Peter Gulia

Carol Calhoun’s originating post asks about individual annuity contracts. Under a typical individual annuity contract, even when used as a § 403(b) contract, the owner’s or annuitant’s employer (or former employer) is not a party to the contract and has neither rights nor obligations under the individual’s contract. Even if an insurer administering its contract might properly request evidence of an annuitant’s severance from employment beyond the annuitant’s claim or further statement, it’s unlikely that a typical individual annuity contract obligates an employer to furnish that information. As I mentioned above, it is possible an annuity contract states provisions more restrictive than those needed to tax-qualify as a § 403(b) contract. But such a fact alone might not obligate an employer.

Bri, that your firm’s clients call for your ERPA designation only once a year is among the results of your good guidance. The five kinds of practitioners recognized for practice before the IRS are (a) an attorney-at-law, (b) a certified public accountant, (c) an enrolled agent, (d) an enrolled actuary, and (e) an enrolled retirement plan agent. For a retirement-services worker with none of those credentials, is the answer to my first question 0.00%? Or are there circumstances in which the IRS will recognize as a representative someone not eligible under § 10.3(a)-(e)?

Belgarath, thank you for your helpful information. Others with different experiences? Would correction-program submissions be the most frequent activity to require a Form 2848?

Beyond seeing to the plan’s and the trust’s governing documents: Remember, a custodian, recordkeeper, or other service provider might have contract rights that allow the provider to rely on information previously furnished until the plan’s administrator or other customer delivers notice to update the information. A person might deliver such a notice if the person prefers that the provider no longer be authorized to rely on an instruction from the to-be-removed trustee.

Do people concur that: Considering the $1 and $17 amounts described (or the sum of them), a prudent fiduciary might put no effort on trying to allocate an amount to an individual? A prudent fiduciary may apply the $18 toward meeting the plan’s expenses?

I hope BenefitsLink neighbors will help me with an unscientific survey. Any results will be used only for a research project. And I’ll use responses only anonymously and in the aggregate. What percentage of your work time is used in a proceeding that requires you to file a Form 2848 or other notice of an appearance before the IRS? (For example, my estimate for 2006-2021 is about 3/100 of one percent. That is, about 99.97 of my work time did not involve defending an IRS examination or presenting a request for a ruling or determination.) What is your estimate of the percentage of people who regularly provide advice about retirement plans who have never filed a Form 2848 or other notice of an appearance before the IRS?

Although the 408b-2 rule allows a standing disclosure until there is a change, some service providers make one's own business decision to furnish a yearly disclosure even when nothing changes.

Read Brian Gilmore’s article, which sets out a great logic path for an employer that administers its “self-insured” group health plan. To that article’s smart ordering, I might add another possibility: An internet site designed for much of the content to be “behind the password” might also have some webpages that are deliberately “in front of the password”. For example, a website’s landing page might include hyperlinks to publicly available webpages, which would present or link to information the employer/administrator allows anyone to see with no password or other identifier. Some retirement plans I advise use this format.

I read the tax law the way you do. A rule to interpret § 403(b) includes: A section 403(b) plan is permitted to contain provisions that provide for plan termination and that allow accumulated benefits to be distributed on termination. However, in the case of a section 403(b) contract that is subject to the distribution restrictions in § 1.403(b)-6(c) or (d) (relating to custodial accounts and section 403(b) elective deferrals), termination of the plan and the distribution of accumulated benefits is permitted only if the employer (taking into account all entities that are treated as the same employer under section 414(b), (c), (m), or (o) on the date of the termination) does not make contributions to any section 403(b) contract that is not part of the plan during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan. 26 C.F.R. § 1.403(b)=10(a)(1) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-10#p-1.403(b)-10(a)(1). Why would the rule specify a restraint against after-termination § 403(b) contributions unless observing that restraint is an exception from § 403(b)(7)’s or § 403(b)(11)’s condition for restricting a distribution until age 59½ or severance-from-employment? Further, the same rulemaking includes: Except as provided in paragraph (c) of this section relating to distributions from custodial accounts, paragraph (d) of this section relating to distributions attributable to section 403(b) elective deferrals, § 1.403(b)-4(f) (relating to correction of excess deferrals), or § 1.403(b)-10(a) (relating to plan termination), a section 403(b) contract is permitted to distribute retirement benefits to the participant no earlier than upon the earlier of the participant's severance from employment or upon the prior occurrence of some event, such as after a fixed number of years, the attainment of a stated age, or disability. . . . . 26 C.F.R. § 1.403(b)-6(b) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-6#p-1.403(b)-6(b). Except as provided in . . . or § 1.403(b)-10(a) (relating to plan termination), distributions from a custodial account . . . may not be paid to a participant before the participant has a severance from employment, dies, becomes disabled . . . , or attains age 59½. . . . . 26 C.F.R. § 1.403(b)-6(c) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-6#p-1.403(b)-6(c). Except as provided in . . . or § 1.403(b)-10(a) (relating to plan termination), distributions of amounts attributable to section 403(b) elective deferrals may not be paid to a participant earlier than the earliest of the date on which the participant has a severance from employment, dies, has a hardship, becomes disabled . . . , or attains age 59½. 26 C.F.R. § 1.403(b)-6(d)(1)(i) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-6#p-1.403(b)-6(d)(1)(i). Why would § 1.403(b)-6 so methodically specify two exceptions (corrective distribution and plan-termination distribution) from a condition against a too-early distribution unless they are exceptions? (Even if we’re right about what an annuity contract may permit without losing § 403(b) income tax treatment, an annuity contract might state provisions more restrictive than those needed to tax-qualify as a § 403(b) contract.) Consider that it might be unnecessary for the employer to resolve whether the insurer is right or wrong about the meaning of its contract. If an annuity contract is an individual contract and the employer is not a party under the contract, what gives the insurer a right to demand that the employer furnish an instruction or information? Imagine an annuitant claims a payout and the insurer denies the claim because it finds the contract does not provide a distribution until age 59½ or severance-from-employment. A frustrated claimant may ask a court to decide who is right about what the contract provides. More immediately and practically, one might ask an insurance regulator to investigate whether the insurer’s claims handling observes fair practices. And even if it is harsh to expect an annuitant to fight her insurer, an annuitant might be no worse off than had the employer not terminated the plan. Call me if you’d like a conversation more candid than fits this website.

Omitting a 404a-5 disclosure presumes that a defined-benefit plan does not provide participant-directed investment.

As always, the plan’s fiduciary decides what to do (except for asking an actuary to do a report contrary to her profession’s standards). If the fiduciary (which I imagine is the employer) pays this retiree a benefit greater than the plan provides (and this participant is none of an owner, key employee, or highly-compensated), it seems unlikely that the IRS should pursue tax-disqualifying the plan. And although it is a fiduciary’s breach to administer a plan contrary to the plan’s governing documents, the Labor department is unlikely to pursue such a breach (unless the facts suggest that other participants are or might be harmed by the overpayment). An overpaid participant might lack standing to sue the fiduciary. About using the correct facts to determine the correct benefit, why does anyone fear a problem might result from doing so? Does the fiduciary fear that the retiree might assert reliance on a previously furnished accrued-benefit statement? The plan’s fiduciary should get its lawyer’s advice, not your lawyer’s advice.

An employer spins off from its 401(k) plan a portion of that plan’s assets and liabilities into an unrelated 401(k) plan. Neither the transferor plan nor the transferee plan has any defined-benefit or other pension obligation. On receiving the transferor’s Form 5310A, what does the IRS do with it. How likely is it that the IRS will ask the transferor a follow-up question?

Nate S., thank you. The labor-relations lawyer (I am her counsel) tells me she has done the bargaining. Her client assents to a 3% nonelective contribution and an up-to-3% matching contribution. Also, her client assents to the spinoff transfer, unless I advise that the employer is exposed to some horrible ERISA liability. (I’ve taught the labor-relations law firm to fear withdrawal liabilities, not only for pension plans but also for health and other welfare plans, and other participating-employer liabilities.) The Teamsters 401(k) plan is big; its purchasing power makes the plan more favorably priced than anything this small-business employer could get. Only 17 of about 400 participants (and only a small percentage of plan assets) would leave the employer’s 401(k) plan. Thank you for helping me issue-spot.

Sorry for my too-hasty description. Each of the transferor plan and the transferee plan is an individual-account (defined-contribution) plan, and neither plan has any defined-benefit obligation.

A labor union wants an employer to transfer assets and liabilities of the employer’s individual-account retirement plan, for the collectively-bargained employees, to the labor union’s multiemployer individual-account retirement plan. Would this involve risks to the employer?

Many (but not all) restatements are simple and inexpensive, and involve little change beyond what’s needed to tax-qualify. Likewise, many are done with the plan sponsor engaging no professional beyond the recordkeeper or TPA. But what if the expenses for a restatement were $500 for the recordkeeper’s processing fee, and $3,500 for the plan sponsor’s lawyers to review and edit the adoption agreement and its attachments? And what if about half the lawyers’ work was about helping the employer thoughtfully reconsider plan-design points? (Some plan sponsors use a restatement as an efficient time to state or consider changes. One might prefer to focus attention once, rather than wait. And a plan sponsor might prefer to get more done within one processing fee.) In those circumstances, would charging the whole $4,000 against the plan’s assets meet a fiduciary’s responsibility to act “for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying [no more than] reasonable expenses of administering the plan”? I see that often it’s not easy to distinguish which work is beyond what’s needed to tax-qualify and administer the plan. And in many situations the whole expense is so small that a fiduciary might put little or even no effort in trying to sort out or estimate a portion that’s not for administering the plan. But I think it’s wise for a fiduciary to be mindful of the general principle.

There is no Labor department rule. In ERISA Advisory Opinions, PWBA (now EBSA) has suggested some distinctions between an amendment for a provision a plan sponsor adds or changes as an element of one’s plan design, and an amendment made to state provisions needed to meet conditions for Internal Revenue Code § 401(a) or § 403(b) treatment. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2001-01a https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/settlor-expense-guidance An ERISA Advisory Opinion may be relied on only by the particular requester, and only to the extent of the facts the requester specified. Some fiduciaries endeavor to estimate the portion of a restatement fee one treats as attributable to plan administration (which so might be paid or reimbursed from plan assets). If the only expense is a recordkeeper’s or TPA’s fixed fee that does not vary with the user’s choices for the plan’s provisions, a fiduciary likely must estimate the relative portions between settlor expense and plan-administration expense. Or if a plan sponsor asks for nothing new and merely adopts a restatement solely as needed to maintain tax-qualified treatment, a fiduciary might reason that a whole fee, if reasonable and prudently incurred, is plan-administration expense. Further, consider that some service providers by contract set restrictions on what expenses may be paid from a plan-expenses account the service provider controls or processes. Some do not allow a payment or reimbursement of a plan-documents fee from a plan-expenses account. As always, a plan fiduciary should get its lawyer’s advice.

David Rigby reminds us that a disclaimer might have no practical effect if the disclaimant has no benefit to disclaim. ERISA § 205(f) permits a plan to omit a qualified joint and survivor annuity or a qualified preretirement survivor annuity if the participant and the spouse had not been married (or treated as married) throughout the one-year period ending on the participant’s annuity starting date or death. I read § 205(f)’s variation as mattering only if the plan otherwise would provide a QJSA or QPSA. But many individual-account plans lack a survivor annuity, and instead provide a surviving spouse the whole of the participant’s nonforfeitable accrued benefit. See ERISA § 205(b)(1)(C)(i). The discussion above considers what consequences might result if a surviving spouse has a benefit but disclaims it in a disclaimer the plan’s administrator accepts.

Yes, a TPA (if it does not add what retirement-services people call a § 3(16) service) typically has service arrangements designed to keep the TPA a non-fiduciary contractor. But PamR’s originating post states: “We are signed on as a Fiduciary on the Investment Advisory side[.]”

EBP, thank you for this wonderfully helpful information.

Thank you for your quick help. And thank you for mentioning some other points. It seems Martha, still a 20-something, might need to maintain distinct retirement-savings accumulations under two or more separate plans (XYZ has commonly controlled organizations in several nations) for about three decades or more.

XYZ US and XYZ UK are commonly controlled business organizations. XYZ US maintains a 401(k) plan. XYZ UK is not a participating employer under that plan. Martha ends her employment with XYZ US on June 30, and becomes XYZ UK’s employee on July 1. If employment by a business organization commonly controlled with the 401(k) plan’s sponsor otherwise would mean a change is not a severance-from-employment, is there anything that varies such a rule if the next employing organization is outside the USA?

While plans vary (and many are ambiguous), a plan’s administrator (using its powers to construe and interpret the plan) might treat a surviving spouse’s disclaimer as removing the spouse from those of the plan’s provisions that require treating a spouse as a participant’s beneficiary. If so, and especially for a beneficiary designation made before its maker had a spouse, the effect might be to recognize the participant’s designation of a (non-spouse) beneficiary. Depending on what beneficiary designation a participant made and which persons might become direct or ultimate takers under a plan’s provision for a default beneficiary, the disclaimer reasoning and the default reasoning might result in the same or different takers.

Ed Snyder, thanks.

Bri, thanks. Anyone with a different outlook? Because everything in a preapproved document states provisions that were already in effect years ago, I'm not seeing a reason for or against any imaginable fill-in for the restatement date. Or is there some point about how to use these documents that I'm too dense to understand?