Peter Gulia

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.

Recognizing MoJo’s guidance, there sometimes might be a deliberate variation from the mainstream approach of setting a plans’ merger’s effect for a year-turn. A receiving plan’s sponsor/administrator might prefer that a merger not happen by midnight December 31 because that might increase the receiving plan’s beginning-of-year count of participants to require engaging an independent qualified public accountant when the receiving plan’s administrator otherwise would not engage an IQPA. Instead, one might set the plans’ merger for the first business day of January.

That might not be about what the IRS allows because self-correction means the employer doesn’t ask the IRS. Among the burdens of self-correction (even before SECURE 2.0 § 305) is that it puts responsibility on the employer and, practically, its adviser. If, after a self-correction, the plan’s tax-qualified treatment is challenged, the burdens of proof and persuasion are on the employer to show that the failure was eligible for self-correction and that the correction was appropriate. When a professional is asked for advice, whether written or oral, that a failure is eligible for self-correction, the professional evaluates the liability exposures and other risks of that advice. About the example you set up, ask yourself this rhetorical question: Could Belgarath, knowing that States’ laws hold a nonlawyer to the same standard of care that would be used by a prudent lawyer (with the same exposures for liability to one’s advisee and third persons), write something to confirm the failure is eligible for self-correction?

Consider: 5 C.F.R. § 1631.35 Certification (authentication) of copies of records. The [Federal Retirement Thrift Investment] Board may certify that copies of records are true copies in order to facilitate their use as evidence. The records custodian or other qualified individual shall certify copies of books, records, papers, writings, and documents by attaching a written declaration that complies with current Federal Rules of Evidence. No seal or notarization shall be required. https://www.ecfr.gov/current/title-5/chapter-VI/part-1631/subpart-B/section-1631.35 Perhaps the State’s domestic-relations court would be satisfied if a record is so certified. Here are addresses for the TSP Legal Processing Unit: https://www.opm.gov/retirement-center/my-annuity-and-benefits/thrift-savings-plan/ Likely, you and your fellow practitioners already know those procedures.

Is it 3.5% for a matching contribution, or 3% for a nonelective contribution?

If a charity’s § 403(b) plan provides a qualified automatic contribution arrangement with auto-escalation, to get coverage and nondiscrimination safe harbors: how much must the employer provide as a matching contribution? how much must the employer provide as a nonelective contribution?

Before adjusting any tax-information reporting, are there other issues to sort out? Considering the plan’s provisions: Did the participant have a right to payments that continue after the participant’s death? If so, is the participant’s spouse the participant’s beneficiary? If the after-death payments did not belong to the person who deposited or negotiated the checks, should the employer pursue its remedies against a bank that processed the checks? If the after-death payments did not belong to the person who deposited or negotiated the checks, should the employer pursue its remedies against the person who made false statements?

Beyond reading a retirement plan’s governing documents and a plan’s agreement with a recordkeeper or other service provider, the employer/administrator should read the particular prevailing-wage statute and implementing rules (these can vary by State and political subdivision, place of work, and other factors) and the particular labor agreement (which might specify prevailing-wage provisions less flexible than those the prevailing-wage law permits).

While I’m good on fiduciary law, I’m no more than a novice on qualified-plan rules. But using your expertise, consider these points: Elapsed time doesn’t measure service; it measures time that elapses between a beginning moment and an ending moment. The ending moment is “[t]he date the employee severs from service[.]” 26 C.F.R. § 1.410(a)-7(a)(2)(ii) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.410(a)-7#p-1.410(a)-7(a)(2)(ii) A perhaps related point of tax law treats someone who has been a self-employed individual as continuing to be a self-employed individual even if a year’s earned income is zero or negative. The term “self-employed individual” means, with respect to any taxable year, an individual who has earned income . . . for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year— (i) an individual who would be a self-employed individual within the meaning of the preceding sentence but for the fact that the trade or business carried on by such individual did not have net profits for the taxable year, and (ii) an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year. I.R.C. (26 U.S.C.) § 401(c)(1)(B) 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. A regulation the statute calls for, and delegates to, provides: For purposes of section 401, a self-employed individual who receives earned income from an employer during a taxable year of such employer beginning after December 31, 1962, shall be considered an employee of such employer for such taxable year. Moreover, such an individual will be considered an employee for a taxable year if he would otherwise be treated as an employee but for the fact that the employer did not have net profits for that taxable year. . . . . 26 C.F.R. § 1.401-10(b)(1) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401-10#p-1.401-10(b)(1). If the self-employed business has not ended and the self-employed individual remains available to perform services if her deemed employer gets an engagement, the individual might not have severed from service. If that’s the administrator’s interpretation of the plan’s governing documents, the self-employed individual and her deemed employer might be careful to file tax returns so they’re consistent with not having closed the business. For example, a sole proprietor’s Schedule C might show a zero revenue, a little expense (for a business-privilege tax, or something else needed to keep the business available), and a slight loss.

About promptness for participant contributions (and participant loan repayments), the 29 C.F.R. § 2510.3-102(a)(2) deemed-reasonable “safe harbor” is for “a plan with fewer than 100 participants at the beginning of the plan year[.]” https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510/section-2510.3-102#p-2510.3-102(a)(2)(i) Changing that rule would require a notice-and-comment rulemaking.