Peter Gulia

kpension, I won't defend, or interpret, Honeywell's (or any plan's) "whole percentages" provision.

Oops, intervals.

That an involuntary distribution is no more than $1,000 does not deprive it of treatment as an eligible rollover distribution. A plan’s administrator must permit such a distributee to elect a direct rollover if her eligible rollover distributions during a year total at least $200. 26 C.F.R. § 1.401(a)(31)-1/Q&A-11 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(31)-1. Or has tax law changed from what I remember? Internal Revenue Code of 1986 § 401(a)(31)(B)(i)(I), which sets $1,000 as the most a plan may distribute without providing a default rollover for a distributee who does not elect a different rollover or no rollover, refers to “a distribution . . .”, not an account balance or an accrued benefit. The last day of a plan year might not be a relevant measure. Some plans that provide an involuntary distribution look to a different time. Some plans provide involuntary distributions more often than yearly. Some do it quarter-yearly, or monthly. Some provide an involuntary distribution timed from each participant’s severance from employment. For example, an employer/administrator might include a § 402(f) notice and the form for specifying a rollover with employment-exit papers. For an involuntary severance from employment, some employers furnish a retirement plan’s notices and forms when the employer presents its proposed release and severance agreement. Yet, if the concept is that it’s good enough that a distributee’s account is no more than the specified amount on a relevant date that reasonably precedes the involuntary distribution, that concept might apply no matter what internals or timing the plan uses. Thank you, all, for the suggestions about providing for a determination date. And thank you for your information about practical experiences. Likewise, I don’t doubt there are IRS-preapproved documents one could read as allowing an involuntary distribution more than $5,000 if the accrued benefit at some relevant earlier date was no more than $5,000 (or the plan’s specified amount). At least one recordkeeper’s IRS-preapproved document mandates the involuntary distribution if the amount does not exceed $5,000 (or the other specified amount) “at the time” the participant or beneficiary “becomes entitled” to a distribution. Because, without an IRS determination, I am responsible for my advice about whether the plan’s governing document and written procedures state a tax-qualified plan, I’ll advise the plan’s sponsor and administrator about the opportunities and risks.

Must a domestic-relations order relate to a domestic-relations proceeding? At least one court found that because neither of two spouses had asked the court for a divorce, annulment, separation, or other domestic-relations relief, there was no matter that could call for an order a plan might treat as a QDRO. “[A] QDRO is a procedural right derivative of or adjunct to a domestic relations matter, but outside the context of a domestic relations matter, a QDRO is not a distinct, discrete legal claim. . . . . [W]e hold that absent a divorce or other domestic relations matter pending between spouses, they cannot obtain a QDRO for the sole purpose of moving funds in the participant/spouse’s [retirement] plan out of the plan to the non-participating spouse[‘s IRA].” Jago v. Jago, 2019 Pa. Super. 246, 217 A.3d 289, 297 (Pa. Super. Ct. Aug. 19, 2019) https://casetext.com/case/jago-v-jago?sort=relevance&resultsNav=false&q=. The opinion reflects the trial and appeals courts’ reasoning because only one attorney appeared, and he presented the argument for allowing the domestic-relations order. At least one bit of the US Labor department’s nonrule guidance states somewhat different reasoning, but finds a similar conclusion. “[I]t is the view of the Department of Labor that Congress intended the QDRO provisions to encompass state community property laws only insofar as such laws would ordinarily be recognized by courts in determining alimony, property settlement and similar orders issued in domestic relations proceedings. We find no indication Congress contemplated that the QDRO provisions would serve as a mechanism in which a non-participant spouse’s interest derived only from state property law could be enforced against a pension plan.” ERISA Advisory Opinion 90-46A (Dec. 4, 1990), https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1990-46a.pdf But an agency’s document that is not a rule or regulation (and usually is made with less process than a notice-and-comment rulemaking) is an interpretation a court need not defer to; instead, it gets only “respect” and only if the interpretation is persuasive. For example, Christensen v. Harris County, 529 U.S. 576 (May 1, 2000) (rejecting an argument that the Court should give Chevron deference to a Labor department opinion letter); Bussian v. RJR Nabisco Inc., 223 F.3d 286, 25 Empl. Benefits Cas. (BL) 1120, 1127-1128 (5th Cir. Aug. 14, 2000) (rejecting the Secretary of Labor’s argument that the court should give Chevron deference to a Labor department interpretive bulletin). A retirement plan’s administrator or a reviewing court might construe or interpret the statute differently than either of the two interpretations mentioned above. Beyond the merits of whether the court’s order is or isn’t a DRO, a plan’s administrator might want its lawyers’ advice about whether the plan’s governing documents provide deference to an administrator’s decision about whether a court’s order is a QDRO or even a DRO. Further, a plan’s administrator might want its lawyer’s advice about the extent to which a court should or would defer to the administrator’s plausible interpretations of the plan’s governing documents (including interpretations of ERISA sections 3, 205, 206, 404, and 514) and discretionary findings.

Is there a similar issue if the plan’s involuntary distribution is set for no more than $5,000? What happens if yesterday’s balance was $4,999 and today’s is $5,001? One hopes some smart recordkeeper has methods for situations in which a tolerance (whether $1,000, $5,000, or something else) would have been met when a distribution was anticipated, but is not met when investments would be redeemed to pay the distribution. Is it really as simple as canceling the anticipated distribution?

JOH, thank you (!) for your gift to this discussion. Even if a judge finds a not-yet spouse is not a spouse (and so not a disqualified person), wasn’t the IRA holder, who had powers to direct the IRA’s investments and the sale, the IRA’s fiduciary, and so a disqualified person? If so, that leaves mixed factual and legal findings about whether the IRA holder as the IRA’s fiduciary acted for an interest other than maximizing the IRA’s investment value.

EBECatty, thank you (!!) for this nice find. It no longer is possible for the transaction’s parties to err on the side of caution; the transaction was done years ago. Even if there was no § 4975(c)(1)(A) or § 4975(c)(1)(D) transaction, it seems there might have been a § 4975(c)(1)(E) transaction. The IRA holder, who was the directing fiduciary of his IRA, had at least two self-dealing interests other than the IRA’s interest: (1) the fiduciary’s personal interest in benefitting his intended spouse; and (2) the fiduciary’s personal interest in providing his residence. Further, under many States’ laws, a couple engaged to marry might have a confidential (fiduciary) relation, each one to the other. And even if a relevant State’s law recognizes no such relation, mutual promises to marry might set up an interest that could affect one’s exercise of one’s best judgment as an IRA’s fiduciary.

CuseFan, thank you (!) for giving me your thinking. I recognize I alone am responsible for whatever advice I might provide. I’ll do my own research and analysis. I asked BenefitsLink neighbors because sometimes it gives me a nice start before I search in Bloomberg Law, CCH/Wolters Kluwer, LexisNexis, and ThomsonReuters’ Westlaw. The statute defines a prohibited transaction as one that is “direct or indirect[.]” Internal Revenue Code of 1986 § 4975(c)(1) (emphasis added) http://uscode.house.gov/view.xhtml?req=(title:26%20section:4975%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section4975)&f=treesort&edition=prelim&num=0&jumpTo=true Has anyone seen an IRS argument that a transaction with someone who was not yet (but soon became) a disqualified person was doing indirectly that which must not be done directly?

The sponsor of a retirement plan that yet has no provision for an involuntary distribution desires to provide an involuntary distribution if a participant is severed from employment and her balance is no more than $1,000. The sponsor prefers to limit the plan’s involuntary distribution to the amount specified in Internal Revenue Code § 401(a)(31)(B)(i)(I) because the sponsor/administrator is unwilling to provide for a default-rollover IRA, which would be required if an involuntary distribution is more than $1,000 and the participant/distributee furnishes no different instruction. The plan’s provision would look to whether a participant’s whole account, including her rollover-contributions subaccount, is no more than $1,000. The plan’s governing document uses no IRS-preapproved document. The sponsor would amend the document to state its desired provision (except to the extent a provision would tax-disqualify the plan). Assume all amounts are 100% nonforfeitable. The plan provides participant-directed investment, with a broad range of investment alternatives. Account balances are recomputed every New York Stock Exchange day. For simplicity (and to not resume a June 2020 BenefitsLink discussion), assume the plan incurs no fee for processing a distribution, and a participant’s account incurs no charge that could result in a distribution amount less than the participant’s before-charge account balance. What happens if, between the time the plan’s administrator sends a § 402(f) notice and the form for instructing a direct rollover and the time the administrator would process an involuntary distribution, the participant’s changes from less than $1,000 to more than $1,000? Must the administrator cancel the distribution? What happens if, on the day the involuntary distribution would be processed, the participant’s account balance changes from $999 (based on the preceding day’s funds’ shares’ prices) to $1,001 (based on the funds’ shares’ prices on which shares would be redeemed)? Must the administrator cancel the distribution? How does a recordkeeper do that? If looking to the preceding day’s balance is good enough and the distribution is not canceled, what does the recordkeeper with the breakage between $1,000 and the funds’ shares’ redemption value? How do plans’ administrators and, perhaps more important, recordkeepers deal with this in the practical real world?

kmhaab, when you asked about a plan that has no participants, I guessed you used the word participant not for a technical or legal meaning under ERISA or the Internal Revenue Code, but the way many people use it, especially about § 401(k) arrangements, to refer to those who make an elective-deferral contribution. ERISA § 3(7) defines participant to include an employee “who is or may become eligible to receive a benefit[.]” The Form 5500 Instructions (hyperlink above) include in a count of a retirement plan’s participants “individuals who are eligible to elect to have the employer make payments [elective-deferral contributions] under a Code section 401(k) qualified cash or deferred arrangement.”

Is an IRA’s sale to a not-yet spouse a prohibited transaction? Imagine this not-so-hypothetical situation: Two people who have contemplated marriage decide to wait. Why? One’s IRA owns real property, which the couple intend as their new residence. The IRA holder believes that living in the property while the IRA owns it would result in an improper personal benefit and prohibited transaction. Instead, the IRA sells the property to the holder’s not-yet spouse. (Assume the IRA’s sale is for an amount an appraiser says is fair market value.) The couple delay their marriage, and the IRA holder’s move, until the year after the year in which the IRA sold the property. BenefitsLink neighbors, have you seen any court decision or agency proceeding that analyzes a situation anything like this as a too-clever evasion or somehow a prohibited transaction? What tax-law doctrines might the IRS (or a taxpayer) use to reason that the IRA’s sale to a not-yet spouse ought to be treated as if it were a sale to the IRA holder’s spouse?

That no participant elected a deferral is not among the reasons the Instructions’ page 3 states for not filing. https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2021-instructions.pdf

Even presuming consistency rules for all an employer’s employee-benefit plans (of those that seek to meet a tax law condition that refers to Internal Revenue Code of 1986 § 414(q)): The Treasury department’s temporary rule (adopted February 19, 1988, and last amended June 27, 1994) interprets § 414(q) as it was in effect for 1996 and earlier years. Under that rule, § 414(q)’s definition for a highly-compensated employee applies if another Internal Revenue Code section refers to § 414(q). 26 C.F.R. § 1.414(q)-1T https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.414(q)-1T About health, other welfare, and fringe-benefit plans, that § 414(q) temporary rule lists sections 89, 106, 117(d), 125, 129, 132, 274, 423(b), 501(c)(17)-(18), and 505. Section 223—Health Savings Accounts states no reference to § 414(q). Does some coverage or nondiscrimination rule apply intermediately or indirectly?

I have never seen the Labor department question a change from cash-receipts-and-disbursements accounting to accrual accounting (if the Form 5500 report shows an adjustment). Many small plans, especially those with no TPA, begin reporting on cash accounting. Among several reasons, a plan’s administrator might adopt, without editing, the information a recordkeeper furnished. A recordkeeper might lack enough information to form an accrual entry. And even if that information is available to a recordkeeper, many prefer to avoid anything that could suggest even a slight discretion. When a small plan becomes one for which the plan’s administrator must engage an independent qualified public accountant, an IQPA usually persuades the administrator to change to accrual accounting.

I do not know anything that would help you answer your question. But the circumstances you describe suggest another question: Does an actuary assume a pension plan’s current provisions and an absence of change in the provisions (until the plan’s sponsor or administrator instructs different assumptions)? Or does an actuary’s professional conduct require her to make assumptions about a plan’s likely future provisions, even if one’s client has furnished no such instruction or guidance?

When a recordkeeper's customer-service person does not cite an authority, my experience suggests there is none. And even if there might be some Internal Revenue Service notice or announcement (or even a Revenue Ruling), only the Treasury department's rule binds a taxpayer.

Thank you for sharing Chief Judge Hall’s opinion. On your who’s-responsible question, there were plenty of people with plenty of opportunities to avoid unwelcome results. Among those, the multiemployer plan’s sponsor—the joint board of trustees, which decides the plan’s provisions arguably as a nonfiduciary creator, could have much more carefully stated the plan’s provisions. It is unclear (some might say doubtful) whether the plan provisions Judge Hall found were the provisions the plan’s sponsor intended. Further, even if one assumes only Judge Hall’s fact findings (which are incomplete), other possible interpretations of the plan (and of the plan’s application to each of the disputed beneficiary designations) are at least permissible and might be persuasive. The opinion suggests little or nothing about whether the plan’s administrator breached its responsibility because the opinion describes no analysis on such an issue. Further, it seems likely none of the interpleaded claimants presented a fiduciary-breach counterclaim or crossclaim. If there is an appeal, the appeals judges should defer to the trial judge’s findings of fact (unless clearly wrong), and might defer to the trial judge’s interpretations of the governing plan document, the summary plan description, and the plan’s form for making a beneficiary designation. If so, there might be little or nothing left in public law issues on which appeals judges would do a fresh analysis.

If, for a plan’s cash-or-deferred arrangement, the plan does not provide an automatic-contribution arrangement, doesn’t the absence of a participant’s affirmative election to defer mean she elects “cash” compensation (that is, no § 401(k) elective deferral)? See 26 C.F.R. § 1.401(k)-1(a)(3)(ii) (explaining that the absence of an affirmative election has a default consequence), https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(k)-1#p-1.401(k)-1(a)(3)(ii). However, the plan’s administrator might evaluate whether an employee received the plan’s governing document, a summary plan description, or some other notice of her opportunity to elect for or against § 401(k) elective deferrals. If an employee is or was a minor, an administrator might evaluate whether notice to the minor’s natural guardian or conservator (a parent) is or was notice to the minor. That a plan’s administrator might have breached a fiduciary responsibility by failing to deliver a summary plan description does not by itself mean the plan or its cash-or-deferred arrangement fails to tax-qualify under Internal Revenue Code § 401(a)-(k).

The discussion has turned from what does or doesn’t belong in a W-2 wage report to whether compensation, for one or more retirement plan purposes, for a year might include something paid after that year. And that might relate to Belgarath’s originating post about a client’s request for a projection illustrated on an assumption that 2022 compensation will include a bonus paid after 2022 ends. C.B. Zeller, of course you’re right that you didn’t suggest anything about how 26 C.F.R. § 1.415(c)-2(e)(2) (if relevant at all) or a plan’s definition or provision based on that rule might apply. I wonder whether a plan’s administrator might interpret “first few weeks” to count a bonus that relates to 2022 services and is paid or delivered as late as by March 15? And you ask a smart question about some practical consequences if an IRS employee might consider such an interpretation as allowing more than the Treasury department intends the tax-law rule to allow.

The word "few" is indefinite. Might a plan's administrator interpret "first few weeks" to allow up to two and a half months or by March 15?

If one considers the rule C.B. Zeller mentions, the plan's administration would read carefully the plan's governing document to discern whether the plan's text supports such a measure of compensation.

Does the plan design austin3515 describes work if the matching contribution is 500% of the up to 6% in elective deferrals? (Assume the plan applies 401(a)(17) and 415(c) limits.) (Assume the resulting matching contributions are less than 25% of the participants' compensation.)

For an ERISA-governed plan, “the documents and instruments governing the plan” (ERISA § 404(a)(1)(D)) provide who may be a participant’s beneficiary and which beneficiary designations are or are not recognized. In my experience, a typical plan does not preclude naming an alien, even a nonresident alien. Different Federal income tax withholding regulations, rates, procedures, and forms apply for a plan’s distribution to a non-US person. Among other points, the payer would require a distributee to certify an Individual Taxpayer Identification Number (ITIN). Those 9-digit numbers are issued by the Internal Revenue Service. https://www.irs.gov/forms-pubs/about-form-w-8 https://www.irs.gov/individuals/individual-taxpayer-identification-number

To tax-qualify under Internal Revenue Code § 401(a) and for other U.S. tax law reasons, the plan’s trustee should be a U.S. person. If the plan were ERISA-governed, a fiduciary would obey ERISA § 404(b)’s command to maintain the indicia of all plan assets within the jurisdiction of U.S. Federal courts. Even for a plan not ERISA-governed, a prudent trustee might maintain in the United States (and, preferably, in the State in which the plan’s trust has its situs) the record of the UK company’s securities the plan’s trust owns. That includes a certificate (if there is one). If there is no established and efficient market for the securities the plan’s trust invests in, consider what valuation expert the plan’s administrator or trustee would engage to set—at least yearly, and whenever needed midyear to allow a transaction—an imaginary fair-market value for the securities of the UK company.

K-t-F, are you asking about whether a retirement plan (or some other employee-benefit plan) may invest?