Peter Gulia

While WCC’s explanation of the tax credit make this point needless: If a plan is not ERISA-governed (because, for example, there is no employee beyond an owner or deemed owner), unpreempted State law (for example, a wage-payment law) might preclude an automatic-contribution arrangement.

bito’money, Luke Bailey, and G8Rs, thank you for your helpful observations. I’m aware an IRS-preapproved document typically allows what ERISA § 205 allows. Some lawyers consider that restricting which witnesses and notarial acts are recognized might be within “administrative provisions” one may edit without losing reliance on the IRS’s opinion letter. Luke Bailey, thank you for sharing your experience that the IRS has not questioned plan provisions that restrict witnessing to a notary. bito’money, yes, a plan’s sponsor worries that allowing a “plan representative” to witness a consent leaves the employer that serves as the plan’s administrator vulnerable to an assertion that it is responsible for a failure in its representative’s witnessing, or at least for not prudently training and supervising its representative. Likewise, even with a State-licensed notary, there are arguments for making the notary’s employer responsible for the notary’s failure. The ways a notary’s employer might be liable are heightened when the employer has some interest in what would or would not be done following the presence or absence of a notary’s certificate. And even if an employer is not responsible for what a notary did or failed to do, a notary’s bad conduct can lead to litigation, which can require meaningful expenses. For one example: Butler v. Encyclopedia Brittanica, Inc., 41 F.3d 285, 287, 18 Empl. Benefits Cas. (BL) 2589, 2591, Pension Plan Guide (CCH) ¶ 23903B (7th Cir. 1994) (“The notary, Louise Joslyn [an employee of Britannica], stated that she does not know Anthony Cotini [the participant’s surviving spouse] and had no recollection as to whether he had personally appeared before her to sign the [spouse’s consent] documents [and did not recall meeting Cotini]. Joslyn stated that her general practice is to see the person actually sign a document before she will notarize it. However, she stated that she sometimes notarized documents without the signing party being present, particularly when an employee asked her to notarize a document that the employee claimed was signed by the employee’s spouse.”). Reading the trial and appeals courts’ published opinions, one imagines the employer/administrator spent more than a little money on Mayer, Brown & Platt’s work for an interpleader and several briefings and arguments. A plan’s administrator seeks more than to win at a trial, summary-judgment, or even motion-to-dismiss stage; rather, an administrator wants a claim never to be asserted. (Even winning a dismissal by explaining how a complaint fails to state a claim costs $$.) Facing no claim is likelier if there is no fact a plaintiff could allege (at least not without the attorney facing sanctions) to support an assertion about why the administrator is responsible for an alleged failure of the spouse’s consent. G8Rs, I too think that looking to a State-licensed notary gets an administrator more protection than likely would be had when allowing a plan representative to witness a spouse’s consent. But that a notary maintains a bond State law requires rarely helps. Those bond amounts are absurdly low. (Last time I looked, it was $1,000 for Pennsylvania, $10,000 for Texas, $15,000 for California.) Few notaries have enough errors-and-omissions insurance to restore a substantial retirement plan account. bito’money, I do not suggest an employer restrain its employee’s acts as a notary, certainly not off-hours and preferably not even during work hours. Rather, the restraint is about which notary’s certificate a plan’s administrator recognizes as sufficient for the administrator to accept a participant’s beneficiary designation. ERISA § 205’s purposes calling for someone to witness a spouse’s making of a written consent suggest the need for the witness’s independence. That’s why a plan’s sponsor/administrator might prefer a notary who lacks a personal loyalty, whether to the employer/administrator or to the consent-seeking participant, that could interfere, or even be argued to have interfered, with the notary’s judgment in acting honestly, impartially, and according to law. bito’money and Luke Bailey, I’ll give some thought to situations in which so few notaries are practically available that this might improperly or unfairly burden a participant’s opportunity to name a beneficiary other than one’s spouse.

My clients, whether plan sponsors or service providers, like the public policy of allowing bigger deferrals for early-60-somethings. Rather, some plan sponsors (and some who advise them) are mindful of how much we ask of recordkeepers and third-party administrators.

For services about an individual-account (defined-contribution) retirement plan, here’s a few key due dates, and whether each is (or isn’t) adjusted under the Treasury department’s rule about a return or payment due on a Saturday, Sunday, or legal holiday. For Form 5500 reports, the Labor department follows Treasury’s rule. January 15, a Sunday, is adjusted to Tuesday, January 17. March 15, a Wednesday, is not adjusted. April 15, a Saturday, is adjusted to Tuesday, April 18. If a Federal tax return is due on a Statewide legal holiday of the State in which the filer resides or a holiday of the District of Columbia, the return is timely if filed by the next day that is not a Saturday, Sunday, or legal holiday. 26 C.F.R. § 301.7503-1. In 2023, the District of Columbia’s Emancipation Day is observed on Monday, April 17. D.C. Code § 28-2701. Internal Revenue Code of 1986 § 7503 might provide no adjustment for something a retirement plan provides—for example, a corrective distribution—rather than an act the Internal Revenue Code commands. June 29 (180 days after 2022 ended), a Thursday, is not adjusted. July 29 (210 days after 2022 ended), although a Saturday, is not adjusted. See 29 C.F.R. § 2520.104b-3 (Summary of material modifications to the plan and changes in the information required to be included in the summary plan description). July 31, a Monday, is not adjusted. September 15, a Friday, is not adjusted. October 15, a Sunday, is adjusted to Monday, October 16.

The underlining is not mine.

Luke Bailey, thank you for your observations. And for causing me to look up the word stimmy. https://www.merriam-webster.com/words-at-play/stimmy-stimulus-words-were-watching About whether an ESA is a pension benefit: ERISA § 3(45) defines an ESA as “established and maintained as part of an individual account plan”, which ERISA § 3(34) defines as a pension plan. ERISA § 3(45)(A) further defines or describes an ESA as “a designated Roth account[.]” ERISA § 110(a) grants the Secretary of Labor power to “prescribe an alternative method for satisfying any requirement of this part with respect to any pension plan, or class of pension plans (including pension-linked emergency savings account features within a pension plan)[.]” ERISA § 404(c)(6) provides another situation in which a default investment is treated as a participant’s exercise of control. ERISA § 404(c)(6) applies “[f]or purposes of paragraph (1),” which refers to a pension plan. ERISA § 801(a)(1) provides that a sponsor of an individual-account plan “may include” an ESA in such a pension plan. ERISA § 801(c)(2)(A) commands that an ESA feature, if provided, “be included in the plan document of the individual account [pension] plan.” An ESA contribution may be a subject of a matching contribution that is a part of an individual-account pension plan. Under ERISA § 801(e), a plan with an ESA must allow, on a participant’s severance from employment (or the plan sponsor’s end of the ESA feature), a transfer from her ESA balance into another designated Roth account under the individual-account pension plan. An ESA may involve an automatic-contribution arrangement. These need ERISA § 514(e)’s (or ERISA § 802’s) preemption of States’ wage-payment laws. Although preemption can apply regarding a welfare-benefit plan, it’s not obvious that an ESA’s benefits are fairly described as “medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services[.]” See ERISA § 3(1)(A). Although Congress might have power to supersede State law regarding something that is neither kind of employee benefit, a court might find that a provision stated in part 5 or part 8 of subtitle B of title I of ERISA refers to an employee benefit ERISA § 3 describes. A plan’s administrator may consolidate notices about an ESA with notices under ERISA § 404(c)(5)(B) and ERISA § 514(e)(3). As I read ERISA § 206(d), that a pension plan includes an ESA feature does not alter the plan’s recognition of a qualified domestic relations order. But this might be no more burdensome regarding an ESA than for any other aspect of a plan that permits a QDRO distribution before the participant’s earliest retirement age. What’s different is that an ESA feature might bring in some participants who otherwise might have no account balance for a QDRO to reach.

As BenefitsLink yesterday informed us, this morning’s Federal Register publishes the Treasury department’s proposed rule that would permanently allow remote witnessing of a spouse’s consent, whether to a distribution not a survivor annuity or naming a beneficiary not the spouse. Some plans’ sponsor/administrators and those who advise them might use this as an occasion to reconsider what a plan allows for a spouse’s consent. ERISA § 205(c)(2)(A)(iii) permits recognizing a spouse’s consent “witnessed by a plan representative or a notary public[.]” But does anything require allowing both those means? May a plan provide that only a consent witnessed by a notary public allows something that requires the spouse’s consent? And further, may a plan provide that only a consent witnessed by a notary public who is neither an employee nor a nonemployee contractor of the plan’s sponsor/administrator is recognized?

https://www.whitehouse.gov/briefing-room/legislation/2022/12/29/bill-signed-h-r-2617/

The early-60s catch-up is for an “eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year[.]” Ignoring complexities about whether a few participants might use a tax year that doesn’t end with December: A software rule must look to what age a participant would attain by the year’s December 31, not what age a participant has attained when the system processes her deferral election. And about explaining things: An age 60 catch-up might begin for someone who is just barely past 59.

Internal Revenue Code of 1986 § 401(b)(2)’s new second sentence applies for “an individual who owns the entire interest in an unincorporated trade or business, and who is the only [deemed] employee of such trade or business[.]” I.R.C. § 401(b)(2), as amended by SECURE 2.0 § 317 (emphasis added). And it applies only for a “first plan year.” “[A] sole proprietor’s compensation is deemed currently available on the last day of the individual’s 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). Before SECURE 2.0 (and for anyone not described in the new sentence), one must make her cash-or-deferred election by the last day of the year. With SECURE 2.0, one might make her cash-or-deferred election before the ides of April, and it is deemed made by the preceding year-close—if this is for a first plan year. Section 401(b)(2)’s new second sentence fits with its first sentence (from SECURE 2019), which provides that an “employer may elect to treat the plan as having been adopted as of the last day of the taxable year” if the employer adopts the plan “before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof)[.]” Internal Revenue Code of 1986 § 401(b)(2). (The new sentence about the § 401(k) election is “without regard to any extensions[.]”) Under SECURE 2.0 § 317(b), the new second sentence added to IRC § 401(b)(2) “shall apply to plan years beginning after” December 29, 2022. I’ll leave to the BenefitsLink mavens whether a plan year may begin on December 30, 2022 and end on December 31, 2022.

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.