Peter Gulia

If the requester will accept an email delivery of a pdf, consider furnishing a pdf of the whole Form 5500 annual report, including all schedules and the independent qualified public accountant’s report.

We anticipate the President will sign H.R. 2617 on December 30. Do BenefitsLink mavens think it's possible to establish and maintain a plan year that begins and ends on December 31?

H.R. 1450, the Small Business Emergency Savings Accounts Act of 2021 bill was introduced in the House of Representatives on March 1, 2021 but never acted on. H.R. 2617, the Consolidated Appropriations Act, 2023 bill passed both bodies of Congress last week and we anticipate the President will sign it tomorrow.

metsfan026: If the former owner of the employer died, which officer of the employer (which we imagine is the plan’s administrator) has authority to engage your services? Likewise, if the decedent served as the plan’s trustee, is there a successor trustee who can pay your fees?

Luke, thank you for your observation (which I suspect likely reflects the mainstream). If interpreting what a plan provides were my decision, I might carefully consider all the persons and interests you mention, perhaps even more carefully than other plan fiduciaries consider them. But my discussion question asks about what an employer (one that serves also as its retirement plan’s administrator) might do, and about whether a professional might support an interpretation as reasonable enough that it’s a possible, and perhaps plausible, interpretation. Does anything restrict a professional from writing a memo that analyzes all possible interpretations of what the plan’s governing documents provide for the non-key employees, describing strengths and weaknesses of each interpretation, and describing whether each interpretation has or lacks substantial authority? And after reading such a memo, could the employer/administrator, using its plan-granted discretion to interpret the plan, choose one of the possible interpretations? I’m mindful about how bad it is that an employer, as a fiduciary, decides a question that affects the employer’s personal interest. But ERISA § 408(c)(3) sets up that conflict. I recognize the questions I asked might be a fanciful hypothetical. Among many reasons, employers that face top-heavy issues might not engage a professional’s time for the analysis. I know some clients prefer that the professional resolve an ambiguity. But not every client thinks that way. And not every professional wants responsibility to make one’s client’s decision.

Not in this morning's White House briefing on many bills signed.

MoJo, thank you for adding your observation about the check-the-box game. A Request-for-Proposals I’m working on now uses a different approach. The RFP deliberately omits asking a proposer whether it can administer emergency savings accounts. Further, it instructs a proposer not to mention even an optional service unless the proposer has worked out the difficulties and set fees so those without an emergency savings account do not subsidize the ESAs.

Perhaps we can move this discussion to a next frame, about what one does in real-world practice. Assume there might be ambiguity about what the statute provides. Assume no correction is enacted. Assume there is no further Treasury department or Internal Revenue Service interpretation. Imagine 2024 ends, and an employer (one that serves also as its retirement plan’s administrator and trustee) must decide what the plan provides for some set of non-key employees. Could one interpret tax law to allow the more employer-friendly position? Imagine you have a professional responsibility for the employer’s tax return that involves the issue of whether the plan is a § 401(a)-qualified plan. Could you find the more employer-friendly position has at least a “realistic possibility of success” such that it’s not professionally improper for you to sign the tax return (with sufficient disclosure) or advise the tax-return position? Could you find the more employer-friendly position is supported by “substantial authority” such that the employer may take the tax-return positions without disclosure? If you have no responsibility regarding any tax return, do you render your advice as if you had such a responsibility? If you think about whether a tax-return position is good enough, consider: “There may be substantial authority for the tax treatment of an item despite the absence of certain types of authority. Thus, a taxpayer may have substantial authority for a position that is supported only by a well-reasoned construction of the applicable statutory provision.” 26 C.F.R. § 1.6662 4(d)(3)(ii) 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)(3)(ii). And authorities one may consider include “congressional intent as reflected in committee reports, joint explanatory statements of managers included in conference committee reports, and floor statements made prior to enactment by one of a bill's managers[.]” 26 C.F.R. § 1.6662 4(d)(3)(iii) 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)(3)(iii). Or, as I suspect austin3515 might tell us, is spending time on such an interpretation beyond the customary practice of a retirement-plans TPA? If so, does that mean a TPA’s client gets services grounded on conservative interpretations?

Thank you for helping me open a discussion. This emergency savings account doesn’t do much that couldn’t be handled with an employer’s payroll slot for voluntary wage deductions paid over to a bank or credit union account the employee specifies. (But not every employer offers such a payroll convenience.) This ESA seems part of how American public policy looks to employment relationships as the locus for seeing to health and financial needs. Bill Presson and David Rigby, do you think recordkeepers will take up this idea? Do business interests differ between mega recordkeepers and smaller recordkeepers? Do business interests differ between those with banking businesses and those without? Do business interests differ between those with investment-management businesses and those without? What fees would a service provider charge to meet this activity’s operating expenses and other costs without subsidy from another business? (Recognize there might be little margin on the principal-preservation investment. And the rules require allowing up to four withdrawals in a year without a charge on taking a withdrawal.)

The SECURE 2.0 Act of 2022’s provisions for a “pension-linked emergency savings account” include not only Internal Revenue Code provisions but also a new part 8 of subtitle B of title I of the Employee Retirement Income Security Act of 1974. Am I right in thinking an emergency savings account is a part of an ERISA-governed retirement plan (if it’s not a governmental plan or church plan), and so is governed by ERISA § 206(d)(3), with its QDRO exception from a retirement plan’s anti-alienation provision? How does a need to pay an alternate payee as a qualified domestic relations order requires affect one’s administration of a retirement plan and its emergency savings account? Is it the same as, or different from, administering QDROs regarding a plan’s other subaccounts? If a participant has immediate access to an emergency savings account, would a spouse or other alternate payee get no less access?

When the President signs matters because the soon-to-be Act’s SECURE 2.0 division has twenty provisions with applicability on or just after, or measured from, the date of enactment. While many provisions apply for a plan year or tax year that begins after some specified date, some provisions first apply in a year’s waning days of December.

There is a set of detailed procedures—handled by the Clerk of the House, or the Secretary of the Senate (or both)—for carefully checking and conforming a bill’s text, as affected by all amendments. Once the text is conformed, the bill is printed on parchment. Some certifications about an enrolled bill are signed by the presiding officers of both bodies of Congress. Then, the bill is presented to the President as the Constitution’s Article I, section 7 calls for. https://archives-democrats-rules.house.gov/archives/lph-enroll.htm Preparing and signing an enrolled bill can take time, perhaps especially near the end of a Congress (and particularly if a presiding officer is not in or near the District of Columbia). But because the one week’s continuation of appropriations runs out this week, one imagines H.R. 2617 will be presented this week. https://www.congress.gov/bill/117th-congress/house-bill/2617

And I’m just furnishing Congress’s revised texts. I have only a general awareness about how § 416 might affect a small-business employer’s retirement plan. Despite 38+ years’ experience with many kinds of retirement plans (including advising recordkeepers about services for small-business employers), I’ve never myself analyzed any application of § 416.

If enacted, the SECURE 2.0 Act of 2022 division of the Consolidated Appropriations Act, 2023 amends also Internal Revenue Code of 1986 § 401(k)(15)(B) and § 416(g)(4)(H). I.R.C. § 401(k) (15) Special rules for participation requirement for long-term, part-time workers For purposes of paragraph (2)(D)(ii)— (B) Nondiscrimination and top-heavy rules not to apply (i) Nondiscrimination rules In the case of employees who are eligible to participate in the arrangement solely by reason of paragraph (2)(D)(ii), or by reason of such paragraph and section 202(c)(1)(B) of the Employee Retirement Income Security Act of 1974— (I) notwithstanding subsection (a)(4), an employer shall not be required to make nonelective or matching contributions on behalf of such employees even if such contributions are made on behalf of other employees eligible to participate in the arrangement, and (II) an employer may elect to exclude such employees from the application of subsection (a)(4), paragraphs (3), (12), and (13), paragraphs (2), (11), and (12) of subsection (m), and section 410(b). (ii) Top-heavy rules An employer may elect to exclude all employees who are eligible to participate in a plan maintained by the employer solely by reason of paragraph (2)(D)(ii) from the application of the vesting and benefit requirements under subsections (b) and (c) of section 416. (iii) Vesting For purposes of determining whether an employee described in clause (i) has a nonforfeitable right to employer contributions (other than contributions described in paragraph (3)(D)(i)) under the plan, each 12-month period for which the employee has at least 500 hours of service shall be treated as a year of service, and section 411(a)(6) shall be applied by substituting “at least 500 hours of service” for “more than 500 hours of service” in subparagraph (A) thereof. (iv) Employees who become full-time employees This subparagraph (other than clause (iii)) shall cease to apply to any employee as of the first plan year beginning after the plan year in which the employee meets the requirements of paragraph (2)(D) without regard to paragraph (2)(D)(ii). I.R.C. § 416(g)(4)(H): (g) Top-heavy plan defined For purposes of this section— (4) Other special rules For purposes of this subsection— (H) Cash or deferred arrangements or plans using alternative methods of meeting nondiscrimination requirements The term “top-heavy plan” shall not include a plan which consists solely of- (i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13) and matching contributions with respect to which the requirements of paragraph (11), (12), or (13) of section 401(m) are met, or (ii) a starter 401(k) deferral-only arrangement described in section 401(k)(16)(B) or a safe harbor deferral-only plan described in section 403(b)(16). Such term shall not include a plan solely because such plan does not include nonelective or matching contributions to employees described in section 401(k)(15)(B)(i). If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).

austin3515, if it helps you, here’s the whole text of SECURE 2.0 Act of 2022 § 310: SEC. 310. APPLICATION OF TOP HEAVY RULES TO DEFINED CONTRIBUTION PLANS COVERING EXCLUDABLE EMPLOYEES. (a) IN GENERAL.—Paragraph (2) of section 416(c) is amended by adding at the end the following new subparagraph: “(C) APPLICATION TO EMPLOYEES NOT MEETING AGE AND SERVICE REQUIREMENTS.— Any employees not meeting the age or service requirements of section 410(a)(1) (without regard to subparagraph (B) thereof) may be excluded from consideration in determining whether any plan of the employer meets the requirements of subparagraphs (A) and (B).”. (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to plan years beginning after December 31, 2023.

Another challenge for a recordkeeper’s software is slotting and maintaining an indicator to distinguish between a cash-or-deferred arrangement created before December 23, 2022 (and so unburdened by new I.R.C. § 414A(a)), and one created on or after.

WCC, thanks. Perhaps this is another set of tasks that call for integration of the payroll service provider's or paymaster's software with the recordkeeper's software.

Ron401k illustrates a challenge some (not all) employers face. There are plan-design ways to counter the behavior described, but they are work to administer. Further, the observation helps remind us that each of the four new Internal Revenue Code texts that allows a plan’s administrator to rely on a claimant’s certification is a may, not a must or shall.

Mojo, thank you for your observation. To extend the discussion, imagine a small-business employer is subject to a State’s or municipality’s law that imposes a play-or-pay tax or other monetary consequence on having no retirement-savings opportunity. Is such an employer’s administration burden for a new 401(k) plan’s automatic-contribution arrangement much harder than the burden for administering default and affirmatively elected payroll contributions under a State’s or municipality’s Individual Retirement Account program?

Some practitioners have suggested there might be practical difficulties about the SECURE 2.0 Act of 2022’s catch-up elective deferrals for ages 60, 61, 62, and 63. Just curious, what are the practical difficulties?

If the email is from EBSA, it might be a little disappointing that a government agency is unaware that most of us have been taught not to respond or react in any way to an email not preceded by a known course of dealing or that otherwise leaves a doubt about its authenticity.

JRN, don't the safe-harbor plan designs allow a smaller matching contribution if the plan has the fitting automatic-contribution arrangement?

One uses a summary of material modifications to disclose something that otherwise would be in a summary plan description. The Labor department’s rule calls a plan’s administrator to “furnish a summary description of any material modification to the plan and any change in the information required by section 102(b) of [ERISA] and § 2520.102-3 of these regulations [see a subsection quoted below] to be included in the summary plan description[.]” 29 C.F.R. § 2520.104b-3(a) (emphasis added) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-F/section-2520.104b-3#p-2520.104b-3(a). The required contents of a summary plan description include “[t]he name, title[,] and address of the principal place of business of each trustee of the plan[.]” 29 C.F.R. § 2520.102-3(h) 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(h).

One might reread the governing documents’ definitions of, and provisions about, a severance from covered employment. Even if a worker was severed from a former employer that no longer participates under the multiemployer plan, might the worker now be employer by another participating employer? Under many multiemployer plans, covered employment often refers to employment with any participating employer. Likewise, many multiemployer plans treat a participant as not retired or severed until one is severed from all participating employers. But this is merely a surmise. The answers are in the documents governing the plan asked about.

CuseFan, your observations remind me of a business story. (I’m about three years older than you and, like you, went into the biz in 1984.) In the 1990s, a mid-size employer (about 20,000 employees) told my client, a growing recordkeeper, it could not be considered unless the recordkeeper alone would receive all salary-reduction agreements and the recordkeeper’s computer would feed all deferral instructions into the paymaster’s computer. The employer’s paymaster would never receive any paper, and would not lift a finger for any data entry. The paymaster would not look for errors. (How could it? The paymaster had no source information.) The recordkeeper had to indemnify the employer against all deferral errors, and for any failure in keeping records. That setup won’t work for small-business employers. But is integration of recordkeepers’ and payroll-service providers’ software a way forward?