Peter Gulia

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?

That’s a meaningful risk. Anything that increases the ease or speed of payouts heightens risks of impersonator frauds. But a plan’s sponsor/administrator with bargaining power can shift those risks to the recordkeeper.

Bird, thanks. Others' outlooks and views?

Under soon-to-be-enacted Internal Revenue Code § 414A, some new § 401(k) or § 403(b) plans must include an automatic-contribution arrangement. For small-business employers not excused as too new or too small, could this new tax-qualification condition slow down creations of new plans?

Do we anticipate recordkeepers will urge customers to put these claims in self-certification regimes, with tick-the-box forms (whether paper or website), to support nondiscretionary processing that asks nothing of the plan’s administrator (beyond having approved the self-certification regime)?

When the Internal Revenue Code of 1986 becomes amended by this week’s Consolidated Appropriations Act, 2023, many provisions that permit a before-retirement payout, including a or an: eligible distribution to a domestic abuse victim, emergency personal expense distribution, hardship distribution (for a deemed hardship), qualified birth or adoption distribution, or unforeseeable-emergency distribution (under a governmental § 457(b) plan), permit reliance on the claimant’s written statement that she meets the tax law’s standard for the kind of distribution requested. (A plan’s administrator may not rely on such a “certification” if the administrator has actual knowledge that the claimant’s statement is false.) Let’s leave aside the public policy discussions about whether it’s wise to allow early access to savings purposed for retirement income. And let’s leave aside discussions about whether a self-certification regime invites a claimant’s incorrect, or even false, statement. Do you see any disadvantage, from the administrator’s perspective, of allowing these self-certification regimes?

Beyond thinking about when someone might have met a service condition to become eligible for allocations of one or more of the three kinds of contributions, remember too that “[a] cash or deferred election can only be made with respect to an amount that is not currently available to the employee on the date of the election.” 26 C.F.R. § 1.401(k)-1(a)(3)(iii)(A) 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)(3)(iii)(A).v If an employee is only now considering a § 401(k) election, one imagines the election might apply only to 2022’s 4th, 12th, 24th, or 26th pay period. The business organization might carefully check its records to discern whether it hired two employees or admitted two partners. “For purposes of [the same section’s] paragraph [about when cash or another taxable benefit is currently available to the employee or deemed employee], a partner’s compensation is deemed currently available on the last day of the partnership 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). Thus, a partner might, in 2022’s remaining two business weeks, elect a § 401(k) deferral regarding the whole of the partner’s 2022 compensation (if the partnership’s tax-accounting year ends with December’s end). I see nothing on the face of § 1.401(k)-1 that restricts which kinds of partnership interests get the last-day provision quoted above. A partner need not be a capital-interests partner; one could be a profits partner, or even a guaranteed-payments partner. The retirement plan’s measure of compensation and when it became available must be logically consistent with all the partnership’s tax returns and tax-information returns.

I don’t know whether any Treasury rule or Internal Revenue Service guidance provides for or against what you ask. Absent that knowledge, here’s my guess at a practical path. If an old W-4P election properly set withholding for a periodic distribution, continue that election until the distributee changes it. If an old W-4P election properly set withholding for a series of standing-instruction minimum distributions, continue that election until the distributee changes it. If an old W-4P election properly set withholding for a nonperiodic single-sum distribution for 100% of the account and the plan’s procedures and forms carefully provide for a cleanup payment to get rid of after-flow contributions, dividends, and restoration credits, apply the preceding withholding election to the cleanup payment. If a distribution is newly requested (such that a distributee is filling-out a new electronic or paper form), use the new withholding-certificate form or an IRS-recognized substitute. Perhaps BenefitsLink mavens who know more than I do might add more information.

Some plans furnish participants a § 402(f) notice in the summary plan description or with every quarter-year’s account statement (or both). A rule allows speaking an oral summary of a § 402(f) notice, referring to the previously furnished notice, and offering to furnish again the whole notice. See 26 C.F.R. § 1.402(f)-1, Q&A-2, Q&A-5 example 3 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.402(f)-1. My description above about what might be possible assumes that many steps might require furnishing writings (often in paper form, if electronic delivery was not assented to) and waiting a reasonable and prudent time before proceeding with the requested distribution.

On one of the detail points mentioned above: Form W-4R (for a nonperiodic distribution, whether rollover-eligible or not) includes, in its general instructions, this statement: . . . . Your withholding choice (or an election not to have withholding on a nonperiodic payment) will generally apply to any future payment from the same plan or IRA. Submit a new Form W-4R if you want to change your election. https://www.irs.gov/pub/irs-prior/fw4r--2022.pdf

The key would be how comfortable is the recordkeeper’s counsel that the: identity control, address control, tightly scripting and supervising the call-center workers, record-making, distributee confirmations, plan administrator’s actual or implied approvals, records retention, fraud safeguards, other controls, and internal audit are strong enough to meet ERISA and Internal Revenue Code requirements, the service agreement’s obligations and conditions, and remove any discretion the recordkeeper does not want. With careful attention to technology, software, and detailed procedures, it’s possible to design and maintain a regime; but it’s work! In my experience, it works only when the recordkeeper’s counsel (whether inside, outside, or a combined effort) has deep experience with a recordkeeper’s operations, and the recordkeeper’s executives do not resist the needed protocols.

ERISA § 408(e)’s statutory prohibited-transaction exemption can apply only regarding a plan’s acquisition or sale of qualifying employer securities, as defined in ERISA § 407(d)(5). ERISA § 407(d)(5)’s definition of “qualifying employer security” includes the specially defined term employer security. ERISA § 407(d)(1) defines an “employer security” as “a security issued by an employer of employees covered by the plan, or by an affiliate of such employer.” ERISA § 407(d)(7) provides: “A corporation is an affiliate of an employer if it is a member of any controlled group of corporations (as defined in [I.R.C. §] 1563(a), except that ‘applicable percentage’ shall be substituted for ‘80 percent’ wherever the latter percentage appears in such section) of which the employer who maintains the plan is a member. For purposes of the preceding sentence, the term ‘applicable percentage’ means 50 percent, or such lower percentage as the Secretary [of Labor] may prescribe by regulation. A person other than a corporation shall be treated as an affiliate of an employer to the extent provided in regulations of the Secretary [of Labor]. An employer [that] is a person other than a corporation shall be treated as affiliated with another person to the extent provided by regulations of the Secretary [of Labor]. Regulations under this paragraph shall be prescribed only after consultation and coordination with the Secretary of the Treasury.” There is a Labor department rule that interprets ERISA § 407(d)(5). 29 C.F.R. § 2550.407d-5(a) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.407d-5#p-2550.407d-5(a). There is no Labor department rule that implements ERISA § 407(d)(7)’s delegation. All four rules interpreting ERISA § 407 were published in 1977, and not revised after. If there is a doubt on any question L.S. asks, one would want an employee-benefit lawyer’s advice. And even if one finds that an affiliate’s participant’s account’s investment in the parent corporation’s common shares could be permitted, one would Read The Fabulous Document to discern whether the investment is provided for.

Because a qualified birth or adoption distribution is treated as not an eligible rollover distribution for tax-reporting and tax-withholding purposes, could a distributee properly complete Form W-R to request zero withholding for Federal income tax? https://www.irs.gov/pub/irs-prior/fw4r--2022.pdf If the distributee’s address is in the USA, is there any reason by which a plan’s administrator or its payer would reject such a withholding election?

A plan should limit the plan’s qualified birth or adoption distribution to one participant for one birth or adoption to no more than $5,000. For tax-reporting and tax-withholding purposes, a qualified birth or adoption distribution is treated as not an eligible rollover distribution. Internal Revenue Code of 1986 (26 U.S.C.) § 72(t)(2)(H)(vi)(II). But get the distributee’s withholding certificate.

Whatever one might think about the public policy merits of a rule of the kind Flyboy John might like, the statute does not provide the Secretary of the Treasury authority to make such a rule.

Thank you. That the collectively-bargained employees are treated as a separate plan and separately tested (even when these employees are covered in a plan the employer could have excluded them from) resolves all the questions I wondered about.

Imagine this situation: An employer sponsors and administers a § 401(a) plan that allows § 401(k) elective deferrals, provides matching contributions, and provides nonelective contributions. None of this is a safe-harbor arrangement. All plan, limitation, accounting, and tax years are the calendar year. When 2022 begins, the plan did not exclude union-represented employees; they were participants under the same conditions as all employees. In the spring, the employer and the union negotiate a collective-bargaining agreement. The CBA, effective June 1, provides for the union-represented employees to be covered only by the union’s multiemployer individual-account (defined-contribution) plan, including for § 401(k) elective deferrals, matching contributions, and nonelective contributions (which all are set to no less than what was provided under the single-employer plan). Promptly after signing the collective-bargaining agreement, the employer amended its single-employer plan to exclude, from June 1, the union-represented employees. The amendment also specifies that the 2022 nonelective contribution allocated to a union-represented participant is counted only on her January-through-May compensation. How does a plan’s administrator (and, more practically, its recordkeeper or third-party administrator) run coverage and nondiscrimination tests for this year? Are there two sets of tests—one for the year’s first five months, and another for the year’s last seven months? Or are there other ways the measures or tests (or both) adjust for the fact that classifications of participants changed during the year?

Here’s the remembrance-fund exception Cassopy mentions: Remembrance funds. For purposes of title I of [ERISA] and this chapter [29 C.F.R. part 2500 to 2599], the terms “employee welfare benefit plan” and “welfare plan” shall not include a program under which contributions are made to provide remembrances such as flowers, an obituary notice in a newspaper[,] or a small gift on occasions such as the sickness, hospitalization, death[,] or termination of employment of employees, or members of an employee organization, or members of their families. 29 C.F.R. § 2510.3-1(g) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510/section-2510.3-1#p-2510.3-1(g). This subsection (g) is distinct from the rule’s subsection (b) for payroll practices. Cassopy describes the benefit as unfunded. And Cassopy’s description suggests the employer might not be obligated to pay it. Might there be no plan?

What CuseFan explains is further supported by the § 415(c) rule about compensation. See 26 C.F.R. § 1.415(c)-2(e)(3)(iv) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-2#p-1.415(c)-2(e)(3)(iv). Further, the distinction between compensation attributable to the former employee’s services before separation (even if paid after the separation) and compensation paid as severance pay is useful. To get the former employee’s releases and covenants not to sue, the separation agreement must provide the releasor something she was not otherwise entitled to.

Without defending the weak conduct of any recordkeeper: And without knowing what the retirement plan allows or precludes: The surviving spouse might consider that asking a recordkeeper to do something it seems not tooled-up to do could lead to poor service. The surviving spouse might prefer to direct a rollover to an eligible retirement plan that’s ready to receive the rollover contribution.

Nate S, thank you for your helpful observations.

Also, the written terms of the certificate of deposit might make the CD nontransferable and nonassignable.

If we allow a § 401(k) or § 403(b) participant to self-certify her hardship (with only a pledge to furnish substantiation later, if asked), should we allow a participant to self-certify that she will use her loan to acquire her principal residence?