Peter Gulia

QDROphile, thank you for your kind help. Other observations? Other methods?

Many § 401(a)-(k), § 403(b), and governmental § 457(b) plans distinguish between participant loans with a repayment period no more than five years and those used to acquire the participant’s principal residence. If a participant’s request for a loan asks for a repayment period more than five years: Does a plan’s administrator (or a service provider acting for it) accept the participant’s written statement, made under penalties of perjury, that the loan will be used to acquire the participant’s principal residence? Or, does a plan’s administrator require some evidence independent of the participant’s statement? If so, what substantiation does an administrator or its service provider require? A mortgage commitment? A purchase agreement? Something else? If a plan’s procedure requires independent evidence, does this mean a claim must be submitted in paper form? Or does a service provider’s software allow uploading pdf files for the independent evidence? In your experience, what percentage of plans process a principal-residence loan by relying on the participant’s written statement, seeking no independent evidence?

Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993) (The Court construed ERISA title II’s parallel text, Internal Revenue Code § 4975(f)(3), as extending, but not limiting, the reach of § 4975(c)(1)(A) [ERISA § 406(a)(1)(A)] to include as such a prohibited sale or exchange a contribution of encumbered property, even if that contribution is not used to meet a funding obligation. The Court held a contribution of property other than money—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—was a prohibited transaction.) The Labor department’s Pension and Welfare Benefits Administration further interpreted this in Interpretive bulletin [94-3] relating to in-kind contributions to employee benefit plans (Dec. 21, 1994), 59 Fed. Reg. 66736 (Dec. 28, 1994), reprinted in 29 C.F.R. § 2509.94-3, https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.94-3.

It’s been decades since I last advised anything about a plan that uses a safe harbor for coverage and nondiscrimination. Am I right in remembering that a subaccount attributable to safe-harbor matching or nonelective contributions must be withdrawal-restricted as if it were a subaccount attributable to § 401(k) elective deferrals?

I think what Terry Power describes is what I meant. The merger-out might not be a termination such as to require immediate vesting for the transferred participants. But if the merger-out resulted in the single-employer plan’s assets and obligations becoming zero, that ends the single-employer plan (and the Form 5500 reporting should show the merger-out and end).

While TPAs and others who know much more than I do could give you more information, I assume the transfer of assets and obligations from the single-employer plan into the multiple-employer pooled-employer plan results, if the single-employer plan’s assets and obligations became $0.00, in the single-employer plan’s termination. The pooled-employer plan will have its own EIN and PIN, which are independent of a participating employer.

Some audit delays result because the plan’s administrator failed to furnish, or cause to be furnished, information the accounting firm reasonably requested. And some delays result because the auditors uncover a nonexempt prohibited transaction, fiduciary breach, serious error or omission in the plan’s financial statements, lack of control, or other point that precludes rendering a “clean” report. But if the delay truly and fairly is the accounting firm’s fault, hinting at the accounting firm’s liability exposure for its client’s penalties sometimes can be a way to motivate auditors to finish their work and release their IQPA report. In my experience, there are ways a client might politely and deftly hint.

If your departed client engages and pays you to test what happened before the single-employer plan was merged out and to compile a final Form 5500 report for that terminated plan (for its 2022 short year that ended when the merger-out was completed), that might be a reasonable task. Before accepting an engagement, you might consider whether you would get useful information from the single-employer plan’s former recordkeeper and investment custodians. For anything after the merger-out, it’s the pooled-employer plan’s administrator that decides which, if any, service providers it engages.

In 2017, the Internal Revenue Service issued to its employees (with releases to practitioners and the public) guidance directing IRS examiners not to challenge a plan as failing to meet a § 401(a)(9) provision if the plan’s administrator was unable, after specified efforts, to locate the should-be distributee. While it is only my reasoning, a plan should not be expected to pay a minimum distribution when the identity of the would-be distributee is unknown. Further, even without ERISA’s stronger protections, a plan with a provision to meet Internal Revenue Code § 401(a)(2) must be administered for the exclusive benefit of the participant’s beneficiary. It is not proper to pay someone who is not the participant’s beneficiary. missing participant or beneficiary minimum-distribution memo-for-employee-plans 2017-10-19.pdf

Thank you!!!

Consider whether not correctly recording the owner and nature of securities accounts and other investment-related accounts could result in generating tax-information reports—including, for example, Forms 1099-B, 1099-DIV, 1099-INT, which might suggest capital gains, dividends, and interest to be shown in the tax return of the organization with the Employer Identification Number.

Another retirement plan’s administrator that filed a Form 5500 report on 2021 without an independent qualified public accountant’s opinion is Trump Payroll Corp., the sponsor and administrator of the Trump Payroll Corp. 401(k) / Profit Sharing Plan. See pdf page 22 of 23. (I didn’t look for this; I stumbled across it while searching for a different plan.) Trump Payroll Corp 401k 2021 5500 20221017112257NAL0029732609001.pdf

That the recordkeeper says a signature is needed does not necessarily mean the recordkeeper says the plan requires that signature. Rather, it might be about something the recordkeeper or a custodian requires under either’s service agreement. A custodian might have no authority to decide whether the plan requires or permits a distribution. A custodianship for a retirement plan is nondiscretionary, with all payments instructed. If the decedent is the only human who had authority to act for the plan’s administrator/trustee, instructing a distribution might have to wait until there is someone with authority to act for the plan’s administrator/trustee.

Consider also checking Wright & Miller’s Federal Practice and Procedure treatise to see whether its part on interpleaders explains a convention about tax reporting for an amount paid into the court’s registry.

I haven’t looked to discern whether the statute and rule are clear or ambiguous about your question. Would a Form 1099-R report issued before the distributee is known show in the “recipient’s name” box the United States’ court and in the “recipient’s TIN” box the omission of a taxpayer identification number? Although courts nowadays favor text interpretations over purpose interpretations, a court might find such a report would be so useless to the Internal Revenue Service that an interpretation that the statute and rule require such reporting is incorrect or otherwise unsound. Beyond your advice, perhaps there’s a way to get some comfort, or at least some showing that the payer/reporter (if your client has that responsibility) acted in good faith. In the petition, consider asking not only for the court to decide the rightful distributee but also for the court’s declaratory judgment that the plan’s administrator or trustee ought not to file any Form 1099-R tax-information report until the court has decided the proper distributee (or the matter is settled and the interpleader case is ended). (One would not ask this unless the payer/reporter, after thorough legal research, finds that the question is unsettled or otherwise doubtful.) If the court grants that declaratory judgment, the IRS should not assert a penalty against the report for acting according to the court’s order. Or if the court grants no relief, the payer/reporter will have shown it was aware of the question about when and what to report, did reasonable legal research, and in good faith sought to get a confirmation of the answer.

For a § 401(a) plan stated using IRS-preapproved documents, a user’s reliance on the IRS’s letter is not lost merely because the user changed or added some “administrative” provisions the Revenue Procedure sets up some limited tolerance for. For a § 403(b) plan, the 2013 Revenue Procedure omits a similar tolerance. Is that correct? Is that still current? Is it so that a user must do no change beyond what the adoption-agreement form allows?

What sets up a restorative payment is that a fiduciary pays it to restore losses to a plan (or IRA) if there was a reasonable risk of liability for the fiduciary’s breach, and other facts and circumstances show the payment is not a disguised contribution. For a § 401(a)-qualified plan (or another plan that has § 415 limits), a Treasury department rule distinguishes between an annual addition and a restorative payment, which does not count as an annual addition. 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C); Limitations on Benefits and Contributions Under Qualified Plans, 72 Federal Register 16878, 16887 [middle column] (Apr. 5, 2007), https://www.govinfo.gov/content/pkg/FR-2007-04-05/pdf/E7-5750.pdf. That rule follows a general principle described in Revenue Ruling 2002-45, 2002-2 C.B. 116. The Internal Revenue Service has issued letter rulings applying the principle regarding IRAs. IRS Letter Rulings 2009-21-039 (Feb. 25, 2009), 2008-52-034 (Sept. 30, 2008), 2008-50-054 (Sept. 18, 2008), 2007-38-025 (June 26, 2007), 2007-24-040 (Mar. 20, 2007), 2007-19-017 (Feb. 12, 2007), 2007-14-030 (Jan. 11, 2007), 2007-05-031 (Nov. 9, 2006). [In the numbering of letter rulings, the two digits after the year show the week in which the ruling was released under the Freedom of Information Act.] Although a letter ruling is no precedent [I.R.C. § 6110(k)(3)], one might use the reasoning of the three layers of sources described above—and that the IRS has consistently applied the principle since at least 2002—to support a substantial-authority tax-return position. 26 C.F.R. § 1.6662‐4(d)(2)-(3) 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). The position will be stronger if the IRA holder had and keeps evidence, preferably independent evidence, that shows the settlement was truly made to end a fiduciary’s (or alleged fiduciary’s) risk exposure.

CuseFan, thanks.

Belgarath, thank you for the point about a before-severance payout of amounts, perhaps including money-purchase amounts, other than 401(k) or 403(b) amounts.

Bird, thanks. CuseFan, just for my curiosity, how does normal retirement age relate to nondiscrimination testing (when there is no combo)? (I ask out of ignorance; I haven't reviewed a nondiscrimination test report since the 1990s.)

Any takers? When using an IRS-preapproved document and its many adoption-agreement choices, this is a real question clients ask all the time.

After collecting relevant facts, including when and where the employee works, and considering how the US-Canada income tax treaty applies in the employee’s circumstances, the plan sponsor might consider this: “Special treaty rule. In addition, an employee who is a nonresident alien (within the meaning of section 7701(b)(1)(B)) and who does receive earned income (within the meaning of section 911(d)(2)) from the employer that constitutes income from sources within the United States (within the meaning of section 861(a)(3)) is permitted to be excluded, if all of the employee’s earned income from the employer from sources within the United States is exempt from United States income tax under an applicable income tax convention. This paragraph (c)(2) applies only if all employees described in the preceding sentence are so excluded.” 26 C.F.R. § 1.410(b)-6(c)(2) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.410(b)-6#p-1.410(b)-6(c)(2).

Let’s ask our BenefitsLink experts this plan-design question: For an employer with only an individual-account (defined-contribution) retirement plan: Beyond the possibility I mentioned, in what circumstances and for what reason might a plan sponsor prefer to set a normal retirement age earlier or less onerous than the latest that doesn’t offend an ERISA or Internal Revenue Code requirement? Or is it always rational to specify the latest?

A voluntary correction program suggests a could-be user faces a choice about whether to use the program. For delayed-contribution situations, I imagine many plan fiduciaries treat the choice as a cost-benefit decision, estimating the expenses and other costs of using VFCP against the estimated benefits of ending some probabilities-discounted risks of detection, investigation, and enforcement. But I do not know this from any experience on this particular decision-making. Do clients ask a TPA or recordkeeper for guidance or information about whether using VFCP for a delayed contribution makes sense on a cost-benefit analysis? If so, how do you explain such a choice?

If whether an individual-account retirement plan generates account balances that could provide retirement income depends exclusively or heavily on whether eligible employees make elective contributions and the plan’s fiduciary prudently finds that some eligible employees would not contribute unless they can direct investment to a fund that meets one’s religious or social interest, that finding might support selecting a fund that otherwise might not be selected as an investment alternative (if the fiduciary finds that the availability of the investment alternative would not harm other participants, or that harm to other participants involves a reasonable balancing within a fiduciary’s duty of impartiality). The US Labor department’s revised investment-duties rule to be published tomorrow tends to support that idea. “The plan fiduciary of a participant-directed individual account plan does not violate the duty of loyalty under paragraph (c)(1) of this section solely because the fiduciary takes into account participants’ preferences in a manner consistent with the requirements of paragraph (b) [prudence] of this section.” To-be-codified 29 C.F.R. § 2550.404a–1(c)(3) (to be published Dec. 1, 2022; effective Jan. 30, 2023), https://public-inspection.federalregister.gov/2022-25783.pdf.