Peter Gulia

Might a fiduciary-decided investment portfolio be “invested in accordance with the requirements of [29 C.F.R. §] 2550.404c-5”? (Observe that the statute’s text does not use the term qualified default investment alternative.) The referred-to rule allows: “An investment fund product [sic] or model portfolio that applies generally accepted investment theories, is diversified so as to minimize the risk of large losses[,] and that is designed to provide long-term appreciation and capital preservation through a mix of equity and fixed income exposures consistent with a target level of risk appropriate for participants of the plan as a whole. For purposes of this paragraph (e)(4)(ii), asset allocation decisions for such products and portfolios are not required to take into account the age, risk tolerances, investments or other preferences of an individual participant. An example of such a fund or portfolio may be a “balanced” fund.” 29 C.F.R. § 2550.404c-5(e)(4)(ii) https://www.ecfr.gov/current/title-29/part-2550/section-2550.404c-5#p-2550.404c-5(e)(4)(ii). If a plan does not provide participant-directed investment and instead provides a common investment for all participants, beneficiaries, and alternate payees, wouldn’t a fiduciary seeking to meet its responsibility under ERISA § 404(a)(1)(B)-(C), including diversification and impartiality, invest for a similar balance? The statute provides: “An eligible automatic contribution arrangement meets the requirements of this paragraph if amounts contributed pursuant to such arrangement, and for which no investment is elected by the participant, are invested in accordance with the requirements of section 2550.404c-5 of title 29, Code of Federal Regulations (or any successor regulations).” Internal Revenue Code of 1986 (26 U.S.C.) § 414A(b)(4). The Treasury’s proposed interpretation states: “An eligible automatic contribution arrangement satisfies the requirements of this paragraph (c)(4) only if amounts contributed pursuant to the arrangement, and for which no investment is elected by the employee, are invested in accordance with the requirements of 29 CFR 2550.404c-5 (or any successor regulations).” Proposed 26 C.F.R. § 1.414A-1(c)(4). Neither text limits the phrase “no investment is elected by the participant”. And neither text describes, at least not expressly, a context in which such a fact condition might occur. Couldn’t the fact condition the phrase describes result because the plan does not provide for a participant’s investment direction? And in that situation, would Internal Revenue Code § 414A(b)(4) be met if the fiduciary-decided portfolio is sufficiently balanced? This is not advice to anyone.

RatherBeGolfing, thank you for the information about identifying a distributee. For a participant’s, beneficiary’s, or alternate payee’s address change that would be instructed by a person other than the plan’s administrator, what identity controls does a service provider use to find that the change is requested by the individual whose address would be changed? Is it only about entry to the recordkeeper’s or third-party administrator’s computer system? Or are there other steps? If an individual seeks an address change by paper rather than in a computer system, what steps?

If the employer affiliates with the Colorado Public Employees’ Retirement Association’s PERAPlus § 457(b) plan, PERA has set the plan’s provisions. If State law grants the employer a power to establish and maintain a distinct plan, the employer must follow the restrictions of the Colorado statutes that so enable the employer and Colorado laws that burden the employer. Consider that Colorado law differs based on the exact local, county, municipal, special-district, or other government, or its agency or instrumentality. A State or local government employer’s § 457(b) plan typically sets no eligibility conditions beyond being an employee. Typically, entry is the next pay date after the employer has processed the employee’s wage-reduction agreement. If State law authorizes and the employer provides a nonelective or matching deferral, those eligibility and entry provisions might differ from those for wage-reduction deferrals. Whether a governmental § 457(b) plan must allow long-term-part-time employees to make elective deferrals turns on State law. Even if State law does not preclude an exclusion of part-time employees, many governmental employers find little reason to set an exclusion for wage-reduction deferrals that do not affect the employer’s budget. This is not advice to anyone.

A hyperlink above points to the statute’s text. BenefitsLink neighbors, am I right in guessing there is no Treasury rule to interpret that paragraph of the statute? Likewise, is there an absence of IRS guidance. If so, a taxpayer might follow its interpretation of the statute.

Every plan I’ve seen turns off distributions for a period after an address change. An ERISA rule allows a plan’s administrator to treat this as not a blackout if the plan’s regular restriction had been disclosed to possibly affected participants, beneficiaries, and alternate payees. 29 C.F.R. § 2520.101-3(d)(1)(ii)(B) https://www.ecfr.gov/current/title-29/part-2520/section-2520.101-3#p-2520.101-3(d)(1)(ii)(B). This is not advice to anyone.

Thank you again, especially for the wider observation. At least since World War II, tax law has favored specified kinds of pension, health, other welfare, education, and fringe benefits over money wages. And that has resulted in distortions in how businesses and other employers compensate (and even hire) workers.

Internal Revenue Code of 1986 (26 U.S.C.) § 410(b)(3) 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 If the employer’s tax year and the retirement plan’s plan year both ended December 31, 2024 and the employer’s tax-return due date is September 15, the plan sponsor might have 4½ business days to adopt the amendment. If October 15, there might be more time. This is not advice to anyone.

Brian Gilmore, thank you for your gifts to our learning. I was not imagining a possibility of an employee’s wage-reduction contribution to a Trump account. Rather, I imagined a use of amounts an employer provides. With your explanation, I see tax treatment difficulties. If not under a cafeteria plan with credits a worker may apply to one’s choice of benefits, is there a slight awkwardness in an employer providing a contribution to a Trump account? For example, if an employer provides a $1,000 contribution to the Trump account for an employee’s newborn and provides nothing for the worker in the same job in the adjacent cubicle, might some people perceive a mild unfairness in that?

Consider that a working partner (or member of a limited-liability company treated as a partnership) might be a self-employed individual who has no FICA wages and so is not § 414(v)(7)-affected.

The exclusion from income for an employer’s contribution to a Trump account is Internal Revenue Code § 128. Internal Revenue Code of 1986 (26 U.S.C.) § 125(f)(1) defines, generally, a “qualified benefit” as “any benefit which, with the application of subsection (a), is not includible in the gross income of the employee by reason of an express provision of this chapter [§§ 1®1400Z-2] (other than section 106(b), 117, 127, or 132).” After § 128’s effective date and assuming fitting timing regarding all plan and tax years, Could an employer’s contribution to a Trump account be a qualified benefit under a § 125 plan?

Even if a service provider might persuade a Federal court about the service provider’s injury to be redressed by the court’s order that the Commissioner of Internal Revenue withdraw a guidance document that describes a nonenforcement policy or an enforcement delay: How likely is it that a service provider would ask a court to order the withdrawal of IRS guidance many customers consider welcome? While Notice 2023-62’s “administrative transition period” was lawless and a further delay would be yet more lawless, our society needs other ways for Congress to make laws and to cause an executive agency not to negate an enacted law by announcing a universal nonenforcement.

Thanks. And employee-benefits lawyers too are telling clients to defend one’s administration or service by following the proposed rule. Here’s a caution one might suggest to a plan’s administrator: Don’t decide until it’s necessary to decide. For example, a plan’s administrator might not decide how to count a participant’s years of vesting service until the participant becomes entitled to a distribution, claims it (or is subject to an involuntary distribution), and the count matters to determine whether to segregate a forfeiture and how much is forfeitable. Likewise, even if one accepts that an eligibility condition must not be “a proxy for” an age or service condition beyond ERISA § 202(c), a plan’s administrator might not decide what that means until someone attained age 21, completed two years each with 500 hours of service, and still is an employee. This is not advice to anyone.

I have not heard any gossip about Congress or Treasury considering a change about ERISA § 203(b)(4) and Internal Revenue Code § 401(k)(15)(B)(iii). To the extent that a provision one dislikes is the Treasury’s interpretation of a statute, consider that it now is no more than a proposed interpretation. https://www.govinfo.gov/content/pkg/FR-2023-11-27/pdf/2023-25987.pdf And even if it becomes a final rule, effective, applicable, and not vacated or stayed, a court might not defer to the Treasury’s interpretation. (Also, some comment letters noted that the proposed applicability date would be contrary to the Administrative Procedure Act.) To the extent that a provision one dislikes results from ERISA § 203(b)(4), Internal Revenue Code § 401(k)(15)(B)(iii), or another statute, consider whether it’s wise to ask anything of Congress. Except for a statute that otherwise would contravene the Constitution of the United States of America, law does not require that an Act of Congress be reasonable. There might be interpretations, perhaps even substantial-authority interpretations, of ERISA § 203(b)(4) and Internal Revenue Code § 401(k)(15)(B)(iii) that differ from Treasury’s proposed interpretation. But am I right in presuming that many service providers are reluctant to suggest a plan’s administrator now interpret the statute differently than Treasury’s proposed interpretation?

In my view, the “administrative transition period” the IRS stated in Notice 2023-62 was lawless. But no one challenged the IRS. And I doubt anyone could. For Article III standing, a plaintiff must show her concrete injury that results from the defendant’s act (and that the court could do something about it). A taxpayer is not injured by being allowed more choice than applicable law provides. Currently, the IRS’s management is unitary; the Secretary of the Treasury serves also as acting Commissioner of Internal Revenue. (Within the Executive branch, the only higher power is the President.) Whatever delegated authority the “Commissioner” for Tax Exempt and Government Entities otherwise might have does not now matter because the position is vacant. austin3515 is right that uncertainty about whether and when to apply law is expensive.

Even if one thinks it’s bad public policy to announce a nonenforcement or, especially, a repeated nonenforcement, it’s not beyond possibility. If the Treasury or its IRS announces another nonenforcement, what person would have Article III constitutional standing to petition a Federal court to order the IRS to enforce the law? I state no prediction, in either direction.

Consider some appropriate document, preferably in keeping with Plan A’s provisions about participating employers, to state that Employer B no longer is a participating employer after {date}. Consider the next Form 5500 report and what boxes to uncheck and what items to remove or change so that as of the relevant period’s close Plan A no longer is a multiple-employer plan (absent any other participating employer treated as not the same employer as A). This is not advice to anyone.

While BenefitsLink neighbors can describe more detail, EBSA’s, IRS’s, and PBGC’s guidance about relief following from a declared disaster generally has recognized not only an employer’s or administrator’s, but also a service provider’s, place of business in a covered disaster area. About David Rigby’s third question: Has anyone seen an executive agency expressly grant relief when not the organization but a particular worker is in a disaster area? Might the question never have been raised because the agencies administer the relief by following a filer’s self-certifying statement that a relief applies?

Thanks. Unlike a plan’s administrator, a plan’s sponsor may make plan-design choices without an ERISA fiduciary’s responsibility. About forfeitures, the fiduciary-breach claims assert that a plan’s administrator had discretion and so ought to have loyally and prudently considered which way of applying forfeitures would be advantageous for the plan’s participants and their beneficiaries. If a fiduciary lacks discretion, its duty is to obey “the documents and instruments governing the plan[.]” ERISA § 404(a)(1)(D). In my experience, too often a plan’s governing documents grant the plan’s administrator some discretions an administrator might prefer not to be burdened by.

When I’m stuck with doing meatball surgery on IRS-preapproved documents, I tack on many risk-management provisions, including an exclusive-forum provision. Some clients like the Federal district and its division in which the plan’s administrator has its principal office. Some specify the place that’s most convenient or most effective for the law firm the plan’s administrator or another employer-associated fiduciary would turn to for ERISA litigation. Some specify a district in a circuit with the most favorable set of precedents on questions of law likely to matter (in the client’s particular circumstances) in defending against a fiduciary-breach claim, or in shifting or sharing a liability or expense.

Has anyone seen a complaint survive a motion to dismiss when the plan’s documents specified that forfeiture amounts are applied first against contributions and the documents provide no discretion to vary the plan-specified order for applying forfeitures?

Artie M, thank you for confirming my fear about that text. What’s sad is that the recordkeeper sets up this text for a plan under which the recordkeeper (and every affiliate) has no responsibility. And the State so chosen has no connection to the plan’s sponsor, employer, administrator, trustee, or any named fiduciary. Yet, a participant, beneficiary, alternate payee, or other claimant might argue that the State’s law somehow has some effect regarding the plan.

Does the plan’s administrator (whether by itself, or with a recordkeeper’s or third-party administrator’s services) make, keep, and maintain records that show for each participant whether her most recent deferral election was an affirmative election or resulted from an implied-assent default? If so, such an administrator might omit sending an ERISA § 514(e)(3)(A) notice to those participants whose deferral is supported by an affirmative election. But some administrators lack useful (computer system) records to distinguish whether a participant’s deferral results from an affirmative or default election. And even when the records are maintained and useful, some administrators find that the work of sorting participants would be more expensive or otherwise burdensome than sending a notice to all participants, including those for whom it might not be needed. Different plans with different needs and circumstances might call for different procedures. The stakes can be serious. An employer’s violation of an unpreempted State wage-payment law exposes the employer not only to civil consequences, including extra damages, interest, fines, and other penalties but also, under some States’ laws, criminal punishment. For those and other reasons, an employer might not risk an uncertainty or ambiguity, and might send a yearly ERISA § 514(e)(3)(A) notice to all participants. This is not advice to anyone.

A recordkeeper’s set of IRS-preapproved documents states the user’s plan is governed, to the extent ERISA does not supersede, by “the laws of the state in which [the recordkeeper] is located[.]” The recordkeeper is organized under Delaware law and its registered office is in Delaware. But the principal office is in another State. What does “is located” mean? Is it Delaware? Or is it the other State?

Consider a general rule that a § 415(b) or § 415(c) limit counts the plans of one employer. With employer defined using § 414(b)-(c)-(m)-(n)-(o) and other concepts to collect what counts as one employer. Check that the nongovernmental private business is distinct from all governmental employers. If the judge also participates under any public school’s or charitable organization’s § 403(b) plan, apply 26 C.F.R. § 1.415(f)-1(f)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.415(f)-1#p-1.415(f)-1(f)(2). BenefitsLink neighbors, are there other tax-qualification conditions Dougsbpc should think about?

Brian Gilmore and other BenefitsLink neighbors who work with health plans, we'd welcome your addition to our learning: Does a group health plan accept or refuse payments for COBRA continuation coverage from a person other than the continuee?