Peter Gulia

Does anyone know how Relius software looks for 59½? Is it 183 days after the 59th birthday? Or something else?

If the plan’s trustee made fiduciary findings that the appraiser was qualified and independent, perhaps the trustee’s record of those findings includes or refers to evidence that shows the desired fact statements? If the plan’s trustee or the employer paid the appraiser her fee, perhaps the tax-information reporting shows the Employer Identification Number? Beyond those fact-gathering pointers, one or more of the plan’s fiduciaries might want each’s lawyer’s advice about whether there might be a claim grounded on the appraiser’s negligence, what statute-of-limitations or repose period governs such a claim, whether law regarding a decedent’s estate accelerates a time bar on claims, and whether a prudent fiduciary should or should not pursue a claim.

Are you sure there was a distribution from Plan Origin, followed by a rollover contribution into Plan Destination? Or might there have been a plan-to-plan transfer of assets and obligations? Also, Plan Destination’s administrator and trustee might evaluate whether the attorney had (and perhaps still might have) a charging lien regarding some claim the attorney might have helped perfect. The plan fiduciary should get its advice from a lawyer who is (i) independent of the to-be-paid attorney, and (ii) competent to spot and evaluate the many exclusive-benefit, prohibited-transaction, and other ERISA title I (if it governs either plan) and Internal Revenue Code issues. This is no advice to anyone. I mention it only as a possible variation, in some circumstances, against the general principle that an employee-benefit plan doesn’t pay another plan’s expenses.

Has the examiner suggested the plan’s trustee could not rely on a valuation report because the appraiser was not qualified, or was not independent? Or that the plan’s trustee had not determined the appraiser was qualified and independent?

Listen to Belgarath’s reasoning. Also, consider ERISA § 404(a)(1)(D)’s command to administer a plan according to the plan’s governing documents. If the plan’s documents provide a participant a right to take a distribution after severance from employment, one has a right (legally enforceable under ERISA § 502) to take the distribution the plan provides.

Different minds can reason a few different ways to count a half a year, or to mark a half-birthday. The Treasury department’s rule to interpret Internal Revenue Code § 401(k)’s condition about when a plan with a cash-or-deferred arrangement may provide a distribution from a § 401(k) subaccount does not specify when 59½ occurs. 26 C.F.R. § 1.401(k)-1(d)(1)(ii)(A) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(k)-1#p-1.401(k)-1(d)(1)(ii)(A). And there is no rule to interpret when 59½ occurs for § 72(t)(2)(A)(i)’s exception that § 72(t)(1)’s extra tax on a too-early distribution does not apply to a distribution “made on or after the date on which the employee attains age 59½[.]” The Treasury’s current (and proposed) § 401(a)(9) rule sets 70½ as “the date six calendar months after the 70th anniversary of the [participant’s] birth.” The rule (current or proposed) illustrates this with two examples: A 70th birthday on June 30 results in 70½ on December 30; a 70th birthday on July 1 results in 70½ on the next year’s January 1. 26 C.F.R. § 1.401(a)(9)-2/Q&A-3 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-2. That rule’s examples result in a span of 183 or 184 days. But other anniversary dates can result in a span of 182 or 181 days. The § 401(a)(9) rule does not illustrate how to count six months for someone born on the last day of March, the last day of May, the three last days of August, the last day of October, or the last day of December. How one might interpret or apply a half-year concept might differ between § 401(k)(2)(B) and § 401(a)(9)(C). Among several arguable differences: For 70½, that date does not by itself set the required beginning date; rather, it sometimes sets the year that precedes the year that includes the required beginning date. For 59½, that date is the relevant conclusion. About § 401(k)(2)(B), there is a range of interpretations a plan’s administrator might defend. And about the § 72(t)(2)(A)(i) exception, there is a range of interpretations a distributee might assert. In deciding whether a participant gets a distribution because she reached age 59½, an individual-account retirement plan’s administrator might want to know what measurement or assumption its recordkeeper’s software would apply absent the administrator’s instruction. In considering whether a distributee gets an exception from the too-early extra tax because the distributee reached age 59½, a participant might want to know what measurement or assumption the reporter of Form 1099-R would apply. (Although a taxpayer may file a tax return that asserts an income tax treatment different than one suggested by a Form 1099-R report’s coding, some participants consider potential burdens of responding to the IRS’s or another tax agency’s inquiry.) If a participant seeks to be certain of getting 59½ treatment for both purposes that refer to 59½, one might count to the later of (i) 183 days after the 59th birthday, or (ii) the latest date that would result from any possible interpretation of the “six months” in 26 C.F.R. § 1.401(a)(9)-2/Q&A-3 as an analogy for the 59½ half-year. If the participant can’t wait for the money, other interpretations might be possible, depending on the facts and circumstances. Does anyone know how Relius software looks for 59½? Does anyone know how Empower’s software looks for 59½?

The Internal Revenue Manual is a set of directions and instructions addressed to IRS employees. Nothing in the Manual is a rule that applies to a taxpayer. And nothing the Internal Revenue Service or the Treasury department writes can undo an Act of Congress.

The February 2017 memo (later compiled in the Internal Revenue Manual) considered tax law before SECURE 2022, and before SECURE 2019. The whole text of Internal Revenue Code § 401(k)(14)(C) is: “In determining whether a distribution is upon the hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is— (i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and (ii) not in excess of the amount required to satisfy such financial need, and that the employee has no alternative means reasonably available to satisfy such financial 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 employee’s certification, and for procedures for addressing cases of employee misrepresentation.” I.R.C. (26 U.S.C.) § 401(k)(14)(C) http://uscode.house.gov/view.xhtml?req=(title:26%20section:401%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section401)&f=treesort&edition=prelim&num=0&jumpTo=true Nothing in that text provides an exception to the allowed reliance until: (1) the Secretary has published a rule or regulation (not subregulatory guidance); (2) that rule “provides . . . exceptions . . . [for] cases where the plan administrator has actual knowledge to the contrary of the employee’s certification[;]” and (3) the rule has become effective and applicable. So far, the Treasury has not even proposed a rule, much less completed a rulemaking. Amended § 401(k)(14)(C) applies to plan years that began or begin after December 29, 2022. Nothing in § 401(k)(14)(C) limits an administrator’s permitted reliance according to whether the participant made one or more previous claims, or received one or more hardship distributions, in a year.

To return to Lou S.’s query, the statute, the Internal Revenue Code of 1986, reads: § 401(k)(2)(B)(i)(III) A qualified cash or deferred arrangement must meet a set of conditions, which include: “(B) . . . amounts held by the trust which are attributable to employer contributions made pursuant to the employee’s election— (i) may not be distributable to participants or other beneficiaries earlier than— (III) in the case of a profit-sharing or stock bonus plan, the attainment of age 59½[.]” Accord 26 C.F.R. § 1.401(k)-1(d)(1)(ii)(A) (“[t]he employee’s attainment of age 59½”). § 72(t)(2)(A)(i) “Except as provided in paragraphs (3) and (4), paragraph (1) [the imposition of an extra tax on a too-early distribution] shall not apply to any of the following distributions: Distributions which are—made on or after the date on which the employee attains age 59½[.]”

The article [https://www.consultrms.com/Resources/38/Hardship-Withdrawals/188/Hardship-Document-Should-You-Allow-Self-Certification] seems to elide a description of the self-substantiation method the Internal Revenue Service unveiled in February 2017’s TEGE Council meeting. Substantiation Guidelines for Safe-Harbor Hardship Distributions from 401(k) Plans.pdf

ERISA § 413, which Paul I points to, governs a fiduciary-breach claim under ERISA’s title I. ERISA does not specify a limitations period for a benefit claim. Federal and States’ courts’ interpretations and applications vary, and sometimes “borrow” a period from a relevant State’s law. Claims under banking, insurance, securities, and other law might involve yet different periods. Instead of assuming the risk of error about which rule or rules might apply and how a court might interpret and apply them, a fiduciary might consider, with its lawyer’s evaluation and other help, negotiating an insurance contract under which one premium covers the tail risks with the insurer underwriting the risk on how long the fiduciary’s exposure continues. Just my musing; not advice to anyone.

I don’t know the tax law about remedial-amendment periods, but many BenefitsLink commenters do. Perhaps they’ll weigh in on my related question: If a plan’s sponsor is adding a provision for Roth deferrals because it’s needed to help meet SECURE 2022’s new tax-qualification condition that § 414(v) deferrals be Roth deferrals, is the provision sufficiently related that it gets a SECURE 2022 remedial-amendment period? If so, does the tax-qualification regime tolerate operate now, amend later? Or does that not work?

For a relevant meaning about what is minimum essential coverage, see Internal Revenue Code (26 U.S.C.): § 4980H http://uscode.house.gov/view.xhtml?req=(title:26%20section:4980H%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section4980H)&f=treesort&edition=prelim&num=0&jumpTo=true §5000A(f) http://uscode.house.gov/view.xhtml?req=(title:26%20section:5000A%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section5000A)&f=treesort&edition=prelim&num=0&jumpTo=true and rules: 26 C.F.R. § 54.4980H-1(a)(27) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4980H-1#p-54.4980H-1(a)(27). The regulator for the § 4980H excise tax on an applicable large employer that does not offer minimum essential coverage is the Treasury department and its Internal Revenue Service.

If DCFSA refers to dependent care flexible spending account: The plan’s provisions relate not only to Federal tax law but also to the employer’s plan-design choices. What does the written plan provide about when a participant may change her election? Does the election the participant seeks to change relate only to a § 129 dependent-care plan? Or does it integrate with a set of choices under a wider § 125 plan, perhaps including a health plan or health flexible spending account? Not all employers’ plans have the same provisions.

Individual-account retirement plans’ fiduciaries differ widely on what oversight and monitoring (if any) is proper or prudent regarding participants’, beneficiaries’, and alternate payees’ directed investment using securities accounts. Further, some plan’s creators specify in one or more governing documents which steps a fiduciary must, may, or must not take. Yet, even when those provisions are clear, fiduciaries sometimes consider whether one must disobey a plan’s provisions as inconsistent, whether generally or in particular circumstances, with ERISA’s title I. In my experience, few fiduciaries consider anything about investment merits, except expenses. Some fiduciaries consider restrictions for points beyond investment merits. Instead of a plan’s fiduciary doing the work of examining accounts for troublesome holdings or transactions, a fiduciary might rely, at least primarily, on the broker-dealer’s representations, warranties, and continuing covenants that the broker-dealer will restrict each securities account’s holdings and transactions to apply the plan administrator’s specified restrictions. Some of the more common exclusions are: open-end funds available as a designated investment alternative; securities issued by the plan’s sponsor, a participating employer, or an affiliate of any (even if one or more of these is not employer securities); securities that were employer securities regarding the plan during a specified past period; securities not traded on at least one nation’s national securities exchange (except securities that were exchange-traded when acquired); securities, commodities, or other property for which the plan’s trustee, custodian, and subcustodians lack enough control of ownership to meet ERISA § 404(b); securities, commodities, or other property for which the broker-dealer does not determine and report fair market value; anything that could result in a loss in excess of the individual’s account balance. Some fiduciaries prefer not to know what a particular individual directs investment in. If an employer does not need visibility to check for the professional-services points I describe above, an employer/administrator might prefer not to have “too much information.”

An administrator’s (or recordkeeper’s) desire for the implied-assent election jsample described results because many plans use continuing cash-or-deferred elections, and some participants might have made, before 2024, elections under assumptions that become, in 2024, no longer true. While it’s better for a participant to be attentive and make considered choices, individual-account retirement plans’ administration has, for better or worse, adapted to filling-in some presumptions for those who do not communicate an affirmative instruction. Without doubting anything Paul I explains, sometimes recordkeepers do what they can with the law Congress provides.

Thanks again. For the situations I’m thinking of, a retirement plan would allow only one broker-dealer, and only the one aligned with the recordkeeper. An employer would not furnish its restricted list to the broker-dealer, because doing so would reveal the employer’s clients’ confidential information.

I wasn’t suggesting asking a broker-dealer to apply an employer’s restrictions. (For some employers, a list of restricted securities could number in the thousands.) I’m aware only that some employers want daily visibility into participants’ brokerage-window accounts, so the employer’s compliance analysts can check that a participant has no unapproved holding.

With some (or many) participants, a plan might have three layers of implied-assent choices: 1. Whether a participant is deemed to have chosen a deferral; 2. The default amount of an implied-assent deferral; and 3. For a § 414(v) catchup portion of a deferral (even if the deferral results from affirmative elections), a default presumption of Roth-ing that portion; rather than no deferral for the portion that cannot be non-Roth deferrals. If the Internal Revenue Service doesn’t publish the requested guidance soon enough, there might be an implied-assent choice in another frame: A recordkeeper might propose to its customer plan fiduciary a #3 implied assent for a participant in the $145,000 group as an interpretation of uncertain law that the plan fiduciary approves, and instructs the recordkeeper to use in providing the recordkeeper’s services.

Beyond a plan fiduciary’s other needs, my query is motivated by employers that restrict or restrain an employee’s personal securities trading. For example: A law firm might restrict trading in securities issued by the firm’s client, identified prospective client, and either’s opponent or known party to a contract. An accounting firm might restrict trading in securities as needed to maintain an audit practice’s independence and availability for current and reasonably anticipated clients. A firm of actuaries might restrict trading in securities to avoid conflicts or maintain independence. A firm that sometimes serves as an appraiser, independent fiduciary, or expert witness might restrict trading in securities to maintain independence. For these employers, a lack of computer feeds could make a brokerage window a nonstarter.

The Labor department’s Voluntary Fiduciary Correction Program’s § 5 (General Rules for Acceptable Corrections) includes this: “The fiduciary, plan sponsor[,] or other Plan Official, shall pay the costs of correction, which may not be paid from plan assets.” § 5(c)(1). “[T]he plan may not pay any costs associated with recalculating participant account balances to take into account the new valuation. There would be no need for these additional calculations . . . if [the fiduciary had not breached its responsibility]. Therefore, the cost of recalculating the plan participants’ account balances is not a reasonable plan expense, but is part of the costs of correction.” § 5(c)(3). “Any fees paid to such representative for services relating to the preparation and submission of the [VFC] application may not be paid from plan assets.” § 6(b). https://www.govinfo.gov/content/pkg/FR-2006-04-19/pdf/06-3674.pdf Even if no fiduciary uses the VFC Program, a fiduciary might, unless its lawyer advises differently, presume the Program’s conditions follow an Employee Benefits Security Administration general interpretation that a plan ought not to be burdened by an expense that would not have been incurred had a fiduciary not breached its responsibility to the plan. Such an interpretation might be logically consistent with ERISA § 409(a): “Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title [I] shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, . . . , and shall be subject to such other equitable or remedial relief as the court may deem appropriate[.]” The circumstances and reasoning might be different if there was no fiduciary breach.

ERISA’s 404a-5 rule particularly mentions as an example of an individual expense “fees attendant to processing . . . qualified domestic relations orders[.]” 29 C.F.R. § 2550.404a-5(c)(3)(i)(A) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.404a-5#p-2550.404a-5(c)(3)(i)(A). While others might interpret the rule differently, I do not read it to preclude disclosing a QDRO-review charge merely because the charge is for a time-based fee. A plan’s administrator might furnish its most recent 404a-5 disclosure when the administrator furnishes its procedure for reviewing domestic-relations orders.

When a retirement plan allows a recordkeeper’s brokerage window: Does the plan’s named fiduciary get reports on the details of which stocks, bonds, and other securities each participant buys, holds, and sells? Or does the named fiduciary get access to a database with that information? Is that reporting or access routine? Or must the fiduciary specifically ask for those services?

About what writing is helpful to remember which in-operation provisions a plan’s administrator applied while waiting for an eventual remedial amendment, I do not suggest a need for a plan sponsor’s affirmative choice. But I wonder whether a service provider should “go through the motions” of seeking a sponsor’s instruction (and proposing a default instruction) on the required beginning date applicable age. Or, if the service provider prefers not to present a choice, at least informing a service recipient that it instructs the service provider to provide services on the presumption that the plan’s in-operation provision is the § 401(a)(9)(C)(v) applicable ages for setting a required beginning date. Either notice might set up some written evidence about which in-operation provisions were administered while waiting for an eventual remedial amendment. Even if nothing is done, the risk of administration contrary to the plan’s retroactive provisions might be slight. Even a service provider with a power to amend a user’s plan might prefer to restrain its use of that power. Further, until the plan is amended, a service provider might be cautious about not too lightly presuming what the plan’s in-operation provisions are. While waiting for an eventual amendment (whoever later makes it), a plan’s named fiduciary administrator might have discretionary authority to interpret a not-yet-amended plan document to include provisions the administrator anticipates likely could become the plan’s provisions with retroactive effect. But a service provider might lack such an interpretation power.

About Paul I’s last paragraph: In my interpretation, a distribution paid or delivered before January 1 of the year in which the participant attains the applicable age Internal Revenue Code § 401(a)(9)(C)(v) allows within the conditions for treating a plan as a tax-qualified plan (not a younger age a plan might provide) is treated as not § 401(a)(9)-required and so an eligible rollover distribution (if it otherwise qualifies). See 26 C.F.R. § 1.402(c)-2 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.402(c)-2.