Peter Gulia

Thanks. I added a note: Widenings of which former employees might get this exception apply for a distribution after December 29, 2022. Providing this exception not only for age 50 but also for 25 years of service applies for a distribution after December 29, 2022. I didn’t edit the reference to § 72(t)(10), which refers to both its subparagraphs. Subparagraph (A) states the exception from the too-early tax. Subparagraph (B) states the specially defined term qualified public safety employee. That definition is “[f]or purposes of this paragraph,”—that is, § 72(t)(10). Yet, I see some awkwardness: Section 72(t)(10)(A) provides the exception from the too-early tax “to an employee who provides firefighting services” even if she was neither “any employee of a State or political subdivision of a State” within the meaning of § 72(t)(10)(B)(i) nor someone described in § 72(t)(10)(B)(ii). That paragraph (10)’s heading now mentions “private sector firefighters” suggests Congress might have intended to provide this exception from the too-early tax not only to those who received the distribution from a governmental plan but also “to an employee who provides firefighting services[.]” Distributions added or changed by SECURE 2019 and 2022.pdf

Yes, adding an investment alternative usually requires an advance notice under ERISA’s 404a-5 rule. My point was not that adding an investment alternative would not call for such an advance notice. Rather, my point is that many recordkeepers set practical requirements beyond what ERISA’s 404a-5 rule might require for a plan’s administrator to meet its fiduciary responsibility to communicate to participants and beneficiaries. An agreement might condition a service on a notice to the plan’s participants and beneficiaries, even in circumstances for which ERISA’s 404a-5 rule might not require an advance notice. Further, an agreement might condition a service on more days’ notice—at least to the recordkeeper—than the 30 days’ notice the 404a-5 rule calls for. When responding to questions about how quickly or easily a plan’s administrator may change or add an investment alternative, it’s often efficient to look to the recordkeeper’s service agreement.

Without commenting on which, or whether any, description of the law is right or wrong: Consider that each of ADP or Ascensus routinely asserts it does not provide tax or legal advice. Recordkeepers and other service providers use plenty of smart people, who often know as much or more law than lawyers in law firms. But evaluate whether it’s prudent to follow legal advice from a person that denies that it provides legal advice.

And this is a recurring situation: Many payers lack a directing plan administrator’s instruction about a disability if deciding a disability was unnecessary to approve a claim for a distribution.

My wider point is that an adviser—no matter how great her knowledge, methods, and skills—cannot render good advice until she knows the identity of the advisee and learns the advisee’s goals and interests. In the situation described, the seller and the buyer might have diverging interests—at the least, one ought to recognize that possibility. A search for “the correct solution” is not in the abstract. Which solution is fitting depends on what one’s advisee hopes to accomplish.

Before you turn to your questions (and perhaps some others), you might consider who has authority to make decisions in administering seller company’s plan. Assuming seller company’s plan names seller company as the plan’s administrator: If buyer company bought shares of seller company, it seems likely that buyer company controls all or most rights to manage seller company, likely including seller company’s powers to administer seller company’s plan. But if buyer company bought assets from seller company, powers to administer seller company’s plan might have remained with seller company. You might prefer to wait on analyzing potential plan-administration adjustments until you know from whom you get your engagement and scope. And who has authority to pay, and has paid, or will be obligated to pay, your fee.

tuphao and Lou S., thank you.

Combining SECURE 2019 and SECURE 2022 changes, a sole proprietor may establish, retroactively, a plan (up to her tax-return date with extensions) and may make, retroactively, an elective-deferral election (up to her tax-return date without extensions). (Let’s leave aside the BenefitsLink discussion about whether that’s practically useful for 2022. Imagine a sole proprietor with calendar tax years, and a plan and § 401(k) arrangement that, when retroactively adopted, are effective January 1, 2023.) Am I right in thinking the situations in which a proprietor might want a § 401(k) arrangement are: the proprietor is 50 or older and classifying a portion of a contribution as a § 414(v) catch-up elective deferral enables a contribution up to $73,500 instead of $66,000; or the proprietor’s deemed compensation is less than $264,000? Is there another situation in which an elective deferral allows a proprietor to do something she could not do with her nonelective contribution alone? (Please ignore Pennsylvania income tax.)

CuseFan, thank you for linking us to a service provider’s article and its link to a Bureau of Consumer Financial Protection Advisory Opinion. https://www.govinfo.gov/content/pkg/FR-2020-12-10/pdf/2020-26664.pdf Perhaps one of the trade associations might ask the Internal Revenue Service to publish a Revenue Ruling that assumes the facts of CFPB’s “Covered Earned Wage Access Program” and sorts out how an eligible retirement plan’s provisions for elective deferrals apply regarding the before-paydate pay and the later wage-payment adjustments.

BenefitJack, thank you for your thoroughly thoughtful and helpful information.

jpod, thank you for your further observations. For the reason you suggest and some others, I tell plan administrators to read the death certificate, which often has some information about illnesses and causes of death, and sometimes about who called in the death. Likewise, we read obituaries, which often name a spouse, children, other relatives, friends, and others, and mention personal details about the decedent. We’ve often quickly discerned a claimant’s false statement from what was described in an obituary retrieved from a first page of Google results. Some steps you suggest, while they might be useful with a small-business employer’s plan, might be inefficient, impractical, or inapposite for a plan with tens of thousands of participants, especially if claims-handling is mostly outsourced. For the plan that’s the subject of this discussion, the default beneficiary is the participant’s estate. If that provision applies, the plan pays the estate’s personal representative (and need not know anything about who takes from the estate).

For thirteen kinds of distributions added or changed by SECURE 2019 and 2022, here’s my table to show whether: the specified kind of distribution is an exception from a provision that restrains a distribution until the participant’s severance-from-employment or age 59½; a plan’s administrator may rely on a claimant’s written certification that the claim meets conditions for the specified kind of distribution; the specified kind of distribution is an exception from § 72(t)(1)’s additional income tax on a too-early distribution; a distributee of the specified kind of distribution may repay the amount as a rollover contribution to an eligible retirement plan. Distributions added or changed by SECURE 2019 and 2022 I.R.C. § Kind of distribution (from an individual-account eligible retirement plan) Early?[1] Rely?[2] Excuse?[3] Repay?[4] Applies[5] 72(t)(H) Qualified birth or adoption distribution. Yes Yes Yes Yes 2020 72(t)(I) Emergency personal expense distribution Yes Yes Yes Yes 2024 72(t)(J) From a § 402A(e) emergency savings account Yes Yes Yes No 2024 72(t)(2)(K) Eligible distribution to domestic abuse victim Yes Yes Yes Yes 2024 72(t)(2)(L) Terminal illness No -- Yes Yes 2023 [6] 72(t)(2)(M) Qualified disaster recovery distribution Yes No Yes Yes 2021 [7] 72(t)(2)(N) Qualified long term care distribution No -- Yes No 2026 [8] 72(t)(10) Qualified public safety employee age 50 or 25 years No -- Yes No 2007 72(t)(11) Qualified disaster recovery distribution Yes No Yes Yes 2021 [9] 139C Qualified first responder retirement payments (disability-related) No -- No [10] No 2027 401(a)(39) Qualified long term care distribution No -- Yes No 2026 [11] 401(k)(14)(C) Hardship distribution (certification) Yes Yes No No 2023 402(l)(5)(A) Governmental plan payment for safety officer’s health insurance No -- Yes No 2023 [12] 403(b) Hardship distribution (certification) Yes Yes No No 2024 457(d)(4) Unforeseeable-emergency distribution (certification) Yes Yes No No 2023 2022 Dec. 29 © Guidance Publishers NOT tax or legal advice [1] This column describes whether the specified kind of distribution is an exception from a provision that restrains a distribution until the participant’s severance-from-employment or age 59½. [2] This column describes whether a plan’s administrator may rely on a claimant’s written “certification” that the claim meets conditions for the specified kind of distribution. [3] This column describes whether the specified kind of distribution is an exception from § 72(t)(1)’s additional income tax on a too-early distribution. [4] This column describes whether a distributee of the specified kind of distribution may repay the amount as a rollover contribution to an eligible retirement plan. [5] A note about when a provision first applies assumes all relevant plan, limitation, and tax years are the calendar year. [6] Internal Revenue Code of 1986 § 72(t)(2)(L) applies to a distribution made after December 29, 2022. [7] The changes apply regarding disasters with incident periods that began on or after January 26, 2021. [8] The change applies to distributions made after December 29, 2025. [9] The changes apply regarding disasters with incident periods that began on or after January 26, 2021. [10] Internal Revenue Code of 1986 § 139C provides an exclusion from gross income, which could affect the income subject to a § 72(t)(1) tax. [11] The change applies to distributions made after December 29, 2025. [12] The change applies to distributions made after December 29, 2022. Distributions added or changed by SECURE 2019 and 2022.pdf

You seem to be looking for some reasoning that a within-the-family transfer would not be a change-in-control as the § 409A rules define it. But why? If the provision the persons negotiating the deferred compensation agreement want might be narrower than what the § 409A rules allow for a change-in-control trigger, what tax-treatment harm would result from the narrower provision?

Congress last set an amount ($1,000) for the ERISA § 502(c)(2) penalty in 1987. I was then active in lobbying. I don’t remember any trade organization or particular business putting an effort into persuading Congress not to set that penalty amount.

That someone was “the Senate and House of Representatives of the United States of America in Congress assembled[.]” More than 22 years ago, Congress set the general principle that a signature is not denied legal effect because it was made by electronic means. “[A] signature, contract, or other record relating to” a transaction in or affecting interstate or foreign commerce “may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and a contract relating to such [a] transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.” Electronic Signatures in Global and National Commerce Act, Public Law No. 106–229 (June 30, 2000), 114 Statutes at Large 464-476 (2000), unofficially compiled as 15 United States Code §§ 7001-7006, at its § 101(a), § 7001(a). E-SIGN Act.pdf

Pressures about a lawyer’s fee work in an opposite direction. Bad writing results when a lawyer presumes a client won’t pay for the time needed for good writing.

If a blank line calls for filling-in a date on which something became, becomes, or will become applicable and the writing does not otherwise state that date, one might worry about an incomplete expression. But if a fill-in would be merely a recital of when something was signed (I’d ignore the nonsense about “executed”) and there is useful evidence of when it was signed, what incompleteness would a maker worry about?

It’s Congress that set this penalty. The Labor department merely announces the non-discretionary inflation adjustment.

If one subscribes to Wolters Kluwer VitalLaw™ research databases, its edited Internal Revenue Code integrates Public Law 117-328 deletions and additions (as Belgarath wishes for) with caution markers for each subpart’s applicability date. One imagines Bloomberg and other publishers have edited their versions. Belgarath is right; it’s helpful to read the changed Internal Revenue Code as a whole text.

To the extent there is a tax-qualification failure to correct, consider that SECURE 2022 § 305 undoes the Internal Revenue Service’s time limit on which failures are eligible (if otherwise eligible) for self-correction.

Yes. Form 5500 and its Schedules and attachments is the form for an ERISA-governed employee-benefit plan's annual report.

ERISA § 502(c)(2)’s civil penalty for a failure to file an annual report is $2,586 per day. 88 Fed. Reg. 2210, 2219 (Jan. 13, 2023). If a plan’s administrator is off by one year and three weeks, that’s about $1 million.

I suggest only some points of authority a professional might consider, along with other authorities, to construct a reasoned interpretation. A taxpayer should want her professional’s advice about whether an interpretation has enough authority for a tax-return position. See 26 C.F.R. § 1.6662-4(d) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR1d0453abf9d86e0/section-1.6662-4#p-1.6662-4(d). I ask some questions; but a professional must do the complete research, analyze and interpret all possibly relevant authorities, and render careful advice.

And the business might have a few years' incorrect tax returns, by claiming a deduction for contributions to a plan that was not tax-qualified.

Even if the plan year began December 30, 2022 and ended December 31, 2022, might the limitation year have been January 1, 2022 to December 31, 2022? “Unless the terms of a plan provide otherwise, the limitation year, with respect to any qualified plan maintained by the employer, is the calendar year.” 26 C.F.R. § 1.415(j)-1(a) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(j)-1#p-1.415(j)-1(a). Even if both the plan year and the limitation year were December 30-31, 2022, might a sole proprietor’s § 401(c)(2) earned income for 2022 have been earned on December 31, 2022? “[A] sole proprietor’s compensation is deemed currently available on the last day of the individual’s taxable year[.]” 26 C.F.R. § 1.401(k)-1(a)(6)(iii) 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(a)(6)(iii).