Peter Gulia

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.

BenefitsLink neighbors, does the insurance premium differ between a coverage limit of $125,000, $250,000, or $500,000?

My guess might be wrong. And thank you, Adi, for remembering the guidance. IRS Notice’s Q&A-3 explains “amounts shall be withheld from the distribution as if the plan participant were the payee[.]” (I cite the Notice in my QDRO chapters in Answer Books and other publications.) But an IRS Notice is not a rule or regulation, much less one to which any court must defer. Further, even if the Notice’s interpretation is correct, a plan’s administrator might resolve a tension (if the order is a QDRO) by putting first the child’s right to get the amount the domestic-relations court ordered. Some fear the IRS less than the unpleasantness of explaining to domestic-relations lawyers and, worse, judges, a retirement plan’s provisions and governing law. An alternative is finding that an order that does not “clearly specify” the amount or percentage set aside for the alternate payee to allow, clearly, for the participant’s withholding is not a QDRO.

A QDRO distribution to a nonspouse alternate payee is not an eligible rollover distribution, so that 20% withholding does not apply. One doubts the pension withholding regulations require a payer to accept a participant's withholding election if there is no amount payable to the participant.

Whether ERISA's title I requires a 408b-2 disclosure turns on whether ERISA governs the plan. That a plan has only one participant doesn't by itself determine whether the plan is ERISA-governed. If the one participant is an employee rather than an owner, a one-participant plan might be ERISA-governed. Also, even a plan that is not ERISA-governed might need a 408b-2 disclosure if the plan is among those covered by Internal Revenue Code section 4975.

But if a QDRO calls for the alternate payee to get 100% of the participant's account, the plan should not permit a withholding choice that would lower the QDRO distribution to less than the court-ordered amount.

If an order is a QDRO, the plan pays the alternate payee according to the order. If the alternate payee is not the participant’s current or former spouse, the tax-information report treats the QDRO distribution as the participant’s (not the nonspouse alternate payee’s) distribution. If that distributee fails to pay a Federal income tax, the distributee may explain oneself to the IRS. If that distribute fails to pay a State, local, or non-US income tax, the distributee may explain oneself to each tax authority. If an individual anticipates income and tax more than the individual anticipates will be met through withholding from wages, the individual may file an estimated income tax return and pay an amount with such a return. Alternatively, many people find it more convenient to set tax withholdings from wages in amounts enough to meet anticipated income taxes, including taxes on nonwage income.

Which means the contributor's purpose for contributing securities rather than money would be defeated for Federal income tax purposes.

Would a transfer to the retirement plan have been treated as a sale or exchange for Federal income purposes?

MoJo, thank you for sharing your thoughtful view and helpful information.

A recent BenefitsLink discussion points out a potential difficulty when a retirement plan’s named fiduciary is the plan sponsor’s sole proprietor and her death leaves doubt about who has power to administer the plan. (The inquirer described an investment custodian’s unwillingness to accept, absent a court order, instructions from a person many would treat as the sole proprietor’s successor.) https://benefitslink.com/boards/index.php?/topic/69560-orphan-plan-how-to-appoint-a-new-trustee/#comment-324850 Imagine another business similarly controlled and managed by its only owner. It is organized as a corporation or limited-liability company, but no one beyond the sole shareholder or sole member had been named as a director or officer, or as a manager. Is a difficulty about who has authority to administer the retirement plan avoided if the employer/administrator is a corporation or a limited-liability company? Does State law—whether about a corporation or company, or for decedents’ estates—provide enough authority for someone to manage the corporation or company, and its retirement plan? What are your experiences about whether investment custodians and recordkeepers will accept instructions from someone who shows some reasonable explanation about the source of her authority? What evidence or information is enough to persuade a custodian or recordkeeper to take instructions?

And if there is no obligation or promise to be met, why would the employer make the contribution?

If Trisports’ client were not seeking to satisfy Morgan Stanley, it might be feasible for the decedent/fiduciary’s personal representative to act without getting a distinct appointment. But obtaining a court’s appointment might be less expensive than trying to persuade Morgan Stanley that the appointment is unnecessary. Whether the plan is ERISA-governed or governed by State law, at least one court will have equity powers to appoint a successor fiduciary. If the plan is governed by State law, the court with jurisdiction to appoint a successor fiduciary for the retirement plan might be the same court that appointed or recognized the executor of the decedent’s estate.

Here’s the statute: ERISA § 413 [unofficial compilation 29 U.S.C § 1113] Limitation of actions No action may be commenced under this title [I] with respect to a fiduciary’s breach of any responsibility, duty, or obligation under this part [4], or with respect to a violation of this part [ERISA §§ 401-414], after the earlier of— (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation{;} except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation. http://uscode.house.gov/view.xhtml?req=(title:29%20section:1113%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1113)&f=treesort&edition=prelim&num=0&jumpTo=true For subsection (1)’s statute of repose, an action based on a fiduciary’s decision initially made more than six years ago is not completely barred if a fiduciary breached a duty to review earlier decisions. For subsection (2)’s statute of limitations, court decisions split on whether “actual knowledge” is just actual knowledge of the facts that constitute a breach, or actual knowledge that the facts constitute a breach. For either interpretation, the Supreme Court held “actual knowledge” means the plaintiff actually knew the information. Section 413’s last phrase refers to “fraud or concealment”. At least one appeals court opinion interprets “concealment” not to require evidence of a fraudulent intent. That opinion did so by looking to the common law of equitable remedies. Further, the idea of preferring an interpretation that doesn’t treat any word of a text as meaningless or irrelevant supports such an interpretation. Also, the Secretary of Labor’s ERISA § 504 investigation powers are not limited by ERISA § 413. First, one would not know when a statute-of-limitations period ends until one had completed the investigation of the facts. Further, even if the facts found do not support a timely action grounded on a fiduciary’s breach of its responsibility to the plan, there are several other kinds of legal and equitable relief the Secretary might pursue that would not be constrained by the six-year statute of repose.

If the decedent always was the only participant and he was not the employer’s employee (rather than a deemed employee), the plan might not be ERISA-governed and the Labor department might lack enforcement powers. If the decedent’s daughter has been appointed as the decedent’s estate’s personal representative, one imagines the daughter has at least one lawyer available. The daughter’s lawyer might ask Morgan Stanley what court order would satisfy them, and could petition an appropriate court for such an order.

The Labor department’s nonrule Interpretative Bulletin (cited above) arguably tolerates a contribution of property made with no obligation: “For example, where a profit sharing or stock bonus plan, by its terms, is funded solely at the discretion of the sponsoring employer, and the employer is not otherwise obligated to make a contribution measured in terms of cash amounts, a contribution of unencumbered real property would not be a prohibited sale or exchange between the plan and the employer. If, however, the same employer had made an enforceable promise to make a contribution [even a profit-sharing contribution] measured in terms of cash amounts to the plan, a subsequent contribution of unencumbered real property made to offset such an obligation would be a prohibited sale or exchange.” Under that view, a contribution of property other than money might not be a prohibited transaction if treated as a discretionary nonelective contribution about which no written or oral promise had been made. I express no view about whether that Interpretive Bulletin is a correct, or even permissible, interpretation of the statute. A contribution of property other than money that purports to meet a funding obligation to a pension or money-purchase plan, or an obligation (however made) to a profit-sharing plan, is a prohibited transaction (and so does not satisfy the obligation).

In Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993), the Supreme 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—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—is a prohibited transaction. See also Interpretive Bulletin [94-3] Relating to In-kind Contributions to Employee Benefit Plans, 59 Fed. Reg. 66,736 (Dec. 28, 1994) https://archives.federalregister.gov/issue_slice/1994/12/28/66734-66737.pdf#page=3, 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. Also, an inquirer likely has mistaken assumptions about why one might want to contribute securities or other property that is anything other than money.