Peter Gulia

For an ERISA-governed retirement plan, a domestic-relations order is not a qualified domestic-relations order unless, with other conditions, the “order clearly specifies— . . . the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined[.]” ERISA § 206(d)(3)(C)(ii). Since 1984, recordkeepers have tried—sometimes subtly and sometimes unsubtly, and with varying degrees of success—to push divorce practitioners and unadvised litigants into writing orders that call for the alternate payee’s percentage to be applied on the day the plan’s administrator (or its service provider) implements the order. That’s because an order that calls for a division as of a date in the past, with some measure of investment results after that date, is a pain-in-the-assets for a recordkeeper’s services. A plan’s administrator, if it obeys the plan’s governing documents and applicable law, must not ignore what a court’s order provides if the order is a qualified domestic-relations order. But what a plan’s administrator must do might not be the measure of what service a recordkeeper is obligated to provide. As RatherBeGolfing suggests, consider making sure the information you read or heard truly is the recordkeeper’s work method. Also, consider whether you want a candid conversation about whether it might be wise (or unwise) to edit the plan administrator’s DRO procedure and model form of court order (if you furnish one) to fit more closely the work methods the administrator and the recordkeeper agree on.

Thanks again. I had thought about the notary idea. The plans I’m thinking about do everything with the recordkeeper. The plan’s sponsor/administrator receives nothing. Every form or other plan communication includes (after the internet and telephone means) the recordkeeper’s maildrop for the act or instruction involved. Required disclosures even give the recordkeeper’s address as the plan administrator’s address. Forms possibly made or perhaps forged near the participant’s death are the most troublesome. And we don’t know how many forms are forged by a former spouse or soon-to-be former spouse.

Paul I, thank you for your helpful observation, and your useful suggestion. Yet, people who make a beneficiary designation on a paper form might do so because they lack a personal computer, smartphone, or other internet-enabled device (or choose not to use it). Some recordkeepers’ services are designed to not release a beneficiary-designation form until the recordkeeper has sufficiently identified the requester as the plan’s participant. And then, they mail the form only to the address of record. That slows down (or helps a plan’s fiduciary detect) some forgeries, but many still get through. Beyond urging participants to make beneficiary designations through the plan’s website, are there other steps to consider?

If the only evidence of what might be a beneficiary designation is a fax, how do you check that what looks like a signature IS the participant's signature?

The lobbyists who asked Congress for an opportunity to use an unenrolled participant reminder notice spoke for situations in which the plan uses a recordkeeper that sorts participants’ accounts for electronic or paper, and soon will sort for “enrolled” or unenrolled. Employers and plans austin3515 describes might have had no one in the room.

Individual-account plan is ERISA’s defined term for what the Internal Revenue Code calls a defined-contribution plan. ERISA § 3 divides employee-benefit plans into two kinds: pension plans and welfare plans. See ERISA § 3(1)-(3). (Other ERISA provisions set a group health plan as a kind of welfare plan.) A pension plan, as ERISA (rather than the Internal Revenue Code) defines it, is a plan that “(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond[.]” ERISA § 3(2)(A). Of pension plans, there are two kinds: a defined-benefit plan [§ 3(35)], or an individual-account plan [§ 3(34)]. ERISA § 3(34): “The term ‘individual account plan’ or ‘defined contribution plan’ means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant’s account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant’s account.” ERISA § 3, unofficially compiled as 29 U.S.C. § 1002 http://uscode.house.gov/view.xhtml?req=(title:29%20section:1002%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1002)&f=treesort&edition=prelim&num=0&jumpTo=true. The blackout rule uses “individual account plan” in the sense ERISA § 3(34) provides. That includes a whole defined-contribution plan’s subaccounts for nonelective contributions, matching contributions, elective-deferral contributions, and rollover contributions.

A “blackout period”, as the rule defines it, refers not only to an inability to direct investment but also to a temporary inability to obtain a distribution or a loan. 29 C.F.R. § 2520.101-3(d)(1)(i) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-A/section-2520.101-3#p-2520.101-3(d)(1)(i).

Assume, for a retirement plan: A beneficiary designation states that the participant has no spouse. That statement is logically consistent with the employer/administrator’s records about the participant’s health coverage. Nothing in the plan’s documents requires that a beneficiary designation (if it needs no spouse’s consent) be witnessed by, or acknowledged before, anyone. The beneficiary designation is not made through the plan’s identity-controlled internet site. For such a beneficiary designation, do you: Require an original ink-on-paper form showing the maker’s signature? -or- Permit a fax, scan, or other copy as a possibly valid beneficiary designation? For either answer, why do you require ink-on-paper, or permit a copy? If you permit a copy, what controls do you use to guard against a writing that is not the participant’s act?

A fiduciary's evaluation about whether to make notices separate or combined turns on many factors, including the plan administrator's and its service provider's capabilities. Some plans' regimes lack a useful capability to segregate notices.

Before even SECURE 2019, some fiduciaries bunched several notices and other communications into one delivery. For example, in early November a calendar-year plan might deliver its: summary annual report (for the year ended almost a year ago), revised summary plan description, 401(k)/(m) safe-harbor notice, notice of automatic-contribution arrangements, notice of qualified default investment alternative, notice about diversifying out of employer securities, and rule 404a-5 information about account fees and investment expenses. Even regarding participants with account balances and ongoing elective deferrals, some plans might meet almost all communications requirements with one mailing—whether electronic, paper, or some of each—only once a year. Some Treasury department rules for some notices specify that a notice must be distinct—that is, not combined with another notice or other communication. Under ERISA § 111(c)(3), an annual reminder notice to an unenrolled participant must “provide[] [the § 111(c)(2)] information in a prominent manner calculated to be understood by the average participant.” But that statute section does not say the annual reminder notice must be completely separate or distinct from other information. Belgarath, I think you’re right that a typical 401(k)/(m) safe-harbor notice alone is not enough to prominently “notif[y] [an] unenrolled participant of” her “eligibility to participate in the plan[.]” A plan’s administrator might write a one-pager addressed to “unenrolled” participants, and put that page at the top of the stack of whatever the administrator sends to those participants. I’m aware many think this still is burdensome. But with default electronic delivery, it need not be.

Internal Revenue Code § 408(d)(8)(F)(i) states a general rule that “[a] taxpayer may for a taxable year elect under [§ 408(d)(8)(F)] to treat as meeting the requirement of [§ 408(d)(8)(B)(i)]” an IRA’s distribution to a split-interest entity. Internal Revenue Code § 408(d)(8)(B)(i) defines a qualified charitable distribution as an IRA’s distribution made to specified kinds of public charities. The statute sets up direct and indirect distributions to charity. I read the statute to apply the § 408(d)(8)(A) [$100,000] limit to the sum of all qualified charitable distributions of both ways. https://irc.bloombergtax.com/public/uscode/doc/irc/section_408

In formal terms: If an arrangement intended as a § 401(k) arrangement does not meet § 401(k)(2)(D)(ii), the arrangement is not a qualified cash or deferred arrangement. In the IRS’s view, a plan not administered according to its “definite written program” (including provisions that, as allowed by a remedial-amendment period, are treated as if they had been stated in the plan’s governing documents) is not a § 401(a)-qualified plan. 26 C.F.R. § 1.401-1(a)(2) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401-1#p-1.401-1(a)(2). In some circumstances, the Internal Revenue Service offers procedures to correct specified failures and restore a plan’s tax-qualified treatment. If the plan is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), a fiduciary’s failure to administer a plan according to the plan’s governing documents (perhaps including implied provisions) might be a breach of the fiduciary’s responsibility. A fiduciary is personally liable to restore losses and harms that result from the fiduciary’s breach. In practical terms: Assuming the failure results from an error or excusable inattention, many employers would correct such an error using an IRS procedure. As MoJo suggests, the essence of the failure might be that affected employees were denied their opportunities to elect deferrals. An IRS-recognized correction might be enough that an affected employee does not pursue her ERISA claim.

CuseFan and Paul I, thank you both for your smart observations. The statute grants the Secretary of the Treasury a power to provide “by regulations for exceptions to [reliance on a claimant’s certification] in cases where the plan administrator has actual knowledge to the contrary of the [participant’s] certification[.]” But until regulations are published, effective, and applicable, the statute alone governs. The statute provides that “the administrator of the plan may rely on a written certification[.]” And if the administrator may rely, why shouldn’t its servant rely, especially if their service agreement protects the nonfiduciary service provider’s obedience to the fiduciary’s instructions? How many recordkeepers want to make it so easy to get assets off their platforms? About not making hardship too easy, some recordkeepers now hesitating about § 401(k)(14)(C) certifications were advocates of the IRS’s no-substantiation method. Also, many of the new distributions require little explanation, and some are designed for relying on a claimant’s certification. (For example, many employers would prefer not to know any facts that might support a domestic-abuse distribution.) Like it or not, Congress decided that a plan’s sponsor may provide these early outs.

Employers might have a range of views about whether a plan should allow a hardship distribution on no more showing than the participant’s certification. But some employers welcome this opportunity to simplify a plan’s administration. And a recordkeeper or third-party administrator that provides a service of vetting hardship claims (whether as the § 3(16) decision-maker, under a nondiscretionary procedure the administrator instructed, or as a preliminary look before the administrator decides) might welcome this opportunity to lower its operating costs. Yet, some recordkeepers are unready to switch to the participant-certification regime, even with a customer plan administrator’s written instruction. They say they don’t want to implement the change until there is Treasury or Internal Revenue Service guidance. What are they worried about? Is any big recordkeeper allowing hardships on the participant’s certification?

And while it’s fine to start preparing for the advice you might render, resist an impulse to do something before you know who acts for your client or other instructing fiduciary. If the corporation or company is the retirement plan’s administrator or trustee (or both) and the deceased former owner acted for the corporation or company, someone might want advice in sorting out which person now has power to act for the corporation or company. If the deceased former owner served—personally, rather than as an executive of the corporation or company—as the retirement plan’s trustee, someone might want advice in sorting out who now is the successor trustee. An instructed service provider should use care not to act or rely on an instruction until the service provider checks that the instruction was made by a person who had power to decide what the instruction tells the service provider to do, or at least that your service agreement provides you a right to rely on that person’s instruction.

Even if the Treasury department meets this agenda item’s target, it is only for a proposal, not a rule. Even if the notice of proposed rulemaking states that taxpayers are protected in following the proposed rule, there is no assurance that systems and software would not need rework. If a § 3(16) administrator, recordkeeper, or third-party administrator expects to provide services regarding § 401(k)(15), it might prefer to make or buy software now, using rules that are the provider’s or its software developer’s interpretations of the statute.

From BenefitsLink’s helpful postings of Labor and Treasury regulatory agendas: An agenda item shows Treasury’s estimate, perhaps optimistic, that the agency would publish a notice of a proposed rulemaking by December 2023. https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=1545-BQ70 If you want to send suggestions even before a proposal is published or released, the agenda item names three lawyers assigned to the project.

Many commenters in these website discussions are confident in their knowledge about how the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 govern or affect retirement plans or, for fewer, health and other welfare-benefit plans. Fewer would claim expertise about laws that more generally govern other aspects of an employment relationship. (And I have no knowledge of employment laws more than general awareness.) The United States’ Family and Medical Leave Act of 1993 is complex, even for points about which employers might be covered and which employees might become entitled to a leave. Among other points, there are differences between whether the Act governs an employer, and whether its employee has a right to FMLA leave. The Act can govern an employer, even if none of its employees could become entitled to FMLA leave. A regulation interprets what is a worksite (not only a principal office or other headquarters) and how to measure who is “within 75 miles of [her] worksite[.]” 29 U.S.C. § 2611. And the 75-mile radius is not “as the crow flies” or as simply drawn on a map. 29 C.F.R. § 825.111 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-V/subchapter-C/part-825/subpart-A/section-825.111. The Federal law does not supersede or preempt “any State or local law that provides greater family or medical leave rights[.]” 29 U.S.C. § 2651. Many States’ and cities’ laws provide more. If your client, whether as an employer or as an employee-benefit plan’s administrator, needs answers, it might want more help than you’re likely to find as general information here.

To get BenefitsLink neighbors’ best help, consider filling-in some missing facts and assumptions. When did the former owner die? Was it before, on, or after December 29, 2022? Does the successor owner intend the company continue as an operating business? Does the successor owner intend to continue the retirement plan? Or end the plan? For the trustee-managed account with the time-to-redeem investments, how much of that account is allocated to the former owner rather than other participants? What (approximately) are the relative percentages? Do the plan’s governing documents allow for a distribution delivered in rights or property other than money? Do the plan’s governing documents allow a distribution paid or delivered over time? Or does the plan provide only a single-sum distribution? Is the surviving spouse older, the same age as, or younger than the former owner? If the plan’s governing documents do not expressly provide an involuntary distribution sooner than as needed to meet an Internal Revenue Code § 401(a)(9) tax-qualification condition, might the plan’s administrator interpret the plan’s minimum-distribution and required-beginning-date provisions (including some impliedly adopted during a remedial-amendment period) to align with current Federal tax law (including recent proposed regulations and the SECURE 2.0 Act of 2022)?

Jamie Hopkins’ Forbes article quotes me for the idea that a participant, on reaching age 18 (or 19 or 21, if an arguably relevant State law sets that end of minority), is unlikely to disaffirm elective deferrals made while he was a minor. “If mom’s business gives her son a paycheck, a tax-favored savings opportunity, and a matching contribution, how likely is it that a first-year college kid will disaffirm his teenage years’ 401(k) contributions? And if he did, mom could get back her matching contributions and the investment gains on them.” https://www.forbes.com/sites/jamiehopkins/2021/03/15/the-how-tos-and-benefits-of-a-minor-participating-in-401ks/?sh=10656eae5a48

Even if the Service does not reconsider the interpretation about discretionary matching contributions, the Service should allow no less flexibility for plans with § 403(b) arrangements than for plans with § 401(k) arrangements. Further, publishers of IRS-preapproved documents might present to the Service reasoned arguments about how charities—with no business owners, and often fewer opportunities for highly-compensated employees to tilt contributions in their favor—ought to get more flexibility. Yet, I know no “word on the street” about what the Service might allow or forbid.

Here is the agency’s record of comment letters, which includes two filed in the reopened comment period: https://www.regulations.gov/docket/EBSA-2022-0026/comments?postedDateFrom=2022-11-01&postedDateTo=2023-06-12. Among other points, some comment letters advocate: Allowing correction of delinquent participant contributions or loan repayments up to the due date for filing the Form 5500 report for the year in which the breach happened. Or allowing 365 calendar days from the date an amount was or ought to have been segregated from wages. More use of government website calculators to count to-be-restored investment earnings and excise taxes (or excise-tax amounts instead included in restoration of participants’ accounts). Omitting a condition of notifying the Labor department about a self-correction. Increasing the $1,000 limit on to-be-restored earnings to make self-correction available for more plans, including plans with thousands of participants. And if there are other points on your wish list, one might read the fifteen comment letters to see whether anyone raised the point.

MD-Benefits Guy, listen carefully to Brian Gilmore’s wide knowledge. And don’t be distracted by the example about California law; the concepts described might apply regarding Maryland’s and other States’ laws.

If a “MAY” letter results in someone submitting a claim, consider following carefully ERISA § 503 and the plan’s claims procedure, including notices about time limits to seek a review and a time bar on a challenge in court or arbitration.

A few questions: Is the employee-benefit plan ERISA-governed? Is any health or other welfare benefit provided by an insurance contract? Is any health or other welfare benefit provided from the employer’s resources and not by an insurance contract? To the extent that the plan’s provisions are not constrained by a State’s insurance law or by an insurer’s contract, what would the plan’s sponsor prefer to provide? About a State’s or a political subdivision’s requirement, do you mean a general public law? Or do you mean a condition imposed regarding a government’s action as a buyer of goods or services offered by the plan’s sponsor or its affiliate?