Peter Gulia

Beyond considering points about tax-qualification conditions, consider whether each subsidiary's plan-administration method was (i) stated by the plan's governing documents; (ii) at least a plausible interpretation of the plan's governing documents; or (iii) contrary to or otherwise inconsistent with the plan's governing documents.

I advise big plans, but through my work as counsel to recordkeepers and other service providers I have deep experience with mid-size, small, and micro plans. Here’s one more way of considering why public law (and plan sponsors’ choices) shouldn’t make a plan’s administrator a decider of whether an individual needs to use her resources: Big and mid-size plans long ago arranged for recordkeepers to provide a service of deciding hardship claims. (Governmental plans even longer ago required their service providers to decide unforeseeable-emergency claims.) If a review is anything more than checking that a form, whether paper or website, is filled-out and signed, that’s a cost that gets accounted for in how the service provider quotes fees. The participants (who bear the plan-administration expenses, no matter how a fiduciary pays or allocates them) are paying for being told whether one’s circumstances are worthy of using one’s own resources.

Bri, RatherBeGolfing, and Paul I, thank you for your swift and nice help. If you count your pro bono volunteer hours, this counts; you’ve aided my volunteer work for a charitable organization. Bri, thank you for correcting my too-hasty reading. I read Schedule H’s line 4e on page 4 without seeing a lead on page 3. That “During the plan year:” phrase resolve almost all the reporting questions (and the remaining bit is trivial).

A Form 5500 Schedule H or I question asks: “Was this plan covered by a fidelity bond?” The form has boxes for Yes or No, and a line to state an amount. How does one answer this question if a fiduciary obtained the insurance before the administrator signed the Form 5500 but after the reported-on plan year ended? (Assume the fiduciary does not buy retroactive coverage.) Does the past-tense “was” refer to any time in the past? Or does “was” in context suggest the question refers, somehow, to the reported-on plan year? How does one answer the question if the fiduciary obtained the insurance during the reported-on plan year (so the plan was uninsured for some portion of the year)? Am I right in guessing the usual software restrains a user from answering both Yes and No? For the line that calls for a coverage amount, does one report the amount that applied as at the beginning of, or the end of, the reported-on year? Or is it the highest coverage amount on any day in the plan year?

Thank you for your kind words. Yes, it’s challenging for a recordkeeper to order and present a logic path and information when a user has many, and complex, choices. But Congress decided to allow the choices. (And decided not to rationally reorder the choices.) And once a recordkeeper offers a service feature to any of its customers, the recordkeeper becomes committed to developing or licensing the software, and making the service available to at least the big-enough customers.

Managing uncertainty is a part (often, a most important part) of the job for a lawyer or other adviser. How about this? Let all participants make non-Roth and Roth deferrals as each chooses, and recognize: a need to plan for what to do assuming an absence of agency guidance. a need to plan for what to do assuming software will be ineffective or unavailable. an employer/administrator should put in some effort—reasonable considering the plan’s risk (see the next three points), the employer’s resources, and the plan’s resources while not incurring more than prudent plan-administration expense—to apply the tax-qualification condition of restricting a $145,000 participant’s catchup deferrals to Roth. the Internal Revenue Service has limited resources to detect errors in applying this tax-qualification condition. that, even in an examination, the IRS might have institutional reasons not to enforce too harshly, perhaps especially if an error happened before the Treasury or IRS had published guidance. that, if an employer/administrator, an independent qualified public accountant, or even the IRS detects an error, there are opportunities to correct the error without tax-disqualifying the plan. that the Labor department’s Employee Benefits Security Administration seems unlikely to pursue enforcement for harms (if any could be proved) to an individual participant, or even an affected class of the plan’s participants, that resulted because the plan’s administrator followed the participant’s direction (even if the direction was arguably contrary to the plan’s governing documents).

Paul I, thank you for your wise thinking. I concur: If a plan allows self-certifying for other kinds of claims, it’s savvy to allow self-certifying also for hardship or unforeseeable-emergency claims. How about putting all kinds of claims that are self-certifying on one claim form? Seeing the several kinds of early-out claims on one form might help a participant see opportunities to use the least restrictive kind that meets her needs. A participant might avoid an extra 10% too-early tax when she could claim a kind that doesn’t bear that tax. Likewise, one wouldn’t lose the opportunity to repay an amount into the plan (or some eligible retirement plan) if she can meet her need using a kind of claim that includes a repayment right. What do you think? Distributions added or changed by SECURE 2019 and 2022.pdf

Please see a discussion under the "457 Plans" message board.

I’ve moved from the 401(k) to this board AMDG’s question: “Self-certification is now permissible for governmental 457(b) plans, but the 457(b) regs are not as formulaic as the 401(k) regs regarding the events that constitute [an unforeseeable emergency]. Pending IRS guidance, it seems reasonable to me for a gov’t plan sponsor to adopt the 401(k) self-certification service model for its 457(b) plan, especially as EPCRS applies differently (basically, no risk of plan disqualification). I would love your thoughts! Thanks!” Here’s some information, and some of what I think. Internal Revenue Code of 1986 § 457(d)(4) provides: “In determining whether a distribution to a participant is made when the participant is faced with an unforeseeable emergency, the administrator of a plan maintained by an eligible employer described in subsection (e)(1)(A) may rely on a written certification by the participant that the distribution is— (A) made when the participant is faced with an unforeseeable emergency of a type which is described in regulations prescribed by the Secretary as an unforeseeable emergency, and (B) not in excess of the amount required to satisfy the emergency need, and that the participant has no alternative means reasonably available to satisfy such emergency need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the participant’s certification, and for procedures for addressing cases of participant misrepresentation. An unnumbered flush paragraph at the end of § 457(b) provides: “A plan which is established and maintained by an employer which is described in subsection (e)(1)(A) and which is administered in a manner which is inconsistent with the requirements of any of the preceding paragraphs [§ 457(b)(1)-(6)] shall be treated as not meeting the requirements of such paragraph as of the 1st plan year beginning more than 180 days after the date of notification by the Secretary of the inconsistency unless the employer corrects the inconsistency before the 1st day of such plan year.” And here’s the rule or regulation § 457(d)(4)(A) refers to: 26 C.F.R. § 1.457-6(c) https://www.ecfr.gov/current/title-26/part-1/section-1.457-6#p-1.457-6(c). I think (but advise no one): Until another Treasury final or temporary rule is published, effective, and applicable, a State or local government employer may rely in good faith on its reasonable interpretation of the statutes. Several interpretations of § 457(d)(4) are at least reasonable. That a participant may self-certify she faces a situation particularly or generally described in § 1.457-6(c)(2)(i) seems at least a plausible interpretation of the statutes. Observe that § 401(k)(14)(C) refers to “a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need” while § 457(d)(4)(A) refers to “an unforeseeable emergency of a type which is described in regulations prescribed by the Secretary as an unforeseeable emergency[.]” As always, a government official, participant, service provider, or anyone affected by the question should get her or its lawyer’s advice.

Last week, a BenefitsLink discussion considered whether self-certifying claims for a hardship distribution might be good or bad. Advantages: Self-certifying might remove unwanted discretion; simplify claims procedure; lower plan-administration expense; and help employers avoid information one would prefer not to know or even have access to. Disadvantages: Self-certifying might weaken retirement savings (and might lower an investment or service provider’s revenue); and might speed impostor thefts. https://benefitslink.com/boards/index.php?/topic/70898-form-for-relying-on-a-participant%E2%80%99s-written-statement-that-she-has-a-hardship/ A hardship is not the only kind of claim for a before-severance distribution a plan may permit a participant to self-certify. Others include: an emergency personal expense distribution [§ 72(t)(I)]; a qualified birth or adoption distribution [§ 72(t)(H)]; an eligible distribution to a domestic abuse victim [§ 72(t)(2)(K)]. If a plan’s sponsor or administrator is considering not allowing § 401(k)(14)(C) self-certification for hardship claims, are there reasons to treat differently these other claims?

Thefts are always risks to be managed. For a big recordkeeper, the expense savings gained by lessening the review of hardship claims might outweigh the incremental losses the recordkeeper pays on its cybersecurity promise. And the recordkeeper should maintain its controls and slowdowns on address changes and bank account changes.

MoJo, thank you for sharing more perspectives. I understand some of the reluctance you describe. And I recognize the difficult business choices you and your fellow executives face. Still, I hope recordkeepers will build a self-certifying method available to at least big-enough plans so they, with advice and thinking independent of the recordkeeper, can decide their resolutions of the policy and risk questions.

For almost any individual-account retirement plan for which the plan’s administrator or other oversight fiduciary has bargaining power and independent advice, clear service agreements set up an opportunity for better working relationships with clearer expectations. And it’s important for an agreement to be fair to not only the service recipient’s proper interests but also the service provider’s legitimate interests. Among many points, a nonfiduciary service provider should bear no responsibility for the consequences of the plan sponsor’s or the plan administrator’s decision.

Corey B. Zeller, thank you. If a recordkeeper requires the plan administrator’s confirmation that the administrator lacks knowledge contrary to the self-certifying claim on each claim, that interruption could defeat the value of instructing the recordkeeper to process the claims without the administrator’s involvement. Instead, might a recordkeeper accept (at least from a big-enough customer advised by its lawyers) a plan administrator’s instruction to process the hardship claims presuming the administrator lacks knowledge unless the administrator intervenes? After all, isn’t it a plan’s sponsor/administrator that owns the risk of a tax-disqualification because the plan allowed a distribution contrary to § 401(k)(2)(B)? And shouldn’t a service agreement relieve the recordkeeper from a liability or expense that results because the recordkeeper obeyed the administrator’s instructions? Paul I, thank you for your helpful explanation about recording sponsor/administrators’ instructions about plans’ provisions and administration methods, and about ordering of steps in a system logic. (It has been almost 18 years since I left inside experience with recordkeeping operations, and some of what I remember about that work is dimming!)

Paul I, thanks; and I hope you might help me learn more. If, like the regimes you describe, a plan’s administrator instructs its recordkeeper to treat as good order a hardship claim completed on the self-certifying form the administrator instructs, is that enough? Or does a recordkeeper think something more is needed for a plan’s administration to get § 401(k)(14)(C)’s protection? Also, is the needed software change only setting up a revised (or alternate) online claim form? Or would an administrator’s instruction that a recordkeeper use a self-certifying form touch something else that requires a software change? (I recognize recordkeepers are setting sooner and later priorities for SECURE 2022 software changes.)

Thanks. So at least ftwilliam furnishes a form. Perhaps BenefitsLink neighbors know whether Relius furnishes a form? The big recordkeepers seem reluctant to implement § 401(k)(14)(C). Is any big recordkeeper allowing the § 401(k)(14)(C) self-certification?

Has any big recordkeeper yet made available (if a plan-administrator customer asks for it) a form for relying on a participant’s written statement that she has a hardship?

If you get ASPPA’s Plan Consultant magazine, the Fall 2020 issue has an article for TPAs, “Rewrite your service agreement to protect your business: Ten tips to do it yourself.”

Congress’s repeal before the statute’s applicability date seems unlikely. Among many reasons, the Joint Committee on Taxation estimated the revenue raised by SECURE 2022’s § 603 as $16.637 billion for fiscal years 2024-2032. A July 19 letter asks the Treasury department for “transition relief.” In context and by implication, the letter asks for a year’s nonenforcement. If the Internal Revenue Service declines to apply Internal Revenue Code of 1986 § 414(v)(7), it’s doubtful any taxpayer has constitutional standing to seek a court’s order commanding the IRS to enforce § 414(v)(7). I don’t guess anything about whether the Treasury department might openly declare, or quietly set, a nonenforcement policy.

That you describe your firm as counsel to a union and a pension trust regarding the union suggests that your firm advises the labor-side pension trustees. Do the employer-side pension trustees have their counsel?

SECURE 2022’s § 120 provides a statutory prohibited-transactions exemption for an automatic-portability provider’s receipt of fees and compensation for its “services provided in connection with an automatic portability transaction.” Internal Revenue Code of 1986 (26 U.S.C.) § 4975(d)(25). But nothing in SECURE 2022 § 120 provides an exception from a fiduciary’s responsibility under ERISA § 404(a) [29 U.S.C. § 1104(a)]. Congress directs the Secretary of Labor to “issue” regulations or other guidance by December 29, 2023 (which also is the first day the exemption becomes available). Congress directs that the guidance “make clear that the [IRC § 4975(d)(25)] exemption . . . applies solely to the automatic portability transactions described therein, and, to the extent the Secretary deems necessary or advisable, specify how the application of the exemption relates to or coordinates with the application of other statutory provisions, regulations, administrative guidance, or exemptions.” Some might imagine the Labor department making a rule to interpret ERISA § 404(a) so a default-distributing ERISA-governed plan’s fiduciary is not responsible for a later automatic-portability transaction from the default IRA into a rollover-receiving employer-sponsored retirement plan. Some fiduciaries might wait until such a notice-and-comment rule is published, effective, and applicable. Some fiduciaries might consider whether such a rule would be enough to protect the fiduciary. And some fiduciaries might wait until Congress enacts non-responsibility in a statute.

Your query might lack some relevant information. Among other points: Did the participant die before, on, or after the participant’s required beginning date? Had a distribution begun? If a distribution began, did it begin before, on, or after the participant’s required beginning date?

If one follows the Form 5500 Instructions for an authorized service provider’s signature, that signer is not responsible for the Form 5500 report; rather, one signs only five process statements about how the plan administrator’s signer authorized the service provider to submit the administrator’s report. If you do something else, consider that the signer states: Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including accompanying schedules, statements and attachments, as well as the electronic version of this return/report, and to the best of my knowledge and belief, it is true, correct, and complete.

A few observations (none of which is advice) you might consider: If there is a doubt about which provisions the plan’s sponsor intends, that doubt might call for a conversation with the plan’s sponsor. To discern what the plan’s governing documents now might provide, a fiduciary (or its adviser) would, as Belgarath suggests, read carefully all writings that comprise the plan. That might include annuity contracts, custodial-account agreements, and other writings the labeled plan documents refer to. Despite a statement in an IRS-approved document that “the plan” controls over inconsistent provisions of an annuity contract or custodial-account agreement, consider that such a statement might have no effect on an annuity contract or custodial-account agreement. Likewise, such a statement in a plan document might not bind an insurer or custodian. For some annuity contracts, it might be unlawful for an insurer to accept provisions beyond those stated by the approved form of contract. Don’t assume a custodian, insurer, recordkeeper, or other investment or service provider has an obligation to follow the plan’s governing documents (even those that unquestionably state the plan’s provisions). Many agreements provide no such obligation. Some agreements expressly state that a payer or processor may rely, without inquiry, on the plan administrator’s instruction.

As CuseFan says. Some retirement plans have only one administrator, and the one decides everything that calls for a discretionary decision. Yet, some retirement plans have a top-level administrator and ERISA section 405 allocations of distinct fiduciary responsibilities to one or more claims administrators, each for a specified set of kinds of claims. For example, some plans I work with contract an administrator for claims that a participant is entitled to a distribution (whether by hardship, severance from employment, age, or another reason), and another separate administrator for claims that a court order is a qualified domestic relations order.