Peter Gulia

If a plan sponsor’s reason for a limit on either kind of elective deferrals is increasing the likelihood (not assuring) that a paycheck will have enough money to support not only tax withholding but also retirement, health, other welfare, and fringe benefits, one might consider this 2008 BenefitsLink discussion. https://benefitslink.com/boards/index.php?/topic/38395-401k-elective-deferral-hierarchy/

I only asked a question, hoping Brian Gilmore might guide us. And about the proposed rule mentioned, I have not thought about whatever interpretation it proposes.

Does that adoption agreement also limit non-Roth elective deferrals to 50% of compensation?

If it's not feasible to get all the years aligned, is aligning the cafeteria plan's and health flexible spending account's year with the health-coverage year more important than alignments about other benefits?

A person may get a notarial act (such as a notary’s certificate of having taken an acknowledgment of, or having witnessed, a spouse’s consent to support a participant’s qualified election) at the US consulate. And if there is no consular official, the Secretary of State may authorize others to do notarial acts. Such an act done by a consular official or other US-authorized person has the same effect as a notarial act done by a US State’s notary. 22 U.S.C. § 4215 http://uscode.house.gov/view.xhtml?req=(title:22%20section:4215%20edition:prelim)%20OR%20(granuleid:USC-prelim-title22-section4215)&f=treesort&edition=prelim&num=0&jumpTo=true 22 U.S.C. § 4221 http://uscode.house.gov/view.xhtml?req=(title:22%20section:4221%20edition:prelim)%20OR%20(granuleid:USC-prelim-title22-section4221)&f=treesort&edition=prelim&num=0&jumpTo=true

No one in this discussion suggests a plan’s administrator use “Can I get away with it?” as a way to form a discretionary finding. And no one here suggests an administrator form its finding by considering that IRS or EBSA might lack resources to examine or investigate the administrator’s decision-making. Everyone recognizes that a plan’s administrator decides in the first instance. A plan’s administrator must make its finding when needed to decide a participant’s claim, or to decide the amount of an involuntary distribution. If there is a claim to decide, an administrator must not wait for a government agency’s review. Paul I suggests a plan’s administrator use ERISA § 404(a)(1)(D) obedience in following the plan’s governing documents. And I suggest a plan’s administrator use ERISA § 404(a)(1)(B) prudence in recognizing that a fiduciary who lacks complete skills or experience might want the advice of someone specially trained in how to read and interpret an ambiguous text, and in how to apply law—public, private, or both—to ambiguous facts. A rule mentioned above expressly states that “whether a complete discontinuance of contributions under the plan has occurred” turns on “all the facts and circumstances in the particular case[.]” The rule describes three factors to be considered, but states those are not the only factors to be considered. 26 C.F.R. § 1.411(d)-2(d)(1) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.411(d)-2#p-1.411(d)-2(d)(1). A plan’s administrator decides its interpretation of the plan’s provisions, including those one interprets to follow an applicable or relevant statute or regulation. And after discerning the plan’s provisions, an administrator decides how to apply those provisions to the particular facts. Even fact-finding involves discretion. That an administrator recognizes that no bright-line test completely governs the finding and that one’s decision-making involves discretion does not mean anyone seeks to defeat the application of public law or a plan’s governing documents.

And might a disqualified person prefer to file an excise tax return to start the statute-of-limitations period?

Did the employer pay plan-administration expenses the employer was not obligated to pay? If so, might the employer want the plan’s trustee to reimburse the employer? Would ERISA § 404(a)(1) and the plan’s governing documents permit such a reimbursement?

But what if there is no Internal Revenue Service examination, and no Employee Benefits Security Administration investigation? In the first instance, the plan’s administrator decides whether to administer the plan with a finding that a discontinuance happened, or with a finding that it has not happened. A plan’s administrator might want its lawyer’s advice to support a finding. A court might defer to an administrator’s discretionary finding if it has a plausible reasoning.

For ERISA § 206(d)(3)(B)(ii), a domestic relations order might include an order one that “relates to the provision of . . . alimony payments, or marital property rights to a [current] spouse[.]” Recognize that even if the separation agreement’s “language that specifically says that neither party can take a distribution from their respective ERISA retirement accounts” bind the parties to that agreement, it likely does not constrain an ERISA-governed plan’s administrator. Rather, what would defeat a participant’s qualified election is that it lacks the spouse’s consent. And as you say, there might be nothing a plan’s administrator need do until it receives a claim to approve or deny, or a court order to treat as a QDRO or not a QDRO.

“Twenty-eight suits—approximately a third of the total suits in 2022—were filed concerning plans with under a billion dollars in assets. Of those 28 suits, 19 concerned plans with under $750 million in assets, 14 concerned plans at or under $500 million, and three concerned plans under $250 million.” So, somewhat down-market from the earliest waves, but still not nearing small-business plans. From the courts’ decisions (despite that almost all of them are about before-trial phases), advisers—whether lawyers, investment advisers, or others—have a wider range of stories to use in showing fiduciaries ways to meet their responsibilities.

EBECatty, thank you for your helpful sorting! Even in the universe described, fiduciaries are not sued for almost 80% of plans. If we filter for individual-account retirement plans but not by plan-assets size, might the percentage approach 99%? How many fiduciary-breach lawsuits have there been on retirement plans: below $300 million? below $100 million? below $50 million? I’m an advocate for all plans’ fiduciaries putting more attention on one’s decision-making. But I hope also that advisers might put the numbers of lawsuits, and which plans’ fiduciaries are likelier to be sued, in a sensible context. Fiduciaries should “do the right thing” because it’s the right thing.

Many practitioners recognize the wave of lawsuits asserting a retirement plan’s fiduciary’s breach in allowing unreasonable expenses began with the Schlicter firm’s first few in 2006. An insurance business’s infographic BenefitsLink helpfully points to shows an average of 83 fiduciary-breach lawsuits a year for 2019-2022. https://www.sompo-intl.com/wp-content/uploads/Fiduciary-lines-Excessive-Fee-Litigation-0323.pdf And it shows 625 lawsuits for 2010-2022. For 2009-2021, the Labor department’s EFAST database shows an average of 833,722.4 Form 5500 reports a year. https://www.efast.dol.gov/5500search/) Year by year, some plans enter that count, some plans exit that count, and many plans continue over many years (and decades). Further, not all plans are pension or retirement plans, and of those not all are individual-account (defined-contribution) plans. (I confess I didn’t even try to sort the database.) But extrapolating from these numbers and filling-in or assuming other facts, what’s our guesstimate of the percentage of individual-account retirement plans’ fiduciaries not sued? Is it 99%?

A separated spouse is a spouse, and might consent as an unseparated spouse may consent. A court order of separation is rare. A separation agreement (even without a court order) could include a qualified election and spouse’s consent. The plan’s administrator has nothing to decide until the participant submits her claim and its supporting documents.

A separated spouse remains a spouse for survivor-annuity or spouse’s-consent purposes. No matter how long a separation continues, a marriage does not end until a court orders the divorce (or a spouse dies). For example, Davis v. College Suppliers Co., 813 F. Supp. 1234 (S.D. Miss. 1993); see also Board of Trustees of the Equity-League Pension Tr. Fund v. Royce, 238 F.3d 177, 25 Empl. Benefits Cas. (BL) 2394 (2d Cir. 2001) (although a husband and wife were separated for at least the last 15 years of their 19 years of marriage, they remained spouses until the participant’s death; and a written separation agreement had no effect concerning the plan’s or ERISA’s survivor-annuity provisions). Likewise, a division of spouses’ marital property does not end their marriage. For example, Callegari v. Scottrade, Inc., No. 16-1750, 2016 U.S. Dist. LEXIS 105468 (E.D. La. Aug. 10, 2016) (court-approved consent judgment to separate community property did not end the marriage); Gallagher v. Gallagher, No. 12-40027-TSH, 57 Empl. Benefits Cas. (BL) 2648, 2013 U.S. Dist. LEXIS 26061 (D. Mass. Feb. 26, 2013). But as with any continuing marriage, a spouse might consent to waive a survivor annuity, and might do so in a way that meets ERISA § 205’s and the plan’s conditions. Although it’s infrequent, I’ve seen separation agreements that include a qualified election and spouse’s consent even a cautious fiduciary would accept. (It can work if at least one of the separating spouses gets really good lawyering.) If the participant says a separation agreement includes the spouse’s consent, the plan’s administrator might consider that claim when the participant submits her counterpart of the separation agreement, showing the notary’s certificate and seal or stamp. The plan’s administrator would read at least the part of the agreement that might state the spouse’s consent and decide whether it is sufficient under ERISA § 205’s and the plan’s conditions. Or, a plan might (but need not) excuse a spouse’s consent “if the participant is legally separated . . . (within the meaning of local law) and the participant has a court order [not a mere separation agreement] to such effect[.]” But, a plan must not excuse a spouse’s consent if a qualified domestic relations order “provides otherwise[.]” 26 C.F.R. § 1.401(a)-20, A-27.

karl’s description of the facts suggests the participant’s ex- is neither a current nor former spouse of the participant. And the ex- might not be a child of the participant, and might not be a current dependent of the participant. The court with jurisdiction of the participant and the ex- might be acting under law other than domestic-relations law. And the court’s order might not “relate[] to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of [the] participant[.]” ERISA § 206(d)(3)(B)(ii), 29 U.S.C. § 1056(d)(3)(B)(ii) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true. A court’s order that is not a domestic relations order (as the statute, and so the plan, defines it) would not be a qualified domestic relations order. Congress in 1984 might not have anticipated how often State courts are called to reorder money, contract rights, and other property rights between nonspouses in circumstances that otherwise seem somewhat similar to domestic-relations proceedings.

The description of the facts suggests some possibility that the two workers who are not W-2 employees might be self-employed individuals who are deemed employees who have compensation to the extent of one’s earned income—net earnings from self-employment, as Internal Revenue Code § 401(c) defines and adjusts these points. With investment-related businesses, it’s common for many workers to be partners rather than employees. Are the two partners of an investment fund they manage?

Under ERISA § 3 [29 U.S.C. § 1002], an “employee benefit plan”, including a “pension plan”, is “established or maintained by an employer[,] or by an employee organization, or by both[.]” It’s possible a trust is an employer. Not every operating business is organized as a corporation, limited-liability company, partnership, or similar organization; some are organized as a trust.

About how quickly or slowly an investment or service provider processes and pays on an instruction is up to the plan’s procedures and service arrangements. That even a next-day distribution might not be quick enough could be among the reasons someone uses a credit card, and hopes the retirement plan’s check arrives in time to pay off the credit-card charge. About awkwardness in deciding what is or isn’t a hardship, wouldn’t many questions vanish if the plan’s administrator relies on the claimant’s certification as Internal Revenue Code § 401(k)(14)(C) permits?

If the participant yesterday or today charged an expense on her credit card, she might have not yet paid the lender for that expense. Consider whether circumstances of that kind might mean the participant still has a need 26 C.F.R. § 1.401(k)-1(d)(3) describes.

A few points you might consider: Internal Revenue Code § 401(a)(9)’s tax-qualification condition sets a restraint about how much delay a plan may allow before the plan provides some involuntary distribution. Except as ERISA § 203 commands otherwise, a plan may provide an involuntary distribution sooner than a participant’s applicable age described in IRC § 401(a)(9). For example, a plan might provide an involuntary distribution by the last day of the year in which the participant reaches a 60-something age (if the participant then has reached the plan’s normal retirement age). A sponsor of an employee stock ownership plan might have plan-design or other reasons for providing a distribution in January rather than April 1. But if the ESOP’s shares are not publicly traded on a national securities exchange, consider whether January 1 is practical in the plan’s administration. Among other factors, how likely is it that the plan’s trustees will have read their appraiser’s report and concluded a December 31 valuation by January 1 or 2?

About my questions: Did this claimant have a physical or mental disability that interfered with meeting the claims-filing due date? Did this claimant misunderstand the due date by relying, reasonably, on misinformation provided by someone who had authority to speak on behalf of the plan’s administrator? I have not had an occasion to research whether either circumstance might be a reason for a welfare-benefit plan’s fiduciary to consider equitably adjusting a claims-filing due date.

Thank you, Brian Gilmore, for your great explanations. Current § 125 was added to the Internal Revenue Code by the Revenue Act of 1978. To interpret § 125, most of the agency law we look to is proposals, not rules. And much of that was proposed in the 1980s. Decades later, a lawyer properly cites proposed rules as the substantial authority. For that sad state of play, some might blame the Internal Revenue Service and the Treasury department. I don’t; those tax officials, executives, and lawyers do the best they can with the circumstances they’re given. 1981640914_1984-05-0719320-19329.pdf 1646025742_1989-03-079459-9504.pdf

Many people conflate the legal effects of not increasing the debt limit and of not providing appropriations. They are different things with different legal consequences. That’s why my originating post’s second and third paragraphs distinguish between them. Not increasing the debt limit does not require a government shutdown, but might lead some agency employees to reevaluate one’s career choices. And it might otherwise indirectly disrupt or delay the Labor and Treasury departments’ rulemaking and other guidance activities. One also might fear that the two events could both happen. Imagine that a delay from the US Treasury’s use of so-called “extraordinary measures” runs out in September. If the 118th Congress by September 30 remains at an impasse (not only about debt but also about spending), some political strategies could result also in not continuing appropriations after September 30.

Did this claimant have a physical or mental disability that interfered with meeting the claims-filing due date? Did this claimant misunderstand the due date by relying, reasonably, on misinformation provided by someone who had authority to speak on behalf of the plan’s administrator?