Peter Gulia

Here’s another statute-reading exercise for BenefitsLink mavens. Internal Revenue Code § 414(v)(7)(A) restricts to Roth treatment a § 414(v)(1) catch-up deferral for “an eligible participant whose wages (as defined in section 3121(a)) for the preceding calendar year from the employer sponsoring the plan exceed $145,000[.]” If a retirement plan’s participant who otherwise would have had wages more than $145,000 had no wages (but as a partner had net earnings from self-employment more than $145,000), may she choose non-Roth catch-up deferrals?

EBECatty, thank you for your clear-minded reading. Yesterday, I was too dense to see it.

SECURE 2022 § 325 added only Internal Revenue Code § 402A(d)(5), quoted above. Here are links to Bloomberg’s edition of the Internal Revenue Code, with SECURE 2022 amendments: I.R.C. § 401 https://irc.bloombergtax.com/public/uscode/doc/irc/section_401; I.R.C. § 402A https://irc.bloombergtax.com/public/uscode/doc/irc/section_402a. I checked both these sections for references to “401(a)(9)(A)”, and founding nothing that undoes that minimum-distribution condition for Roth 401(k) participants. I checked both these sections for references to SECURE 2022’s § 325, and found nothing that undoes that minimum-distribution condition for Roth 401(k) participants. My searches in § 401 on “402A” and on “Roth” found nothing that undoes the § 401(a)(9)(A) minimum-distribution condition for Roth 401(k) participants. I want to be wrong, so I need not over the next ten years convert my Roth 401(k) amounts into Roth IRA amounts.

Like you, I believe someone intended the relief for all three kinds of employment-based eligible retirement plans. But I don't see any text in the statute that provides the nonapplication for a Roth 401(k) subaccount.

With a heading “Mandatory Distribution Rules Not to Apply Before Death”, Internal Revenue Code § 402A(d)(5), as SECURE 2022 adds it for tax years that begin on or after January 1, 2024 (with a transition for 2023 measures to be paid in 2024), provides: Notwithstanding sections 403(b)(10) and 457(d)(2), the following provisions shall not apply to any designated Roth account: (A) — Section 401(a)(9)(A). (B) — The incidental death benefit requirements of section 401(a). Am I reading correctly that only Roth 403(b) and Roth 457(b) participants are excused from minimum distribution before death? Or is there another provision I didn’t read thoroughly enough to find?

Below Ground, thank you for a most compelling reason to leave the plans distinct.

C.B. Zeller and Paul I, thank you for your thoughtful good help. Beyond simply crediting contributions when the recordkeeper receives them, is there another reason for the employer to worry that different payroll schedules confuses the recordkeeper?

If there is a plan year that began or begins after December 29, 2022. But perhaps SECURE 2022 § 348 doesn’t affect a plan year that began August 1, 2022.

Do BenefitsLink mavens concur that changing a required beginning date to something later than age 70½ would have been an optional change, and if not done in the plan’s actual administration needs no amendment to tax-qualify the plan for its termination?

An employer maintains two § 401(a)-(k) plans, one for manufacturing employees, who are union-represented, and another for office employees, none of whom is union-represented. The employer is considering merging the two plans into one. The plan for office employees uses a safe-harbor matching contribution to meet rules about coverage, nondiscrimination, and top-heavy. Even after the plans’ merger, there would be no risk, even with substantial growth in both headcounts, that the merged plan’s participant count would reach a number that calls for engaging an independent qualified public accountant. The employer is not worried about a tax-qualification defect for either plan. Are there other reasons for not merging the plans? Are there other reasons to prefer the hygiene of separate plans?

Do we concur that someone in the circumstances SadieJane describes should give one’s client correct information, then let the client decide what it will do? Or is there anything else a practitioner ought to do?

Consider what exactly the plan needs for the plan-termination amendment. Beyond ending accruals and providing for the final distributions, an amendment for a plan’s termination might need no more than to state: · a provision the Internal Revenue Code requires as a condition of tax-qualified treatment; and · an optional provision presumed in the plan’s actual administration. I don’t remember a SECURE 2019 change the Internal Revenue Code requires as a condition of a cash-balance defined-benefit pension plan’s tax-qualified treatment. About optional provisions, one might not need an amendment if the plan was not changed. For example, if the sponsor could have changed the plan’s normal retirement age, early retirement age, or required beginning date but did not, there might be no need to write an amendment for a provision that never was adopted.

Or could the defined-benefit pension plan provide participant loans available to all participants?

If one follows the Labor department’s rule, an ERISA-governed group health plan’s summary plan description includes a description or explanation about part 6 continuation coverage. 29 C.F.R. § 2520.102-3(o) (Contents of summary plan description) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-B/section-2520.102-3#p-2520.102-3(o). For two elements of information (a provider network, a claims procedure), the rule allows a plan’s administrator to furnish something as a document separate from the rest of the summary plan description if the SPD “contains a general description of the provider network [or claims procedure] and . . . the SPD contains a statement that [the other document is] furnished automatically, without charge, as a separate document.” The rule specifies how to use a separate document for those two elements, and has no similar or parallel mention for any other element of information, including those the SPD-contents rule specifically commands. That might suggest to some readers that the Secretary of Labor might not have meant to enable using a separate document for the required explanation about continuation coverage. Yet, some plans’ administrators use widely a range of methods, with widely varying ways of seeking to integrate several separate documents as “the” summary plan description. Another method I’ve seen some plans’ administrators use is to download the word-processing text of the Labor department’s “model general notice” (or the COBRA service provider’s adaptation of it) and edit that text to serve as a summary plan description’s explanation. https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra#employers Belgarath, please recognize this is an observation about what others do, and none of it is my advice. About a governmental plan, those involved might resolve the questions in different ways.

Internal Revenue Code of 1986 § 457(f) is a rule about when compensation counts in income. “In the case of a plan of an eligible employer providing for a deferral of compensation, if such plan is not an eligible deferred compensation plan, then— the compensation shall be included in the gross income of the participant or beneficiary for the 1st taxable year in which there is no substantial risk of forfeiture of the rights to such compensation[.]” I.R.C. (26 U.S.C.) § 457(f)(1)(A). What people call a § 457(f) plan is one the parties hope maintains a substantial risk of forfeiture until the compensation is paid (or at least until it would be payable if the participant or beneficiary claims it). If you’re designing a plan, reading 457 Answer Book’s chapter 11 could help you consider which restrictions might be enough to support a substantial risk of forfeiture. If you’re applying a written plan, it’s RTFD—Read the Fabulous Document. Many participants prefer that a right not happen too quickly, because whatever a participant has a right to take generally counts in income.

Internal Revenue Code § 414A(c)(4)(B) provides: “Subsection (a) [treating an arrangement as not a § 401(k) arrangement unless it meets § 414A(b) automatic-enrollment conditions] shall not apply to any qualified cash or deferred arrangement, or any annuity contract purchased under a plan, earlier than the date that is 1 year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.” A traditional canon of text interpretation is that every word ought to have some effect. Perhaps “normally” means something for your question. On your example, did the employer normally employ a number of employees somewhere between eight and seven? Or at least normally no more than eight?

The paragraph I quoted above is from the model ERISA-rights notice in the Labor department's SPD-contents rule. https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-B/section-2520.102-3 That rule shows the amount as $110. Thank you for confirming it is not inflation-adjusted.

A summary plan description's ERISA-rights notice includes this: If you request materials from the Plan and don’t receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan administrator to provide the materials, and pay you up to $nnn a day until you receive the materials, unless the materials were not sent because of reasons beyond our control. What is the current amount?

Some sources of relevant Federal tax law are: I.R.C. § 72(e)(5)(D) (“Any dividend described in section 404(k) which is received by a participant or beneficiary shall, for purposes of this subparagraph, be treated as paid under a separate contract to which clause [72(e)(5)(D)](ii)(I) [referring to a § 401(a) trust] applies.”); I.R.C. § 72(t)(2)(A)(vi) (“dividends paid with respect to stock of a corporation which are described in section 404(k)” excepted from the additional income tax on a too-early distribution). https://irc.bloombergtax.com/public/uscode/doc/irc/section_72 I.R.C. § 404(k) (employer’s deduction for a dividend paid out, rather than into the plan’s trust). https://irc.bloombergtax.com/public/uscode/doc/irc/section_404 I.R.C. § 3405(e)(1)(B)(iv) (section 404(k)(2) distribution not a designated distribution). https://irc.bloombergtax.com/public/uscode/doc/irc/section_3405 26 C.F.R. § 1.402(c)-2/Q&A-4(e) (“Dividends paid on employer securities as described in section 404(k)” not an eligible rollover distribution). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.402(c)-2 26 C.F.R. § 1.404(k)-1T/Q&A-3 (treating a dividend paid out, rather than into the plan’s trust, as a separate contract for I.R.C. § 72 income ordering). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.404(k)-1T

If the mistake is not ratified: Consider that the employer might owe the employee her past-due wages with interest. That interest might be at a rate State law specifies for late payments of wages, a rate for obligations, or some other measure of interest.

Just curious, if the plan's sponsor does not change the plan, what correction should the plan's administrator (even if both sponsor and administrator are the employer) implement?

Yes, we're agreeing; we can help only those who are alert, competent, and want to be helped.

Some law firms keep an employee-benefits lawyer busy working on the deals the business lawyers work on. For firms that lack an eb lawyer, good lawyers sometimes won’t work a deal unless the client engages (or authorizes the deal firm to engage at the client’s expense) a suitable employee-benefits lawyer.

If the employer’s cost for a health benefit can’t be fairly estimated from the employer’s experience alone, could one extrapolate from other employers’ experiences with similar benefits? And would a firm of actuaries have enough information to do that study?

If, following a qualified domestic relations order, the participant’s spouse or former spouse is treated as an alternate payee and distributee, that distributee may make a rollover (including a direct rollover) to an eligible retirement plan. I.R.C. § 402(c)(1), 402(e)(1) https://irc.bloombergtax.com/public/uscode/doc/irc/section_402.