Peter Gulia

The descriptions are wide. Several appropriations are for multiple purposes without a breakdown within an appropriation. The Commissioner has discretion. See § 10301, https://www.congress.gov/bill/117th-congress/house-bill/5376/text?q=%7B%22search%22%3A%5B%22hr5376%22%2C%22hr5376%22%5D%7D&r=1&s=1 One useful (but small) appropriation is $104,533,803 “to carry out functions related to promulgating regulations under the Internal Revenue Code of 1986[.]” The legislation is good news for many of my students. Demand for tax advice and related services, and for a better quality of advice, goes up if business organizations believe a tax return might be examined. https://www.irs.gov/pub/irs-utl/commissioners-letter-to-the-senate.pdf

I provide no advice. The plan’s administrator with its lawyer, and the independent qualified public accountant (IQPA) with its lawyer, might consider these steps and others. The plan’s administrator prepares a complete set of the plan’s general-purpose financial statements according to generally accepted accounting principles. One imagines most (but not necessarily all) amounts would be zeroes. The notes to these financial statements would include (at least) required explanations and other points. The IQPA reads the plan’s governing documents. The IQPA reads the employer’s business-organization documents to get reasonable assurance that no contribution was declared. If a bank or an insurance company set up an account, will the qualified institution furnish a certification to confirm the plan’s zero assets and that no money or property was delivered for investment? Absent a certification the IQPA may rely on, the IQPA performs such audit procedures as the IQPA finds appropriate to get reasonable assurance that the plan has no asset and has no contribution receivable. For each audit procedure the IQPA ordinarily would perform regarding another retirement plan, the IQPA records in the IQPA’s work papers why the procedure was unnecessary in this plan’s circumstances. The administrator signs a management-representations letter to state facts the IQPA reasonably requests to be confirmed. The IQPA reads the management-representations letter to find that all requested facts are stated. The IQPA reads the administrator’s Form 5500 report and schedules to find that these are logically consistent with the plan’s financial statements. The IQPA writes and delivers its audit report. The IQPA writes and delivers the after-audit communication required under generally accepted auditing principles.

If what’s described is proper and feasible, does the accounting firm propose a fee for the one engagement (including the extra work 29 C.F.R. § 2520.104-50(b)(2) requires) that’s less than the sum of the fees for what otherwise would be done in two years’ engagements?

For many ERISA-governed individual-account (defined-contribution) retirement plans, it’s at least possible, and often typical, to design a plan so a participant’s claim for a distribution or a loan usually does not require a spouse’s consent. Some observers question whether Congress should have set public policy that way. Some advisers might invite a retirement plan’s sponsor to consider whether one’s plan should require a spouse’s consent for some kinds of claims and directions even if neither ERISA § 205 nor an Internal Revenue Code tax-qualification condition calls for the plan’s provision. Reasons for doing so could include a plan sponsor’s desire to protect a participant’s spouse or child from the participant’s decision. Or some plan sponsors might do so to lower the plan administrator’s risks of being dragged into litigation. Even if a complaint fails to state a claim against the plan’s administrator (including when the plaintiff has no standing, or the court has no jurisdiction), getting rid of litigation bears distraction, time, and expense. Yet, some question how much a retirement plan ought to do in protecting spouses from one another. Or in protecting a child from one’s parent. Also, some plan sponsors prefer to avoid a provision that could, for a distribution or loan before the participant’s death, slow down or make nonroutine a computer’s processing of the claims. These and other choices about whether a plan provides survivor annuities or other plan-provided spouse’s-consent constraints, perhaps including some beyond ERISA § 205, are choices for a plan’s sponsor to consider. How much an adviser explains to its client turns on the scope of their relationship. Bird, a mainstream choice is for a plan’s sponsor is to get rid of (at least) survivor annuities (if not all annuities); provide a surviving spouse the whole of a participant’s account, absent a qualified election with the spouse’s consent; and otherwise not restrain a participant’s claims and directions. But, for some reasons mentioned in this discussion or in other BenefitsLink discussions (including those in which Larry Starr explains why his clients’ plans provide a qualified preretirement survivor annuity and tolerate the regimes that go with it), that mainstream choice might not be right for every plan.

Consider that, without regard to anything in Internal Revenue Code of 1986 § 223, a banking, insurance, or securities business might choose not to open an account for a non-U.S. person. Among several potential reasons, a business might do so to streamline its procedures or lower its expenses for obeying Federal and State know-your-customer and anti-money-laundering laws.

Thank you for the further information.

Bill Presson, I see your frustration about a recordkeeper that seeks its customer’s service instructions and proposes defaults (for a sponsor/administrator that does not respond) that could be inconsistent with the plan’s actual or presumed provisions. I’d like to learn your thoughts about ways a recordkeeper might avoid such an inconsistency (assuming the recordkeeper’s profile on its customer shows that the customer does not get its plan-documents service from the recordkeeper). Should the recordkeeper’s email to its customer: suggest one communicate promptly with its plan-documents provider before one responds to the recordkeeper’s request? include a mark-the-box choice (and a fill-in line to name the TPA’s or other provider’s contact) for the customer to ask the recordkeeper to request the other provider’s instructions, and rely on those? propose defaults different than those the recordkeeper sets for customers that use the recordkeeper’s plan-documents service? For example, might the circumstances suggest being less quick to presume the customer wants a new provision or other change? Something else that would help an inattentive sponsor/administrator avoid its unintended instructions?

What measure of a deferred compensation obligation could be affected by a reference to a “plan year” or other accounting year? What other purpose calls for an expression of a concept of a plan year? If the answers to those questions are none, your rewrite of the document might get rid of any mention of a plan year. Many tax-exempt organizations’ § 457(b) plans measure the obligation by reference to bookkeeping accounts that in turn refer to investments, whether participant-directed or not, the employer owns (whether directly, or as a grantor trust available to the employer’s creditors) as an unfunded way to meet the employer’s obligation. Those measure often have no reference to a plan year (and often none to any accounting year). Section 457(b)(2)-(3)’s deferral limits refer to the participant’s tax year. Some of § 457(d)’s conditions for a plan’s payout provisions refer to the calendar year.

If these are unfunded plans, the key issue is exactly which person is obligated to pay the deferred compensation. If the two obligations (or sets of obligations) your client seeks to merge would change which person is the obligor, would any executive object? When I represent an executive, we negotiate that no provision of the plan (really, a contract) can change without the executive’s affirmative written consent. When the executive is asked, she looks at whether the proposed obligor’s financial strength and claims-paying ability are or would become stronger or weaker than those of the existing obligor.

fmsinc, thank you for the information about how some might assert a spouse’s rights to evade a restitution obligation. This seems unlikely in the situation I described. The plan has no provision for recognizing a domestic-relations order. Further, even an attempt might be thwarted because an action for a divorce of the participant’s marriage or another domestic-relations order would be heard in the same court in which the State’s criminal case proceeds, and at least three subsets of the State’s attorneys general are tracking proceedings. Bob the Swimmer, thank you for your observation about what one might accomplish with careful attention to the text of the plan’s governing document. This plan includes an express forfeiture provision. It’s a variation on clauses I’ve been using since the 1980s. My question for this discussion arose because that provision—following how I revised it in 1996, when Congress added IRC § 457(g)—states an exception for a forfeiture that would contravene the plan’s exclusive-benefit provision, which follows IRC § 457(g)(1). Thank you, everyone, for helping me on a question of law (the one I anticipated before I got the fuller facts) that has not seen as many published interpretations as other points we work on.

I wrote my Wednesday and Thursday posts when I had only someone’s oral description of assumed facts, not yet the courts’ records. The State’s criminal prosecution is scheduled for a trial. The Federal criminal prosecution resulted in a plea agreement. That agreement recognizes restitution, debts, and other obligations the United States might collect under 18 U.S.C. §§ 3316, 3556, 3663, 3663A, including the Mandatory Victims Restitution Act of 1996; the Internal Revenue Code of 1986; and 28 U.S.C. §§ 3001-3308 (Federal Debt Collection Procedures Act of 1990). As Lois Baker, blguest, and Luke Bailey point to, the IRS’s and some courts’ interpretations treat an involuntary transfer to meet those debts to the United States as for the participant’s benefit. This situation is unlikely to reach the question of whether restitution ordered only under State law gets a similar tolerance in interpreting and applying the exclusive-benefit provision. (The participant’s debts under the Federal court’s order vastly exceed his § 457(b) balance.) Luke Bailey, thank you for the NAPPA article.

Thank you for this nice help. It confirms that in 2004 the IRS treated its 1984 interpretation as still good law. It is closer to my situation than the 1984 ruling because the 2004 ruling’s case 3 is about an individual-account (defined-contribution) plan, and found that the plan could pay the creditor rather than the participant when the participant severs from employment or reaches age 59½. And the 2004 ruling is a little stronger than the 1984 ruling because in 2004 the IRS allowed the payments to creditors despite the plan’s § 401(a)(13) anti-alienation provision. (A governmental § 457(b) plan need not state such a provision.) Do any of our governmental-plans mavens have more experience to add?

I see recordkeepers using a method like what’s described above: “If we do not receive your instruction by {date}, you instruct us to perform our services assuming your plan adds or omits provisions as stated by this email’s defaults.” Like MoJo, I see recordkeepers using one’s history of the off-document changes when it becomes time to compile the next restatement. Is it a pain-in-the-neck to keep those records? Or is the plan-documents software (or recordkeeping software) programmed to record the in-operation plan changes?

MoJo and Belgarath, thank you. Your descriptions are what I guessed, but it’s nice to have the pros confirm it.

In the mid-1970s, a friend (now 90) bought New York City bonds when the city was plainly insolvent, and had big operating deficits and huge debts. Many of his friends questioned the risks he took. His response: “If we can imagine a world in which the City of New York does not pay on its obligations, the concept of money will have ceased to have any meaning.”

blguest, thank you. The participant stole money (not other property) from the employer that maintains the governmental § 457(b) plan. The plan’s exclusive-benefit provision states: “The Plan is established for the exclusive benefit of Participants and their Beneficiaries. All assets and income of the Plan must be held for the exclusive benefit of the Plan’s Participants and their Beneficiaries. Any amount, property, or right held under the Plan will not be used for or diverted to any purpose other than for the exclusive benefit of Participants and Beneficiaries, except as otherwise permitted under IRC § 457(g)(1).” Another provision, captioned Forfeiture, states: “To the extent not precluded by [the exclusive-benefit provision], if a Participant pleads guilty or is convicted of a crime or offense relating to his or her government office or government employment and an Order provides for restitution relating to such crime or offense, the Participant (or, after the Participant’s death, each Beneficiary)—if he or she has not paid promptly the restitution that the Order requires—forfeits his, her, or its Benefit and Deferred Compensation to the extent needed to meet the restitution not paid.” The plan has no provision for making a surviving spouse a beneficiary other than as the participant designated. The plan has no provision for recognizing a domestic-relations order. No distribution has yet been made or approved. If it were not for considering a potential forfeiture to pay the unpaid restitution, the participant would be entitled as he is severed from employment. One reasoning urged is that paying restitution is for the participant’s benefit because it relieves him of an obligation. IRS General Counsel Memorandum 39267 (March 21, 1984) (“The exclusive benefit rule of section 401(a)(2) by its terms is designed to prohibit the use of plan assets for the benefit of anyone other than the employees and their beneficiaries. In this case the amounts in question are assigned to pay debts of a retired employee. It would be difficult to argue that such payments were not for the benefit of that employee or that such payments prejudiced the benefits to be received by other beneficiaries.”), http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irlb6a5/1/doc; IRS Letter Ruling 84-26-124 (March 30, 1984) (“The repayment of debts for an employee is for the economic benefit of an employee since it relieves him of a liability.”), http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irlb6b1/1/doc But a fact in that 1984 interpretation is that each debtor assented to a voluntary repayment plan under a chapter 13 bankruptcy. Some might reason that the plea agreement is voluntary. Others might reason that the plea agreement is somewhat less voluntary than the facts that persuaded the IRS in 1984. Does anyone know about other IRS interpretations one might use to reason through what the exclusive-benefit rule allows or precludes?

I confess this is an innocent question from my ignorance: Does the remedial-amendment regime require a plan sponsor to keep records of which SECURE and CARES provisions were put in operational effect (or omitted) in the years before the ensuing amendment or restatement?

Imagine this situation: A government employee makes elective salary-reduction contributions under a § 457(b) plan. The plan receives only salary-reduction contributions. Later, the employee is found to have stolen from his employer. In the criminal case’s plea agreement (for a reduced sentence), the defendant agrees to pay restitution to his former employer. Trying to get money for himself with no setoff or pay-over to his former employer, the participant asserts that the § 457(b) plan must not deny him his distribution because to do so would be contrary to the plan’s exclusive-benefit provision. (Assume the plan’s provision is no more than § 457(g)(1) requires for the plan to § 457(b)-eligible.) Has anyone worked on or observed a situation like this? How do you think the exclusive-benefit issue should sort out?

Yup, the Senators ask Fidelity to do what public law doesn't do. That recognized, I'm not saying a private business organization's owners shouldn't make their own choices about what goods and services to offer. I've had the privilege of advising businesses, including retirement-services providers, that decided not to offer a lawful service, one that would get profits, because the owners' ethical choice was to refrain from offering a service that could result in harm.

I think everyone in this discussion recognizes that executive agencies could use each’s rulemaking, other interpretation, and enforcement powers to regulate disclosures of, and even investments in, digital assets. And if current law isn’t enough, Congress has plenty of Article I powers to make laws. What some (not all) dislike is three Senators—who have votes in one of Congress’s bodies, and powers to try to persuade their fellow Members—asking a private business to act when Congress doesn’t. About Internal Revenue Code of 1986 § 408(m), could the Treasury department or its Internal Revenue Service interpret § 408(m)(2)’s subparagraphs about “any stamp or coin” and “any other tangible personal property specified by the Secretary for purposes of this subsection” to apply to a digital asset the Federal income tax treatment § 408(m)(1) provides? http://uscode.house.gov/view.xhtml?req=(title:26%20section:408%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section408)&f=treesort&edition=prelim&num=0&jumpTo=true Or if that current law is not enough, Congress could add one more subparagraph with a few words to describe the digital assets not to be treated as a retirement plan’s investments. The Senate could add it to the Inflation Reduction Act bill this week. Because the provision would score as a revenue-gainer, it could not unfavorably change a revenue target for the legislation.

Luke Bailey, there are some similarities, but it’s at a different layer of the decision-making. A plan’s fiduciary often faces difficult questions about whether a particular investment or kind of investment should not be available as even an investment alternative, whether designated or undesignated, because the investment’s availability might harm too many participants. While I have thoughts about how fiduciaries should resolve those questions, that’s another discussion. The Senators’ letter puts a worry about people making poor decisions at a different layer. The Senators worry that a plan’s fiduciary, if presented an opportunity to designate Fidelity’s Digital Assets Account as an investment alternative a directing participant may choose, might make a decision the Senators fear is an imprudent decision. The Senators ask Fidelity to remove the opportunity from plans’ fiduciaries’ decision-making. While these fears of an unwise decision have some common elements, they are qualitatively different because a directing participant harms herself, but a fiduciary’s imprudent decision might harm many participants. If one presumes ERISA’s fiduciary law is adequate to protect participants and their beneficiaries (or just recognizes that ERISA is the public law we have), an answer is, as C.B. Zeller and rocknrolls2 say, to let the plans’ fiduciaries decide. But the Senators seem to fear that too many fiduciaries might make imprudent decisions. And they might have assumed, even subconsciously, that practically ERISA provides too little protection. I express no view about the advantages or disadvantages of Bitcoin or other digital assets as an investment. My question—intended to generate a discussion, which it now has—is about who decides? It could be: Congress, whether by making digital assets as unlawful as the unprescribed methamphetamines blguest’s former client sold, or by legislating that digital assets is not a proper investment for a retirement plan; Fidelity or another platform provider, which could decide not to facilitate digital assets (even if what might be offered is lawful); Each plan’s fiduciaries, who might decide that allowing participants a choice might result in more harms than benefits. Each participant, although QDROphile suggests they should not be burdened with that responsibility. Any of those layers might raise questions that call for complex analysis and reasoning. Thank you, everyone, for helping me think about this. And I invite more views and observations.

I don't suggest that a restatement not done by July 31 is timely. Rather, I mention only that some circumstances might call an advocate to present a face-saving argument. (I would not present the argument without researching it and analyzing it.)

CuseFan, thank you for your thoughtful outlook, especially about how our society collectively bears responsibility for those who lack resources for a minimum living. If a fiduciary accepts a premise that some investments are so volatile that the retirement plan should not allow a directing participant to take the risk, how do we draw that line? What measures does one use? Is there a measure that screens out Bitcoin or a digital-asset account but does not screen out an emerging-markets fund (which many people consider a useful diversifier for some portion of an individual’s account)? Bri, you’re right that lawmakers, Congress, might want to legislate so a person could not use a retirement plan to defer or prepay tax on a possibly huge investment gain. But if so, the three Senators instead ask Fidelity to substitute for Congress’s function. Luke Bailey, I know the Senators don’t suggest that Fidelity is responsible as a plan’s fiduciary. But I don’t know how to read the effort at moral suasion without observing the authors’ unstated assumption that, if presented the choice, at least some plans’ fiduciaries would decide imprudently. For anyone who’s wondering, I think a business, with its owners’ consent, may and should make choices, including moral choices, about what goods and services to offer. I’m not here expressing a view, one way or the other, about Fidelity’s choice to offer its Digital Assets Account.

Did the plan’s sponsor sign this morning? Or did the plan’s sponsor sign in July, and an August 1 date refers to when someone processed a document? Was the signing ink-on-paper? Or was the signature made with a digital-signature service? If the restatement was not adopted until August and there arises a need to defend against an IRS assertion that the restatement was not timely, consider the legal argument described above. Even if your client’s IRS examiner might dislike the argument, the circumstances the examiner faces might motivate one not to find fault. Those circumstances might include that the examiner prefers to avoid a delay that would result if the plan’s sponsor requests that the examiner be guided by the advice of the IRS’s Office of Chief Counsel. I say nothing about what is correct or incorrect, but instead mention ideas a plan’s sponsor or its service provider might evaluate, each with its own lawyer’s advice.

Bird, C.B. Zeller, and QDROphile, thank you. To follow one of Bird’s points and QDROphile’s second point, a challenge for fiduciaries who set a participant-directed retirement plan’s investment alternatives is choosing whether to make an alternative available to an intelligent, knowledgeable, thoughtful investor who could use the alternative skillfully, knowing that a plan’s investment alternative is available to all participants, and so risks that some less capable participants might carelessly select the alternative. C.B. Zeller’s last sentence is what fiduciary law provides. Yet, there are some who question the economics of asking every employer’s plan, no matter how small, to engage separate advisers. QDROphile, perhaps we share a suspicion that the Senators publish their letter because they are mindful of Congress’s ineptness. Others with different or more observations?