Peter Gulia

The agency rule mentioned—26 C.F.R. § 1.410(b)-8—was published on September 19, 1991. https://www.govinfo.gov/content/pkg/FR-1991-09-19/pdf/FR-1991-09-19.pdf Even if an agency’s rule was a permissible interpretation or implementation of the statute when the agency made the rule, one cannot rely on a rule to the extent that the statute to be applied differs from the statute the agency considered when it made the rule. The 1996 Act substantially revised Internal Revenue Code of 1986 § 414(q). Portions of many rules under Internal Revenue Code sections 401 to 419A no longer reflect current law. More than a few rule texts are a quarter-century, half-century, or more out-of-date. On March 14, 2019, the Treasury department removed from the Code of Federal Regulations 296 obsolete rules. But these removals were about rules for which a whole rule (not some portion of a rule’s text) lacked “any current or future applicability under the Internal Revenue Code[.]” https://www.govinfo.gov/content/pkg/FR-2019-03-14/pdf/2019-03474.pdf

Under that rule, there is no condition for an advance notice about the presumed means of communication. The rule’s conceit is that a worker will see the communication because “access to the employer’s or plan sponsor’s electronic information system is an integral part of [his or her duties as an employee][.]” 29 C.F.R. § 2520.104b-1(c)(2)(i)(B), referring to 29 C.F.R. § 2520.104b-1(c)(2)(i)(A). Further, the rule’s conditions include that “[n]otice is provided to each participant . . . , in electronic or non-electronic form, at the time a document is furnished electronically, that apprises the individual of the significance of the document when it is not otherwise reasonably evident as transmitted ([for example], the attached document describes changes in the benefits provided by your plan)[,] and of the right to request and obtain a paper version of such document[.]” 29 C.F.R. § 2520.104b-1(c)(1)(iii). I like to include in an email’s subject line some expressions to show that the communication is about the participant’s retirement, health, or other employee benefits, and why one should open and read the email. For the whole of the wired-at-work (or affirmative-consent) rule, 29 C.F.R. § 2520.104b-1(c) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-F/section-2520.104b-1#p-2520.104b-1(c).

I don’t know any answer to your questions, but consider this: In that rule (including its six examples), all mentions of voting power refer to a corporation. Yet for other aspects, the rule carefully distinguishes how a concept applies regarding a corporation, a partnership, a sole proprietorship, and a trust or estate. When the Treasury proposed the rule in 1975 (and proposed a related rule in 1983), adopted the rule in 1988, and revised it in 1994, that a partnership might involve management powers that could be described in ways similar to voting power regarding a corporation ought to have been known to the Treasury and IRS lawyers who worked on the rulemaking.

If anyone is wondering, ERISA§ 206(d)(3)(H)&(I) provides: (H) (i) During any period in which the issue of whether a domestic relations order [defined in § 206(d)(3)(B)(ii)] is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this subparagraph referred to as the “segregated amounts”) which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order. (ii) If within the 18-month period described in clause (v) the order (or modification thereof) is determined to be a qualified domestic relations order, the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons entitled thereto. (iii) If within the 18-month period described in clause (v)— (I) it is determined that the order is not a qualified domestic relations order, or (II) the issue as to whether such order is a qualified domestic relations order is not resolved, then the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order. (iv) Any determination that an order is a qualified domestic relations order which is made after the close of the 18-month period described in clause (v) shall be applied prospectively only. (v) For purposes of this subparagraph, the 18-month period described in this clause is the 18-month period beginning with the date on which the first payment would be required to be made under the domestic relations order. (I) If a plan fiduciary acts in accordance with [ERISA §§ 401-414] in— (i) treating a domestic relations order as being (or not being) a qualified domestic relations order, or (ii) taking action under subparagraph (H), then the plan’s obligation to the participant and each alternate payee shall be discharged to the extent of any payment made pursuant to such [a]ct. ****** {We regret this display does not show the indents I wrote to show the arrangement of the subparagraphs, clauses, and subclauses.} Receiving notice that someone who might become an alternate payee might pursue an order, which might be a DRO the proponent asks the plan’s administrator to treat as a QDRO, might not be the same thing as the beginning of “[a] period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined[.]” Yet, as others in the discussion have observed, some plans’ administrators use procedures that impose a hold promptly after the administrator finds that someone might seek an order. I express no view about whether such a procedure is wise or unwise, or prudent or imprudent.

Consider too that whatever the Internal Revenue Service allows under an IRS-preapproved documents regime answers no question under title I of the Employee Retirement Income Security Act of 1974. A plan’s administrator might want its lawyer’s advice about whether a plan sponsor’s or employer’s declaration of a contribution and its “instructions” about how to allocate the contribution (if the allocation was not already specified) is, within the meaning of ERISA § 104(b)(1), “a modification or change described in [ERISA] section 102(a)” such that the administrator must furnish “a summary description of such modification or change[.]” If it is, an administrator might carefully write the “communication” the plan’s governing documents require to meet also ERISA’s call for a summary of material modifications. A plan administrator’s duties under ERISA sections 102, 104, and 404(a) could include writing the summary “to be understood by the average plan participant, and [to] be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights . . . under the plan.” ERISA § 102(a).

Whether forfeitures are allocated without regard to which participating employer’s participants generated the forfeitures or by some specified subsets is stated by (or to be interpreted from) the documents governing the plan.

That fees vary by participating employer should not by itself mean a set of fees results in a nonexempt prohibited transaction if the transactions meet the conditions of the statutory and class exemptions the service provider relies on. For example, ERISA § 408(b)(2)’s exemption can apply only “if no more than reasonable compensation is paid [for the necessary services].” Also, each participating employer “retains fiduciary responsibility for” selecting and monitoring the pooled plan provider “and any other person who, in addition to the pooled plan provider, is designated as a named fiduciary of the plan[.]” ERISA § 3(43)(B)(iii). That could include duties for a participating employer, acting with no less loyalty and prudence than ERISA § 404(a)(1) requires, to find the fees charged to its portion of the plan’s assets are reasonable.

To fill out the logic path ESOP Guy suggests: In one’s reading of the plan’s governing documents and plan-administration procedures, consider as possibly relevant not only texts that particularly refer to domestic-relations orders but also texts that provide the plan’s administrator’s or a claims administrator’s powers.

If you’re asking what the plan provides, Read (and interpret) The Fabulous Document. A typical IRS-preapproved document partially paraphrases and refers to the tax-law rules, including 26 C.F.R. § 1.401(a)(9)-5. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-5 That rule looks to “the account balance as of the last valuation date in the calendar year immediately preceding that distribution calendar year[.]” Q&A-3(a). If the plan has valuation dates quarter-yearly or more often, it seems likely a December-close date fits that description.

While I don’t know the buyer’s reasoning, let’s imagine one possibility. The seller company (now owned by the buyer) might have been at least a party-in-interest and, perhaps, a fiduciary—whether a named fiduciary, such as plan administrator, or a functional fiduciary—of the discontinued (but not yet ended) seller plan. If so, not only the humans but also the company remains exposed to one or both § 502 civil penalties (even if one assumes all bad transactions are fully corrected). And that’s so even if the seller plan becomes terminated. Each of the seller company’s former owners might want his or her lawyers’ advice about whether an after-closing provision obligates the former owner to apply for VFCP no-action relief, and what consequences might result from breaching the provision. Or the seller company’s former owners might welcome a VFCP application (if feasible) because the no-action relief, including nonassertion of civil penalties, could protect a breaching fiduciary who did the bad transactions and another fiduciary who failed to meet her direct or cofiduciary responsibilities. About whether VFCP no-action relief could be obtained, that’s fact-sensitive. Each of the seller company’s former owners might want his or her lawyers’ advice about that too.

Assuming an ERISA-governed plan, this seems an illustration of another situation in which the plan’s administrator is not responsible for the participant’s failure (but might, practically, be burdened by it). David Rigby and CuseFan suggest one recognize that, even after the divorce and after the participant’s death, a court might issue a domestic-relations order. See 29 C.F.R. § 2530.206(c)(2) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-C/section-2530.206. In responding to claims (if any), a plan’s administrator should be punctilious in following ERISA § 503’s and the plan’s claims procedures.

G8Rs, thank you for your helpful explanation about what a plan might provide or omit. Does a typical IRS-preapproved document include adoption-agreement choices for whether an involuntary distribution on or after retirement age gets or lacks a default rollover (for a distributee who did not specify her choice)?

Is this about a proposed sale, or a concluded sale? Did the buyer buy shares or other capital interests of the seller? Or did the buyer buy assets from the seller? Did the buyer assume the seller’s plan? Did the seller terminate or discontinue the seller’s plan before the closing? Did the seller’s executives (including perhaps two or more of the breaching fiduciaries) become executives of the buyer? Why does the buyer want the seller plan’s breaching fiduciaries to get relief from ERISA civil penalties (on a correction amount already paid)? (Unlike a tax-law correction, which might protect a plan’s treatment as a tax-qualified plan, VFCP no-action relief protects a breaching fiduciary regarding the breach disclosed and corrected. About VFCP’s essential relief, an ERISA § 502(i) or § 502(l) penalty is imposed on a party-in-interest or a fiduciary, not the plan.) If the answers to those questions don’t end someone’s desire for a VFCP application, consider also whether perceptions about relevant facts and circumstances differ. For example, might the buyer’s lawyer have assumed there was a loan? While you assume the corporation had the money with no legally enforceable obligation to repay? Likewise, might the buyer’s lawyer have assumed there was no theft from the plan? While you assume there was a theft from the plan? Voluntary Fiduciary Correction Program https://www.govinfo.gov/content/pkg/FR-2006-04-19/pdf/06-3674.pdf {Underlining not mine}

A similar effect can be had using a § 403(b) plan and a § 457(b) plan. For example, a public-school employee who is 50 might instruct salary-reduction deferrals of $30,000 [2023] under each plan, for a combination of $60,000. Many public-school employers provide both § 403(b) and § 457(b) plans, allowing two deferrals from one paycheck.

If you’d like BenefitsLink neighbors’ help to double-check your reading of the plan’s governing documents, it might help to quote the portions of the texts that seem to provide (i) an involuntary distribution on normal retirement age, and (ii) no default rollover on such a distribution. Also, are the documents the subject of an IRS-preapproved documents’ opinion letter? Or an individually-designed plan’s written determination?

A governmental § 457(b) plan and its trust or trust substitute include provisions designed to meet Internal Revenue Code of 1986 § 457(b)(6), which require that “all assets and income of the plan . . . are held in trust for the exclusive benefit of participants and their beneficiaries.” Analogizing to a recognized exception from ERISA’s exclusive-purpose command and Internal Revenue Code § 401(a)’s exclusive-benefit condition, some governmental § 457(b) plans include a provision for returning a contribution an employer made by a mistake of fact. ERISA allows “[in the case of a contribution . . . – if such contribution or payment is made by an employer to a plan (other than a multiemployer plan) by a mistake of fact, paragraph (1) [about noninurement and exclusive-purpose commands] shall not prohibit the return of such contribution to the employer within one year after the payment of the contribution[.]” ERISA § 403(c)(2)(A)(i) [29 U.S.C. § 1103(c)] 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 See also Internal Revenue Service Revenue Ruling 91-4, 1991-1 C.B. 57. http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl466b/1/doc. If the plan has such a provision, the plan’s sponsor and administrator might want its lawyer’s advice about whether the circumstances fit the plan’s provision. JOH, if you want BenefitsLink neighbors’ help about whether the employer’s error fits tax law’s concept of a mistake of fact, you might describe in more detail what mistake caused the employer to pay a contribution the plan did not provide. For example, did the employer pay over the contribution with someone within the employer not knowing that the employee’s classification changed from one that gets an alternative-to-FICA contribution to one that does not get that contribution?

Now that the September inflation measures are released, has anyone done the math on how the limit on a healthcare flexible spending account adjusts? I saw a service provider’s earlier projection that this might increase from $2,850 to $3,050 for 2023. Is that still the right projection?

Yes, whether such an arrangement would meet the terms of a particular government (or government-funded) contract turns on the details of the contract, including the laws the contract invokes. But if each individual has a choice between immediate money wages and the employer’s contribution to a retirement plan, isn’t that a cash-or-deferred arrangement? Is it meaningfully different from increasing the employee’s money wages, leaving her with choices about what reductions and deductions she instructs the employer to take from her wages?

A few paths each sponsor/administrator might want its lawyer’s advice on: Many IRS-preapproved documents and other documents using an adoption-agreement format include texts about what provision results when an adoption agreement does not specify the user’s choice. A sponsor/administrator might look for provisions of that kind before assuming that what was administered is what the plan provides. If there is an ambiguity about whether the statute calls for a restated summary plan description or a summary of material modifications, one might interpret the ambiguity considering Congress’s purpose that a participant may look to the summary to know those of the plan’s provisions that ought to be summarized. And one might ask this rhetorical question: Could a participant—without asking the employer/administrator, and just by reading the SPD/SMM—know the plan’s service-counting provision (and check whether the plan’s administrator applied it)? If furnishing an SPD or SMM incurs almost no incremental expense, an administrator might weight its decision-making in favor of communication. Conversely, if the statute and rules for an SPD/SMM do not clearly require the update and a nontrivial expense would burden participants’, beneficiaries’, and alternate payees’ accounts, a fiduciary might consider that circumstance in evaluating when to furnish the next restated SPD or SMM.

You gave the right guidance by suggesting the employer ask its lawyer. What a contractor must, may, or must not do involves the conditions of the applicable Federal, State, and intergovernmental government-contracts laws and the contractor’s obligations under each contract. For example, how much choice a contractor has to select components of wages and ways to use them in meeting each prevailing-wage condition turns on the details of each law and contract. Businesses that regularly make government contracts use lawyers that focus on the laws, including prevailing-wage laws, of the kinds of government contracts the business makes. Also, some labor-relations or employment lawyers advise on prevailing-wage laws. A further thought: Contracts with prevailing-wage conditions often involve reporting, auditing, and other means to show that the contractor met the conditions. The employer might want careful records about each contribution and the allocation of it. And the employer might want to preserve access to those records for periods longer than a TPA otherwise might maintain them.

To find court decisions that interpret and apply regarding a retirement plan the United States’ enforcement of a judgment imposing a fine or restitution regarding a crime, a researcher might use a publisher’s annotated version (for example, Westlaw, LexisNexis, Bloomberg Law) of the United States Code. Also, one might use treatises and other secondary sources in Wolters Kluwer’s VitalLaw. One would look for annotations under 18 U.S.C. §§ 3316, 3556, 3663, 3663A, 3664; 28 U.S.C. §§ 3001-3308. To learn some arguments that were presented and rejected, one might read a Second Circuit decision BenefitsLink posted. https://benefitslink.com/src/ctop/us-v-greebel-2dcir-08242022.pdf The participant, Evan Greebel, was a partner in Katten Muchin Rosenman LLP. He was represented by Gibson, Dunn & Crutcher LLP. The appeals court held that the Mandatory Victims Restitution Act authorizes garnishment of the convict’s retirement plan account, and that the Consumer Credit Protection Act’s 25% limit on a garnishment does not apply. The appeals court did not decide whether the extra 10% tax on a too-early distribution is imposed on garnishment. If an effort an ERISA-governed plan’s administrator, trustee, or other fiduciary might consider would be at the plan’s expense, the fiduciary might want its lawyer’s advice about how much effort and expense is loyal and prudent for the plan’s exclusive purpose of providing the plan’s retirement benefits.

After the first wave of Schlicter lawsuits in late 2006, the January 2007 paper I wrote for, and presented at, Pension & Investments February 11, 2007 Defined Contribution Conference reported on 12 cases. In the first few years of the emerging trend, some law firms kept notes on these and similar ERISA fiduciary-breach cases. But as Lois Baker mentions, growing numbers of cases made publication impractical, even for Groom. Some law firms and insurance intermediaries estimate about 100 new cases each year in recent years and 2022. The list you wish for might report on about 300 cases, and pulling it together would be expensive work. To follow ERISA fiduciary-breach complaints, judges’ opinions, and settlements, a simple way is to scan BenefitsLink’s News page. Employee Benefits: News, Regs, Analysis, Laws, Surveys and Policy (benefitslink.com) It reliably gets you important developments.

We’ve been discussing these “in-marriage QDRO” issues assuming the retirement plan’s administrator somehow knows that neither (or none) of the State court’s litigants asked for an annulment, divorce, separation, or child support. But for many State courts that might issue an order for which a would-be alternate payee seeks a plan’s QDRO treatment, an order might recite that the order “is made pursuant to a State domestic relations law” and “relates to the provision of marital property rights to a spouse”, and might state nothing that would reveal to the retirement plan’s reader that no one had asked for an annulment, divorce, separation, or child support. If an order like that (and no other information) is submitted to the plan’s administrator, is it proper for the administrator to treat the order as a DRO and, if it meets the plan’s further conditions, a QDRO?

If the loan is unsecured and at no interest, why would the plan repay sooner than its obligated due date? Or would the terms include a discount on an early repayment?

Yes, the key is that the terms be spelled out in the written obligation. To see the current conditions, skip to the last page. Amendment to Prohibited Transaction Exemption 80–26 (PTE 80–26) for Certain Interest Free Loans to Employee Benefit Plans, 71 Fed. Reg. 17917, 17920 (Apr. 7, 2006) https://www.govinfo.gov/content/pkg/FR-2006-04-07/pdf/E6-5075.pdf Consider how the loan will be reported in the employer’s financial statements. Consider how the obligation will be reported in the plan’s financial statements and Form 5500 report. In both, it might be a related-party transaction (even if it is an exempt prohibited transaction). {The underlining is not mine.}