relations order. If a plan’s administrator denies QDRO treatment and a disappointed person challenges that decision, the administrator could insist that litigation proceed in Federal court. More than 39 years after enactment, many questions about the import of ERISA § 206(d)(3) remain undecided.

Yes. While TPAs do a great job explaining Federal tax law, complexity about what powers a local government has or lacks calls for a lawyer’s advice.