Peter Gulia

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.

If a plan’s sponsor uses a set of IRS-preapproved documents in which the basic plan document provides the administrator discretion on how to use forfeitures and nothing in the adoption agreement for a user to specify an ordering, does the Revenue Procedure about “administrative” provisions a user may add or change without defeating reliance on the IRS opinion letter allow adding a provision ordering the use of forfeitures?

Beyond the cautions others mention, consider whether a provision of an IRS-preapproved document or of a Revenue Procedure under which the document sponsor and others offer uses of the document requires the document sponsor or its licensee or sublicensee to notify a user that the user seems to operate the user’s plan other than according to the user plan’s governing documents.

If Konstantina Dimou’s fact allegations (which Judge Todd Wallace Robinson must assume in evaluating whether the complaint states a claim on which the court could grant relief) support the complaint’s assertions, a fiduciary’s breach—and a prohibited transaction—was possible because a fiduciary had or exercised discretion about the order in which to use forfeitures. Among several ways to remove a difficulty, a plan’s sponsor might write the plan’s governing documents to provide the administrator no discretion about how to use forfeitures, instead specifying an ordering within the three recognized ways to use forfeitures. Considering RatherBeGolfing’s observations (above) about a proposed rule, one might consider now a plan amendment a plan’s sponsor might prefer to adopt before a final or interim rule’s applicability date.

Under ERISA § 406 and Internal Revenue Code § 4975, what characterizes a prohibited transaction is that a person other than the plan has some use of money, rights, or other property that belongs to the plan’s trust. Your example suggests that the employer promptly segregated contribution amounts from the employer’s assets and promptly remitted those amounts to the plan’s trustee or its agent. That the plan’s administrator did not direct the trustee to invest according to the participant’s direction did not cause the employer (or another fiduciary or party-in-interest) to have any personal use of the plan’s assets. If so, a mistake within how the plan’s trust invests might not result in a prohibited transaction. If there is no prohibited transaction, neither an IRC § 4975 excise tax nor an ERISA § 502(i) civil penalty is owing.

If the mistaken and selected investment alternatives all have daily prices, some recordkeepers will (at a customer’s request, and sometimes with an incremental fee) use system records and system or integrated software to generate the what-would-have-happened. Some of those generate an invoice for the restoration amount needed, and some also generate an instruction for the plan’s administrator to sign.

If, for an ERISA-governed retirement plan that provides participant-directed investment, the plan’s administrator did not follow the participant’s proper investment direction, a conscientious administrator should restore the participant’s account so it is credited with amount that would have resulted had the administrator promptly and correctly followed the investment direction. The administrator would credit the adjusted amounts to the participant’s selected investment alternatives in the proportions that would have resulted had the administrator promptly and correctly followed the investment direction. Ideally, the restoration should result in an account that, as nearly as possible, is what would result had no error happened. If the failure to implement the investment direction was the employer/administrator’s breach of its fiduciary responsibility, the administrator should pay the amount needed for the restoration. If the failure to implement the investment direction was the recordkeeper’s breach of its contract, the administrator should cause the recordkeeper to pay the amount needed for the restoration, to the extent the contract provides. If a participant sues to get the restoration, a court may award attorneys’ fees and costs. ERISA § 502(g), 29 U.S.C. § 1132(g) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1132%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1132)&f=treesort&edition=prelim&num=0&jumpTo=true. But one hopes the person that erred will simply own its error and make the account right.

Thank you for the helpful information. I’ve never worked on a situation that used forfeitures for anything beyond plan-administration expenses; you helped me indulge a curiosity.

MoJo and other BenefitsLink mavens, in your experience, are there any employers that use forfeitures “[t]o reduce employer contributions” by applying a forfeiture balance as a setoff to the employer’s obligation to pay over participants’ elective-deferral contributions?

Whatever the law might be, in my practical experience the Labor department can be aggressive about pursuing a former shareholder, partner, member, director, manager, officer, or even nonofficer employee if any relation regarding the plan, however remote, might be argued to have made such a human a fiduciary who arguably could have done something, or even a cofiduciary with knowledge of another fiduciary’s breach. The pursuit might not be about the penalty for a failure to file an annual report. Rather, the Labor department might pursue one or more fiduciary breaches and civil penalties on those breaches. If one doesn’t persuade EBSA to stop its pursuit, winning a Labor department proceeding can take on substantial attorneys’ fees and other expenses. That observed, EBSA might be less vigorous in a fiduciary-breach pursuit if participants and beneficiaries have been paid. Below Ground, before you electronically process a Form 5500 report, consider making sure someone with authority to act for the plan’s administrator approved the report, including especially anything that involves a choice about how to report (such as electing to delay an independent qualified public accountant’s report), and instructed you to submit the approved report. You’ll want evidence to prove that you never had, and never exercised, any discretion.