Peter Gulia

Even if a nonexempt prohibited transaction has been corrected, the plan’s administrator’s Form 5500 report should disclose the transaction, at least to the extent Form 5500’s instructions call for. A statute-of-limitations period for a disqualified person’s excise tax does not begin to run until an excise tax return is filed. Unless the recordkeeper also is a law firm that stands behind its legal advice, an employer or plan administrator gets no reasonable-cause relief for relying on the recordkeeper’s advice. Yet, an employer or plan administrator might consider whether to use (or omit) an IRS or EBSA correction procedure. This is not advice to anyone.

Is the employer a State, a State’s political subdivision (for example, a county, city, town, village, borough, or other municipality), a State’s agency, a State’s instrumentality, or a political subdivision’s agency or instrumentality? [I.R.C. § 457(e)(1)(A)] Or, is the employer a tax-exempt organization (other than a governmental unit)? [I.R.C. § 457(e)(1)(B)] Some service providers have capabilities for one kind or the other, but not for both.

For a third-party administrator, some hard questions in designing a records-retention (and records-destruction) plan are about considering public-law record-retention requirements imposed on the plan’s administrator or the plan’s trustee, and deciding the extent to which the TPA wants to serve as a backup to help the plan’s administrator or trustee meet one’s duties. (Some TPAs perceive that one’s service recipients often are inept in meeting a fiduciary’s records-retention duties, and will be thankful when the TPA has preserved a record the plan’s administrator or trustee ought to have kept.) Another factor might be keeping a record until it no longer could be needed to disprove a not yet time-barred breach-of-contract or tort claim against the TPA. Or, discarding a record so its discovery could not be used to help prove a claim against the TPA. Tightening-up might include rewriting a TPA’s service agreement to narrow obligations, and widen a responsible plan fiduciary’s permissions granted to the TPA. This is not advice to anyone.

Thank you for the always wise reminder that a starting point for thinking about an employee benefit, fringe benefit, or convenience is whether it helps the employer attract or keep workers.

Artie M., I suspect we share some observations. In designing an ERISA-governed plan’s provisions, a plan sponsor need not be burdened by a fiduciary responsibility to decide in the plan’s participants’, beneficiaries’, and alternate payees’ interests. (When the plan sponsor is a business organization, a decision-maker might have some responsibility to the organization’s shareholders, partners, members, or other owners of capital interests or profits interests. When the plan sponsor is a charitable organization, a decision-maker might have some responsibility to the organization’s charitable purposes. Either kind of organization interests can be in tension with participant interests.) One doubts an ERISA-governed plan’s fiduciary has an ERISA-imposed duty to inform the plan sponsor about the fiduciary’s perception that a different plan design would help participants. But ERISA might not preclude a fiduciary from volunteering information to the plan sponsor, if the fiduciary can do so without incurring an expense that burdens the plan. If a plan’s administrator seeks to discern whether the plan’s loan provision is or isn’t “operating as [the plan sponsor] intended”, the administrator would first need to know what the plan sponsor intended (or now intends). Some plan sponsors don’t want a participant-loan provision that “function[s] more like a revolving credit facility than a retirement savings vehicle.” But some plan sponsors don’t object to, or even welcome, a participant-loan provision that some or many participants use to borrow, even frequently, against one’s retirement plan right. And some plan sponsors do not worry about a plan-administration burden if much of the work is within the recordkeeper’s services obligated under its contract, especially if paid for with fees, direct or indirect, from the plan’s assets, not from the employer. In my experience, many employer paymasters prefer—if the plan allows participant-loan repayments collected from an employee’s wages—restricting a participant loan to one at a time. If I advise an ERISA-governed plan’s sponsor (sometimes I advise only a plan’s administrator, and not the plan sponsor), I might suggest that the plan sponsor decide all details of the participant-loan provision, specify these in settlor plan documents, and not grant any discretionary authority to the plan’s administrator. Even if only one human is the decision-maker for the plan sponsor and for the plan’s administrator, I advise that it matters to set clear distinctions between plan-design decisions and plan-fiduciary decisions. But my way of thinking about plan-design choices might be awkward for many employers. A set of IRS-preapproved documents might call for some provisions about a participant loan to be set not by the base plan document and not by the adoption agreement but rather by a loan “policy” or loan “procedure”, often with ambiguity about whether the person that decides those provisions might be responsible as the plan’s fiduciary for those decisions. Some plan sponsors and some plan administrators lack a lawyer’s advice, and might not fully consider the consequences of settlor-or-fiduciary distinctions. Artie M., your suggestion about a best practice makes sense if the committee is a plan-sponsor committee or is a shared sponsor-and-fiduciary committee. Also, it can make sense for a fiduciary committee that has some discretionary power to set some of the participant-loan provision’s terms, or that volunteers to present information to the plan sponsor. My thoughts above are about an ERISA-governed individual-account retirement plan that requires participant-directed investment, and provides a loan to a participant is a participant-directed investment that affects only the borrower’s account. Different ways of thinking often apply for a church plan, if it has not elected to be ERISA-governed, or for a governmental plan. This is not advice to anyone.

Brenda Wren, does allowing multiple loans somehow allow a participant to exploit a weakness in Internal Revenue Code § 72(p)’s loan limit? Or, is using a next loan first to pay off the preceding loan’s outstanding amount, with an amount not so consumed paid to the participant, similar to the effect of multiple loans?

Please help me learn something about plan design. Wouldn’t it be simpler to provide that a participant may have only one outstanding loan at a time? That each next loan must first repay the whole outstanding amount of the preceding loan. Is there a plan-design reason (beyond inattention) for a plan sponsor not to provide this? I confess to not having done the arithmetic about participant loan limits. Am I ignorant about how participants use loans? Am I ignorant about how recordkeepers account for participant loans?

Assume an employer lacks money to make employer-provided contributions to Trump accounts. Assume the employer, in its circumstances, does not fear any effect about coverage or nondiscrimination for any retirement plan, health plan, other employee-benefit plan, or fringe-benefit plan. Should an employer provide the convenience of an employee’s voluntary payroll-deduction contributions to Trump accounts? Why or why not? Should an employer provide information about Trump accounts? Is it best for an employer deliberately to do nothing about Trump accounts? Your thoughts?

From context in your query, I'm guessing the investment adviser did not accept, or has restored to the plan trust, the mistaken amount. Consider crediting to each participant's, beneficiary's, and alternate payee's individual account the amount the account was incorrectly charged, with reasonable interest (or, if greater, the investment adviser's gain allocable to having had the use of the mistaken amount). After all corrections are complete, the plan's administrator should evaluate its procedures and controls, particularly about how the administrator did not instruct the recordkeeper about the change in investment-adviser fees. After discerning the weakness, the administrator might tighten the procedures and document that change. (But the administrator should not write a procedure it won't follow.) This is not advice to anyone.

I too have seen a range of different ways to document a plan's discontinuance, termination, and final distribution. But the key is for a decision-maker to get advice from an adviser responsible to the decision-maker.

Here’s the rule Paul I mentions: 26 C.F.R. § 1.401-10 https://www.ecfr.gov/current/title-26/section-1.401-10.

Does this help? “In the case of an employee of two or more corporations which are members of a controlled group of corporations (as defined in section 414(b) as modified by section 415(h)), the term compensation for such employee includes compensation from all employers that are members of the group, regardless of whether the employee’s particular employer has a qualified plan. This special rule is also applicable to an employee of two or more trades or businesses (whether or not incorporated) that are under common control (as defined in section 414(c) as modified by section 415(h)), to an employee of two or more members of an affiliated service group as defined in section 414(m), and to an employee of two or more members of any group of employers who must be aggregated and treated as one employer pursuant to section 414(o).” 26 C.F.R. § 1.415(c)-2(g)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-2#p-1.415(c)-2(g)(2).

Beyond others’ observations: Many recordkeepers and TPAs warn that the service provider does not give tax or other legal advice, or at least warn that a service recipient should not rely on the provider’s advice. While many people look on the warnings as boilerplate one ignores, when things go wrong courts have held that a not-advice warning negates a claim that incorrect or incomplete advice was a breach of contract or negligence. This is not advice to anyone.

The Labor department has published at least 30 individual exemptions for a contribution made by a delivery of property other than money, most often securities. https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/granted#In%20Kind%20Contributions%20to%20Plans Many applications are withdrawn or never submitted because the party-in-interest finds that the expense of persuading the Labor department is disproportionate to the value that might be had by contributing property other than money.

In the Code of Federal Regulations’ title 29, part 549 is four rules about whether a plan is a “bona fide profit-sharing plan or trust” to meet Fair Labor Standards Act of 1938 § 7(e)(3)(b). Here’s the first of those four sections: 29 C.F.R. § 549.0 https://www.ecfr.gov/current/title-29/section-549.0. It’s about not counting a profit-sharing bonus in an employee’s “regular rate of pay”, which matters to determine overtime wages. This is not advice to anyone.

Many systems for processing a distribution and its tax-reporting and tax withholding function routinely with an entry of, instead of a Social Security Number, an Individual Taxpayer Identification Number. https://www.irs.gov/forms-pubs/about-form-w-7

Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993) (The Court construed ERISA title II’s parallel text, Internal Revenue Code § 4975(f)(3), as extending, but not limiting, the reach of § 4975(c)(1)(A) [ERISA § 406(a)(1)(A)] to include as such a prohibited sale or exchange a contribution of encumbered property, even if that contribution is not used to meet a funding obligation. The Court held a contribution of property other than money—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—was a prohibited transaction.) The Labor department’s Pension and Welfare Benefits Administration further interpreted this in Interpretive bulletin [94-3] relating to in-kind contributions to employee benefit plans (Dec. 21, 1994), 59 Fed. Reg. 66736 (Dec. 28, 1994), reprinted in 29 C.F.R. § 2509.94-3, https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.94-3

If the health plan is “self-funded”, an employer that offers more than the plan (including applicable law) provides does so at the employer’s financial risk. A stop-loss insurance contract typically responds only to claims that not only are beyond the attachment point but also are within the plan’s coverage, typically limiting continuation coverage to no more than applicable law commands. This is not advice to anyone.

Beyond QDROphile’s good teaching: Consider also that an ERISA-governed plan’s fiduciary must act as a prudent and experienced fiduciary would act in deciding what expenses to incur, and how to allocate them among the plan’s participants and beneficiaries. Interpleader is not without expense, sometimes substantial, because a court may require the interpleader plaintiff to develop fully the entire factual record, and to brief every issue, despite an assertion that the plan is a mere stakeholder. If a judge finds that the administrator pursued the interpleader without first diligently following the plan’s claims procedure and carefully and thoroughly evaluating the claims, the court might deny the interpleader petition’s request that the administrator’s attorneys’ fees and expenses be charged against the interpleaded account. And if a court finds an expense was unreasonable, what reasoning would support a fiduciary’s finding that the expense was prudent to incur and is prudent to charge against other participants’ and beneficiaries’ accounts? This is not advice to anyone.

What text in the beneficiary designation makes it ambiguous about whether one brother or both gets a benefit?

The basic plan document text you quote seems similar to the IRS-preapproved document I mentioned. I had read that document (in my client’s situation, not yours) as omitting a plan-imposed involuntary distribution. If the plan does not impose an involuntary distribution, a need for an ERISA § 205 qualified election against a qualified joint and survivor annuity might not arise until a participant voluntarily claims a distribution other than a QJSA when, absent a qualified election, the plan and the § 403(b) annuity contract would provide a QJSA. Alternatively, if a participant claims a distribution from a contract that has no QJSA payout option, there might be nothing the participant need elect against. Consider this too: If a § 401(a)-(k) plan requires an involuntary § 401(a)(9) distribution but the plan has no annuity payout option, there would be no QJSA for a participant to elect against. What drives whether a qualified election against a QJSA is called for or excused is not whether the distribution is a minimum distribution, it’s whether the distribution is or isn’t a qualified joint and survivor annuity. This is not advice to anyone.

I have not read the particular plan you seek to apply or interpret. Consider these preliminary questions and thoughts (to prepare to get your lawyer’s advice): Does the plan allow or preclude an annuity payout option? Does the plan provide or omit a qualified joint and survivor annuity? What is the plan’s normal form of distribution? Does the particular annuity contract or custodial account allow or preclude an annuity payout option? Does the particular annuity contract or custodial account provide or omit a qualified joint and survivor annuity? Whatever ways to have designed a plan ERISA § 205 might permit, consider the particular plan’s actual provisions. Read The Fabulous Document. Consider: A plan designed to meet Internal Revenue Code § 403(b)(10), which refers to § 401(a)(9), need not impose an involuntary distribution on and after a participant’s required beginning date. For § 403(b) contracts, some minimum-distribution rules apply as if the § 403(b) contracts were IRAs. 26 C.F.R. § 1.403(b)-6(e)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.403(b)-6#p-1.403(b)-6(e)(2). Although a required minimum is determined separately for each § 403(b) contract, a participant may take the sum of a year’s § 401(a)(9) minimum from any contract or contracts. 26 C.F.R. § 1.403(b)-6(e)(7) https://www.ecfr.gov/current/title-26/part-1/section-1.403(b)-6#p-1.403(b)-6(e)(7). So, a plan sponsor might have designed a plan that does not impose an involuntary distribution from a § 403(b) contract held under the plan. (At least one IRS-preapproved document I’ve seen recognizes the rule cited above.) An ERISA-governed plan’s administrator or other fiduciary might be reluctant to impose an involuntary distribution if the plan does not provide it. “[A] fiduciary shall discharge his duties with respect to a plan . . . ; and in accordance with the documents and instruments governing the plan[.]” ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D). The recordkeeper’s service might be useful if a plan provides an involuntary distribution to meet I.R.C. § 401(a)(9). Otherwise, one might allow a service a participant voluntarily invokes. This is not advice to anyone.

We recognize one might design a plan that does not provide pension-like deferred compensation or retirement income. Or, a compensation arrangement that is not even a plan. But is it feasible to do either for what Internal Revenue Code § 457(b) calls an eligible deferred compensation plan? A plan that, except for an unforeseeable emergency, allows no distribution until age 70½ or severance-from-employment? My explanation above about a § 457(b)(6) tax-law need to fit ERISA § 401(a)(1)’s select-group exception is limited to a nongovernmental (and not church) § 457(b) plan. Further, I was mindful that an arrangement not designed for a group or class and rather individually negotiated with one particular employee might not be an “employee benefit plan” within ERISA § 3(1)-(3)’s meaning. But I imagined that a tax-exempt organization with only one employee (the OP’s hypo) might lack resources to pursue or defend that idea as a reason ERISA’s title I does not govern the arrangement.

If a plan is ERISA-governed, part 4 of subtitle B of title I of ERISA would require an exclusive-purpose trust unless the plan is “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 401(a)(1), 29 U.S.C. § 1101(a)(1) https://www.govinfo.gov/content/pkg/USCODE-2024-title29/html/USCODE-2024-title29-chap18-subchapI-subtitleB-part4-sec1101.htm. But if an ERISA-governed plan does not that ERISA § 401(a)(1) select-group exception and so is funded with an exclusive-purpose trust, the plan would not meet Internal Revenue Code § 457(b)(6)’s tax-treatment condition that a nongovernmental organization’s plan must be unfunded. I.R.C. (26 U.S.C.) § 457(b)(6) https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapE-partII-subpartB-sec457.htm. If a tax-exempt organization’s plan is neither a governmental plan nor a church plan, a plan get a § 457(b) tax treatment only if the plan is unfunded and fits ERISA § 401(a)(1)’s select-group exception.

Among many ambiguities: Is the worker is a management employee. Is the worker “highly compensated”? Might an ostensible income deferral be unreal because the organization and its employee did not truly agree that the deferred compensation is unfunded? Which person bears which risks? This is not advice to anyone.