Peter Gulia

Imagine a software publisher offers a tool to show the presence or absence of all potential IRC § 414(b)-(c)-(m)-(n)-(o) relationships (or a limited set of them as the user specifies). The software would allow a user to fill-in factual information, without needing to know the tax-law rules to be applied to that information. It would have context-sensitive definitions and guidance to help a user fill-in the needed factual information. The software package would generate a report a user may furnish to its client. The report would show the presence or absence of each § 414(b)-(c)-(m)-(n)-(o) relationship, with some explanation of why the relationship is present or absent. The report would include disclaimers and warnings to limit the user’s liability to its client. Each user could take that default text, edit it, add warnings, or replace the set with the user’s custom text. The report would speak in the TPA’s or other user’s voice, and could show the user’s name and logo, and specify the relationship manager or other contact. BenefitsLink neighbors, if a software tool like this were available (from a reputable and reliable software publisher, ideally one you already use), would you buy it?

Luke Bailey’s point is not about whom an ERISA-governed retirement plan pays, but rather about State-law remedies (not involving the retirement plan or its fiduciaries) the decedent’s estate or another potential taker might have against the plan’s distributee (who might have money or other property which equitably belongs to the estate or another potential taker). About a beneficiary who is not the participant’s surviving spouse (or under a plan that need not and does not provide that a participant’s surviving spouse is the participant’s beneficiary), some (but not all) courts in some circumstances find ERISA might not preempt a state court’s order—made after the ERISA plan has paid or delivered the plan’s benefit—that does not involve the plan or any fiduciary of it. All Federal courts recognize that ERISA preempts States’ laws at least until the plan’s disposition of the plan’s benefit is done. Decisions for the Third, Fourth, Sixth, Eighth, and Eleventh Circuits interpret ERISA as not always precluding a remedy that does not involve the plan or any fiduciary of it, and does not frustrate a surviving spouse’s right. On the other side of a circuit split, a Seventh Circuit decision interpreted ERISA to preempt such a constructive-trust remedy, even if the remedy would ask nothing of the plan or any plan fiduciary. (I express no view about which interpretation is better.) Some States’ court decisions recognize that those who would be takers under law or an agreement external to a retirement plan might have equitable remedies against a plan’s distributee. The situation that most frequently raises issues about whether equitable remedies against a plan’s distributee are available is a participant’s unrevoked beneficiary designation that names the participant’s former spouse. An estate’s personal representative might argue that the former spouse ought not to keep property that the divorce agreement allocated as not that former spouse’s property.

A provision of the kind BG5150 quoted is in the cycle 3 IRS-preapproved documents of a few of those big publishers. Perhaps some of them might see this discussion, recognize an ambiguity in the text, and internally file a reminder—for the next cycle—to write something to answer the question BG5150 asked.

Here’s the 1974 Act, as reprinted in 88 Statutes at Large 829-1035. https://www.govinfo.gov/content/pkg/STATUTE-88/pdf/STATUTE-88-Pg829.pdf And here’s a photograph from the September 2 (Labor Day) signing ceremony.

With my family and friends, we celebrate that source of my employment with an ice-cream cake, saying "Happy birthday, ERISA!"

About your second question: Among the exceptions to a retirement plan’s anti-alienation provision is the United States’ enforcement of a judgment imposing a fine or restitution regarding a crime. Beyond ERISA’s and the Internal Revenue Code’s provisions, the employer’s or plan administrator’s lawyer might consider these statutes: 18 U.S.C. §§ 3316, 3556, 3663, 3663A, 3664; 28 U.S.C. §§ 3001-3308. With increasing frequency and intensity, Federal prosecutors seek restitution for a victim, and do so in ways that enable invading the wrongdoer’s retirement plan benefits. For an illustration of one of those ways, see BenefitsLink’s recent news about Evan Greebel: https://benefitslink.com/news/index.cgi/view/20220824-173391 https://benefitslink.com/news/index.cgi/view/20220826-173452

While I provide no advice: That the plan’s text suggests a divorce “revoke[s] the Participant’s designation of the Spouse as a Beneficiary” could be interpreted to negate only the portion of the participant’s beneficiary designation that names the participant’s former spouse. If the participant is alive and not incapacitated, making a beneficiary designation now might remove doubts, perhaps including one or more doubts about whether the participant intends to benefit the former spouse.

Consider, too, that a divorce might have no effect on a beneficiary designation. If the plan is ERISA-governed, it’s all about what “the documents and instruments governing the plan” provide. Many documents omit or negate a provision for a divorce to affect a beneficiary designation.

AMDG, thank you for reminding us about the E-SIGN Act, now a 22-year-old. That law imposes some constraints on a Federal agency’s rulemaking powers and interpretation powers. But an act for which an agency calls for a “manual” or even ink-on-paper signature might not be a transaction that must not be denied legal effect because it was done using an electronic signature. And even when an agency acts beyond its powers, few retirement-plans or retirement-services practitioners want to take on the burdens of challenging the government. ****** Most of us like electronic signatures. Which are the acts for which EBSA or IRS asks us to slow down and scribble something that looks like an old-fashioned signature?

C.B. Zeller, thank you for the source about authorizing a service provider to submit a Form 5500 report. I regret I can’t add much help about an actuary’s signature on Schedule MB/SB. (I’m don’t know any rule, guidance, or practice for this. The defined-benefit pension plans I’ve advised about in recent years are governmental plans.) The instruction you quote is ambiguous. There might be several nonfrivolous interpretations. BenefitsLink neighbors, let’s keep filling out this list. Which acts: require an ink-on-paper signature? require a “manual” signature, but permit it to be delivered by electronic means? permit an electronic signature?

A BenefitsLink discussion yesterday remarked on a service provider’s request for a nonelectronic signature, despite an IRS procedure that permits an electronic signature. There is no one comprehensive rule that answers questions about the acts or circumstances that require a manual, rather than an electronic, signature. For some of us, it’s not easy to recall which acts (of those that call for a plan sponsor’s or plan administrator’s signature) permit an electronic, or require a “manual”, signature. So, let’s crowdsource our list. The focus is on what the three U.S. government agencies—the Treasury department’s Internal Revenue Service (IRS), the Labor department’s Employee Benefits Security Administration (EBSA), and the Pension Benefit Guaranty Corporation (PBGC)—say is permitted or required. If you quickly remember it, next to each description put the abbreviation for the agency that stated a rule or guidance. I’ll start by putting one entry in each category. Manual signature required A plan’s administrator authorizing its service provider to submit the administrator’s Form 5500 report — EBSA — source ??? . . . . . . . . . . . . Electronic signature permitted A user’s signature to adopt an IRS-preapproved plan document — IRS — Rev. Proc. 2017–41 § 5.10, 2017-29 I.R.B. 92, 99 (July 17, 2017), https://www.irs.gov/pub/irs-irbs/irb17-29.pdf . . . . . . . . . . . . We invite your BenefitsLink neighbors’ praise if you help us complete this list.

Kac1214, I’m glad my reading helps you. Considering the IRS’s statement in its Revenue Procedure, a request for a non-electronic signature might be about a particular service provider’s business practice rather than meeting a tax law condition.

MoJo, sorry if my observation was too subtle. Perhaps it’s only my imagination, but I’ve observed that some retirement-services providers find ways to streamline a process when doing so aids the provider’s efficiency, but seem slower to streamline a process when it’s about customers’ convenience. Likewise, some providers find ways to get a customer to bear some expense for an inefficiency the customer could help avoid, but are less swift in improving a process when a customer bears the costs of an inefficiency. My perceptions might be about some service providers less customer-friendly than the one you work for.

One wonders if the service provider’s customers’ participants are charged an incremental fee if a participant elects paper, rather than electronic, account statements.

EBECatty, thank you for your smart catch. It didn’t occur to me that a § 457(b) plan’s sponsor might have stated a plan’s required beginning date, required distribution period, or other minimum-distribution provision other than by reference to the Internal Revenue Code sections. Unless my client intends a provision more restrictive than what’s needed to get (or that allows less than what’s permitted within) eligible-plan tax treatment, I write some provisions of a § 457(b) plan using Code-sprinkling. For example, a document’s definition for “Required Beginning Date” might state it “Has the meaning given by IRC § 401(a)(9), including any special rules under those provisions.” Likewise, a provision about how much must be distributed to a participant or beneficiary might refer to § 401(a)(9) and § 457(d)(2).

Beyond Belgarath’s request for help about when to do a plan amendment: What tax-law change in SECURE requires or permits an amendment of a nongovernmental tax-exempt organization’s § 457(b) plan? As I read the December 2019 changes to Internal Revenue Code of 1986 § 457(d), all those changes refer to a plan maintained by a governmental employer. Does SECURE include other tax-law changes that could affect a nongovernmental tax-exempt organization’s § 457(b) plan?

Even without the overlay of how bankruptcy law alters or affects what would result under other law, I have not researched any question like this. I guess an analysis might consider whether the resolution was communicated to employees. If there is a meaningful potential for a bankruptcy or insolvency, whoever needs or wants an answer to your first question should lawyer-up.

Bill Presson, thank you for spotting my miscue. Sorry if I misread the mention of “plan documents”. If Kac1214 asks about how a service provider gets a plan’s administrator’s directions or instructions on whether and how to pay a plan’s distribution, services vary widely, and often are affected by a trust agreement’s terms, a service agreement’s terms, or both.

A Revenue Procedure states: “The signature requirement [to adopt an IRS-preapproved document] may be satisfied by an electronic signature that reliably authenticates and verifies the adoption of the adoption agreement, or restatement, amendment, or modification thereof, by the employer.” Rev. Proc. 2017–41 § 5.10, 2017-29 Internal Revenue Bulletin 92, 99 (July 17, 2017) https://www.irs.gov/pub/irs-irbs/irb17-29.pdf. In recent years, I have not encountered a service provider that, if it asks for a plan sponsor’s signature, refused an electronic signature. I have encountered service providers that refuse ink-on-paper, insisting that the only signature the service provider recognizes for its business purposes is an electronic signature, and one made using the service provider’s chosen software and method.

Don’t assume all lawyers would advise against the kind of practical description you mention. However, if I were helping a client placate a recordkeeper’s system, I’d suggest filling-in such a trustee box with the name of the plan’s administrator, as named in the plan’s governing document.

Will wife's business have service recipients beyond husband's business?

Even if no one could have used any CARES provision, perhaps checking the boxes of your IRS-preapproved documents provider’s form for a CARES amendment (showing the user adopted nothing) is less expensive than writing a memo to explain why no amendment is needed.

Nothing in Internal Revenue Code of 1986 § 403(b) requires a trustee. Many § 403(b) plans have no role labeled trustee. Many § 403(b) plans have annuity insurers and § 403(b)(7) custodians. ERISA § 403(b) [29 U.S.C. § 1103(b)] excuses from § 403(a)’s general command to hold an employee-benefit plan’s assets in trust the annuity contracts and custodial accounts recognized in Internal Revenue Code § 403(b). ERISA § 403(b)(1)(2)-(5) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1103%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1103)&f=treesort&edition=prelim&num=0&jumpTo=true To the extent a § 403(b) annuity contract or custodial account requires or permits an instruction from a plan’s fiduciary (rather than a participant, beneficiary, or alternate payee), a typical contract refers to the plan’s administrator. Some refer to the employer.

Although Puerto Rico is a part of the United States, Puerto Rico has its own income tax regime, which displaces the U.S. Federal income tax. Unlike other U.S. people who might pay income taxes not only to the U.S government but also under one or more States’ additional income tax regimes, a bona fide Puerto Rico resident is subject to tax under the Puerto Rico Internal Revenue Code of 2011, and “income derived from sources within Puerto Rico” is excluded from gross income for the U.S. Federal income tax purposes. Likewise, the U.S. Federal income tax regime disallows deductions and credits allocable to the excluded Puerto Rico-source income. Internal Revenue Code of 1986 (26 U.S.C.) § 933. To be useful for a Puerto Rico resident, a retirement plan must meet Puerto Rico law, and must have a tax-qualification approval from the Hacienda (Puerto Rico’s analogue of the U.S. Treasury department and its Internal Revenue Service). For a government source about these plans, https://hacienda.pr.gov/sites/default/files/publicaciones/2016/12/cc_pc_16-08_reglas_cualificacion_planes_retiro_post-codigo_2011.pdf. In English, Bloomberg Tax Portfolio, International Pension Planning—Puerto Rico, No. 324 explains laws, rules, and practices to establish, tax-qualify, and administer retirement plans in Puerto Rico. https://pro.bloombergtax.com/portfolio/international-pension-planning-puerto-rico-portfolio-324/ If you need advice, one might consult that Portfolio’s author: https://pro.bloombergtax.com/person/carlos-gonzalez/. For a Hacienda-approved document, ask CuseFan (Kenneth M. Prell, CEBS, ERPA, Vice President, BPAS Actuarial & Pension Services). https://benefitslink.com/boards/index.php?/topic/68765-is-there-a-vendor-with-a-hacienda-preapproved-document-to-tax-qualify-for-puerto%C2%A0rico/

Some banking, insurance, and securities intermediaries scripted a rep to say that a retirement plan’s trust needed a little money so the trust would have a res (deliberately using lawyers’ Latin) and be established before December ended. The suggested token amount would be something more than an initial fee (arguably disclosed in the account-opening paperwork the customer didn’t read). The firm would collect that fee, and an undecided customer might go ahead with the retirement plan, figuring he might as well get what he had paid for.