Peter Gulia

I’m curious, when a broker-dealer or investment-adviser rep presents an idea like Mega Roth, how many of them add to the description something like: “You should check it out with your retirement-plan guy.”? All? Many? Some? None?

Let’s leave to actuaries what mūtātīs mūtandīs might mean in mathematics. And let’s leave to teachers what mutatis mutandis might mean in logic. Black’s Law Dictionary (11th ed. 2019) describes the phrase’s meaning as “with the necessary changes[.]” Lawyers have used the phrase to avoid some duplicative renderings of terms, promises, conditions, representations, and warranties in some kinds of contracts, obligations, or undertakings. A leading treatise about how to write contracts gives this example: “Each Guarantor hereby makes to the Lender, as if they were in this agreement, mutatis mutandis, each of the statements of fact made by the Borrower in the Loan Agreement.” Kenneth A. Adams, A Manual of Style for Contract Drafting ¶ 13.576 [page 449] (5th ed. 2023). But whatever the old phrase might mean in other contexts, one should not presume that specifying a date that has some meaning regarding a plan’s discontinuance or termination by itself changes a day set for a retirement plan’s allocation condition. Bill Presson leads us to the solution: Read, thoroughly and carefully, what the documents governing the plan say. If what the documents provide is ambiguous, the plan’s administrator might use its discretion to interpret what the plan provides or omits. Often better, the administrator might suggest that the plan sponsor amend the documents. Or does The Shadow know?

I apologize for my ambiguity in my description of the facts. That the bank had notice of the payee’s death was not separately stated as a fact. Rather, I mentioned it only in my query about whether the payer should demand a return of the amounts the payee’s bank collected after that bank had notice of the payee’s death. In the real-life situation on which I wrote the description, the bank had actual written notice of the payee’s (the participant’s) death. Soon after the death, the decedent’s child presented to the bank the death certificate and the probate court’s appointment of the decedent’s child as the decedent’s estate’s executor and personal representative. Thank you for your observation that a bank might not know the duration for the recurring payments. But the payee was ‘Pamela Smith’, not ‘Pamela Smith or Samuel Smith’. Does a bank have a duty not to collect a payment made to a payee the bank knows is dead? When I was inside counsel to a recordkeeper and an affiliated trust company, they demanded returns of payments a bank collected after the payee’s death. In my experience, the banks paid on those demands. But it’s many years since I was in-house to retirement-services operations. When I posted, I had hoped someone with experience more recent, and more direct, than mine would describe what is done in current operations.

Thank you. In December 2022, I confirmed that Wolters Kluwer had made a business decision not to produce a book on SECURE 2022.

Thank you for noting ordering rules. If we assume the individual will take no payout until after five years’ Roth-ing and age 59½, does an ordering rule matter? Anything else?

Now that a plan with Roth 401(k) amounts can be amended so after 2023 no during-life minimum distribution is required from those amounts, is there a remaining reason an individual might prefer contributing to a Roth IRA rather than to a Roth 401(k)? Or is a choice between Roth 401(k) and Roth IRA in equipoise? Assume the amount the individual can afford to contribute is less than the IRA limit. Assume investment choices and access to investment advice do not favor an IRA.

Beyond using Appleby’s suggestions for fact-checking: The shareholder-employee might want his lawyers’ and accountants’ advice about whether the ostensible Form 5304 or other document was a false document and about whether the account someone imagined might be a SIMPLE IRA never was a SIMPLE IRA (and might never have been any kind of IRA). If the account never was an IRA, what tax consequences result from so amending the holder’s 2022 tax returns (removing mistaken exclusions and deductions, and recognizing whatever capital gains, dividends, and interest the taxable brokerage account paid or otherwise distributed)? Nothing here is tax or legal advice; it’s time for each person involved or affected to get his, her, or its professionals’ advice.

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.