Peter Gulia

The Form W-2 Instructions tell a payer to report in box 1: “Total wages, bonuses (including signing bonuses), prizes, and awards paid to employees during the year.” A related instruction states: “Calendar year basis. The entries on Form W-2 must be based on wages paid during the calendar year. . . . . For example, if the employee worked from December 18, 2022, through December 31, 2022, and the wages for that period were paid on January 3, 2023, include those wages on the 2023 Form W-2.” https://www.irs.gov/forms-pubs/about-form-w-2 (emphasis added). A retirement plan’s administrator (not a TPA) might want its lawyer’s advice about whether the administrator must not rely on an employer’s W-2 reports if the administrator knows those reports are incorrect.

My question was completely about my intellectual curiosity (recognizing my lack of experience with corrections). Thank you for the education. And in a fog yesterday, I missed that one wouldn’t assert the second plan as the source of the merged plan’s provision for nonelective contributions without reporting on that second plan.

If by establishing a § 125 cafeteria plan, wages that previously were not excluded from FICA taxes become excluded from wages for those taxes, would the employer’s first-year savings on the employer’s portion of FICA taxes cover the service provider’s $400 fee if those wages are at least $5,229 [$5,229 x 7.65% = $400.0185]?

If one does it as Bill Presson describes, is it feasible for the merger of the second plan with and into the first plan to happen immediately after creation of the second plan AND retroactive to January 1, 2022? If so, could one do all Form 5500 reporting solely on plan 001?

Roycal, thank you for describing your view. WCC, thank you for the helpful information about Empower. While that regime is not ideal (for several reasons), perhaps it lessens a participant’s discomfort about being pushed to slightly favor a beneficiary over others. C.B. Zeller, thank you for your explanation of a business point. And from my experiences with big recordkeepers, I know many business decisions have several layers of complexity about how much customer-friendliness customers will pay for. fmsinc, thank you for your article about strategies and steps a domestic-relations lawyer might consider. And your observations remind me of an astute lawyer’s saying I heard: “Lots of things can happen in court, all of them bad.” Here’s a story about seeing that someone must get an odd cent or dollar (or two, or three): I administer a decedent’s estate. It has four testamentary beneficiaries, with equal shares. So far, every interim distribution has been in four exactly equal shares. But many of the estate’s Form 1041 amounts (passed through into beneficiaries’ K-1 reports) were not neatly divisible by four. For those amounts, the tax-preparation software the certified public accountants use applies a series of randomizer formulas to allocate an odd amount so the sum of the four K-1 reports on an item equals the 1041 amount. Further, the formulas are designed so a beneficiary stuck with an extra dollar or two for an earlier item is not allocated an odd share for a later item, so the sums of K-1 pass-through income items are equal (or as nearly equal as possible) among the beneficiaries. What I’ve liked is that the software does this with no exercise of my discretion. And I could explain to the beneficiaries how none had been unfairly advantaged or disadvantaged.

david rigby, thank you for this helpful information. Perhaps a system that allows a decimal place diminishes the effects of a one-third or one-sixth problem.

Bob the Swimmer, thank you for sharing your experience. I have counseled recordkeepers that allow any set of percentages or fractions coming in, including those that don't add up to 100. Instead, the plan's governing documents provide proportional adjustment rules that turn whatever the participant stated into something the computers will process.

fmsinc, to answer your last question, the Eighth Circuit’s recent decision (following an earlier Eighth Circuit decision) does not preempt State-law remedies that do not involve the retirement plan or its fiduciaries. As I explained in another BenefitsLink discussion, decisions for the Third, Fourth, Sixth, Eighth, and Eleventh Circuits interpret ERISA as not precluding a remedy that does not involve the plan or any fiduciary of it, and does not frustrate a surviving spouse’s right. In States’ courts, often the court does not even consider ERISA, especially regarding an already-distributed benefit. (If no plan fiduciary is in the State-law remedies litigation, only the plan’s distributee seeking to keep the benefit has a reason to raise the issue. And even when that person’s lawyer understands the argument, many abandon it.) States’ courts use remedies to move property from the plan’s distributee to whoever is the rightful taker under State law. You are right to fear that a plan’s distributee might dissipate the property paid or delivered to that distributee. That’s why another claimant should pursue remedies promptly and vigorously.

Lou S., thank you for your information about Fidelity BenefitsLink neighbors, do we have clues about Empower, TIAA-CREF, Vanguard, Alight, Voya, Principal, Merrill Lynch/Bank of America, T. Rowe Price, . . . ?

Yes, the participant by her inattention failed to change her beneficiary designation. But observe that the Honeywell 401(k) Plan incurred $$$ in attorneys’ fees and related expenses for two layers of Federal courts’ proceedings, with briefings and arguments on several issues. (The plan incurred these expenses, even if the employer volunteered to advance or outright pay them.) Although the court found the plan’s administrator blameless, it’s unlikely the employer/administrator will recover from the participant’s personal representative or any litigant any portion of the expenses. If the expenses were or are charged against the plan’s assets, participants share, however indirectly, in the expenses.

pmacduff, thank you for your helpful observation. Some participants tolerate the constraint and adapt to it in a way you describe. But at least some are offended that a Procrustean computer system requires a participant to specify a difference (however slight in percentage and amount) that pushes one to express (however subtly) a difference the maker does not intend. That offense-taking can happen even when the participant knows the favored beneficiary will adjust the difference by giving money to the others. And even when there is no discord, many people care about the symbolism. Also, some plans’ sponsors and administrators care about this point for other purposes. One of them is decreasing the number of participants who made no (valid) beneficiary designation. Many participants don’t read carefully the beneficiary-designation form. Some miss or ignore the instruction about whole percentages. Some don’t respond to a notice, or even repeated notices, that an attempted beneficiary designation was not processed. (Without those failures, the court case described above would not have happened.) It’s not enough to observe that people should be more careful; human behavior has weaknesses. (I know I don’t diligently do everything I should.) And some fiduciaries seek to make things easier for participants. An absence of a participant-specified designation burdens the plan’s administration because it calls for interpreting and applying on particular facts (which take time and effort to get) the plan’s default beneficiary designation. What if the plan’s default is to pay the personal representative of the participant’s estate, but no executor or other representative was appointed (often because the individual had no probate assets)? Or what if the plan’s default, after confirming the absence of a surviving spouse, is the participant’s children? How does the retirement plan’s administrator know how many children the participant had? If no one submits a claim, must the administrator search for the children? Or if someone submits a claim and states the participant had two children, how does the administrator confirm that there are no more than two? Dealing with these and other default situations is work. The expenses of applying a plan’s default-beneficiary provision can be significant if an administrator or a service provider administers a plan or plans with hundreds or tens of thousands of participants. I’m hoping to discern a range of experiences from plans that use a range of service providers. Among them, how about: Fidelity, Empower, TIAA-CREF, Vanguard, Alight, Voya, Principal, Merrill Lynch/Bank of America, T. Rowe Price, . . . ? I’m guessing some have figured out ways to manage and adjust a whole-percentages constraint.

Bird, thanks for adding a name to our survey. Does anyone know what Fidelity does? A whole-percentages constraint, and how a service provider and the plan's administrator deal with it, matters because a parent with three children might be offended if she must specify one of them to get 34 rather than 33 percent. In my experience, many parents strive to avoid favoring any child over the others.

RatherBeGolfing, if you want the citations to the courts' decisions, just email me.

A recent court decision treated as proper an individual-account retirement plan’s provision, stated at least on the plan’s beneficiary-designation form, that: “The Allocation % [between or among a class of beneficiaries] must be whole percentages.” The participant submitted a form that asked for “33 1/3%” for each of her three siblings. The court found that—even if the plan’s administrator might have had discretion to accept the not-in-good-order designation (Honeywell argued it did not)—rejecting the participant’s attempted designation was no breach because a fiduciary administers a plan “in accordance with the documents and instruments governing the plan[.]” Gelschus v. Hogen, No. 21-3453, --- F.4th ---, 2022 WL 3712312 (8th Cir. Aug. 29, 2022) https://ecf.ca8.uscourts.gov/opndir/22/08/213453P.pdf How common is this whole-percentages provision? Do plans require a whole-percentages beneficiary designation because the plan’s sponsor or administrator seeks to fit within a recordkeeper’s or other service provider’s software and systems? If a participant specifies 33%, 33%, 33%, does an administrator reject the form as not adding up to 100% Or does an administrator accept a form that adds up to only 99% (or 96% for six beneficiaries)? If an administrator accepts a less-than-100% designation, does the plan or a plan-administration procedure provide an adjustment rule so the beneficiaries’ shares exhaust the whole of the participant’s account? BenefitsLink neighbors, how does this work in the real world?

And for those who find a carryover presumption must not be made, pointing out that using such a presumption might not be cost-efficient (if that's fitting in the particular situation) might help deflect or diminish a client's reaction that the law seems illogical.

Some practitioners might find one may—without tripping on an ERISA command or a tax-qualification condition—write a plan document and an automatic-contribution notice to provide that the most recent deferral election under one’s former employer’s plan is the beginning election, subject to revocation or change, under the new employer’s plan. (I’m not saying that’s my view.) Even for those who think the arrangement may be provided, the plan’s sponsor or administrator might consider practical concerns, including expenses. The cost-benefit analysis can vary with the surrounding facts and circumstances, including especially the number of newly eligible participants, the ease or difficulty of communications, and how much the new employer seeks the goodwill of the new employees. If the number of newly eligible participants is tens of thousands, the benefits of not needing to otherwise solicit and process fresh deferral elections and of providing a convenience to many new employees might outweigh expenses, including for some lawyering, of creating and administering the plan’s provision for a carryover deferral election. (Further, a company that frequently does acquisitions might design a framework that applies generally regarding all acquisitions and those new employees.) If the number of newly eligible participants is small, a cost-benefit analysis might cut in an opposite direction, making it simpler to get cash-or-deferred elections the way the employer/administrator ordinarily gets them for newly eligible participants not hired regarding an acquisition.

If your client has not engaged an attorney-at-law admitted to Puerto Rico practice, you might take up CuseFan's invitation to ask your and your client's questions to those in BPAS's special-focus practice for Puerto Rico.

david rigby, thank you for your point that one considers the source's qualities. And thank you for your vote of confidence. But I have no appetite to be a designer of a software tool of the kind I imagined. If the lead designer and specifier were Derrin Watson, would you buy the software tool?

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.