Peter Gulia

What each of “he” and “she” needs is to get work from a good estate-planning lawyer. To get candid, unconflicted advice, each needs his or her own lawyer. Planning of the kind your post describes is mainstream, and need not be expensive. That’s especially so for a client who is intelligent, educated, and well organized. Much of what one might seek can be accomplished by supporting a retirement plan’s, IRA’s, or non-retirement investment’s beneficiary designation or transfer-on-death registration (or a bank account’s pay-on-death registration) with a premarital agreement or after-marriage consent and a trust (whenever and however created) to provide the differing beneficial interests a retirement plan’s, IRA’s, or investment’s beneficiary regime does not provide. (I’ve never seen an employer’s retirement plan that restricts a beneficiary to an income-only distribution. And many or most retirement plans do not determine income in the sense of the fiduciary accounting concept of distinguishing between income and principal.) For an ERISA-governed retirement plan, a good estate-planning lawyer would recognize that a premarital agreement alone is not enough for a qualified election (with the spouse’s consent) to negate an ERISA § 205 survivor annuity or death benefit. For a governmental retirement plan, one would look to the plan’s provisions (which often are, but might not be, stated or explained in a comprehensive document or summary) to discern whether the plan provides a participant’s spouse a survivor annuity or other death benefit, whether one may elect out of that benefit, and what is required for a valid opt-out. To simplify some planning and implementation steps, a participant entitled to an ERISA-governed retirement plan’s distribution might consider a rollover into a non-ERISA plan or IRA. Likewise, one might consider a rollover from a non-ERISA plan into an IRA. (There are several creditor-protection, investment, expense, and other factors that, depending on the surrounding facts and circumstances, might point in other directions.) Of the three retirement kinds—ERISA, governmental or church, or non-plan IRA, an IRA is most likely not to apply a protection for a spouse in the IRA’s administration. (For a non-ERISA plan or IRA, that a protection is not applied in a plan’s or an IRA’s administration does not defeat whatever rights a spouse has under one or more States’ laws.) For a trust that provides a surviving spouse income but not principal, one could design a trust so a trust’s beneficiary is treated as a designated beneficiary for a retirement plan’s or IRA’s minimum-distribution provisions. While the proposed rules do not yet apply (and are not even effective), one might design and document a trust to follow both the proposed and current rules. If the spouses ever will or might reside in a community-property State (or otherwise invoke a community-property law), either or both might want a premarital agreement that undoes community property for some or all of the property interests. If any State’s law for a spouse’s elective share might apply (which is almost everywhere in the USA if community-property law does not apply), either or both soon-to-be spouses might want a premarital agreement that undoes a surviving spouse’s elective-share right. If either would-be spouse imagines a possibility of divorce before death, he or she might want a premarital agreement to specify what property division applies on the divorce. Either would-be spouse might want a premarital agreement to specify how the spouses share or divide household and other living expenses. If you have access to 403(b) Answer Book, 457 Answer Book, Governmental Plans Answer Book, Roth IRA Answer Book, or SIMPLE, SEP, and SARSEP Answer Book, my Beneficiary Designations chapter in each book gives a reader further details on many of these points. Beyond the property-rights, tax, and other law issues involved, a good lawyer can help her client with practical aspects of the planning. This calls for foresight when the planning must or should consider the circumstances and personalities of his-and-hers families.

About (only) the ERISA fiduciary liability insurance contract: The insured fiduciary might ask her insurance intermediary to check with the insurer about whether, and for how much premium, the insurer would be willing to issue extended-reporting-period coverage. Likewise, one might ask whether that coverage could run for up to six years so it aligns, even if imperfectly, with ERISA § 413(1)’s statute-of-repose period.

Under some States’ and cities’ play-or-pay laws, maintaining an employment-based retirement plan that allows elective deferrals is one of the ways an employer avoids a tax, civil penalty, or other financial consequence. For some kinds of businesses, it’s not unimaginable that no employee elects a deferral. Yet, an employer might prefer to maintain a plan indefinitely.

Account statements and lifetime-income illustrations both are elements of ERISA § 105(a) about pension benefit statements. After the 1974 enactment, that section was amended in 1984, 1989, 2006 (Pension Protection Act), and 2019 (“SECURE”). About the civil penalty, does anyone know what the $100 is adjusted to for a penalty assessed in 2022? And has anyone estimated the 2023 amount?

Internal Revenue Code of 1986 § 7503 and a tax-law rule interpreting and implementing it state a general rule for adjusting a due date that falls on a Saturday or Sunday, or a legal holiday specified by the rule. 26 C.F.R. § 301.7503-1(a) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-F/part-301/subpart-ECFR94f366dd75fae71/subject-group-ECFRd06c5ed639eb8dd/section-301.7503-1#p-301.7503-1(a). For example, elsewhere on BenefitsLink I’ve mentioned that this year’s unextended and extended due dates for a Form 5500 report on a plan’s year ended with December 2021 are August 1 and October 17. I’m unaware of the IRS having published an announcement that the holidays rule applies for a cycle 3 restatement. And it is unclear whether signing the restatement is the kind of “act” that invokes the holidays rule. I told my clients to get it done no later than this business week. But if someone misses, one might argue that August 1 is the last day for the act tax law calls for.

Whatever one thinks of the public policy of ERISA’s requirement for a lifetime-income illustration, let’s put the responsibility where it belongs: Congress amended ERISA to impose the requirement. The Labor department made a rule to implement the statute Congress made. And even that rulemaking is commanded by an Act of Congress.

C.B. Zeller, thank you for the follow-up. I'm seeing now how differences in which service condition is involved could affect the question of whether a job classification is really a disguised or indirect service condition.

Under Internal Revenue Code of 1986 § 401(k)(2)(D), a condition for treatment as a qualified cash-or-deferred arrangement is that the arrangement must “not require, as a condition of participation in the arrangement, that an employee complete a period of service with the employer (or employers) maintaining the plan extending beyond the close of the earlier of— (i) — the period permitted under section 410(a)(1) (determined without regard to subparagraph (B)(i) thereof), or (ii) — subject to the provisions of paragraph (15), the first period of 3 consecutive 12-month periods during each of which the employee has at least 500 hours of service.” If a condition other than an age or service condition is permitted for someone whose service condition is met with one year of service, the same condition ought to be permitted for someone whose service condition is met with the three 500-hour years. And questions about whether a job classification or other condition for participation is an indirect service condition ought to be resolved without regard to which of the two kinds of service conditions an employee might meet. Belgarath, isn’t an absence of guidance better? That way, intelligent practitioners like you and CuseFan can just read the statute, without needing to consider an error the IRS might introduce.

The decedent’s estate’s personal representative might have a responsibility and powers to administer the sole-proprietor business (until the representative sells or distributes the business). Likewise, or even without a responsibility to administer the business, the personal representative might have powers to serve as the retirement plan’s administrator. As a service provider, you’ll want your lawyer’s advice about whether you may rely on a personal representative’s instructions.

If there won’t be time to furnish the lifetime-income illustrations (or the individuals’ account statements) by October 17 but you’re confident the individuals’ December 31, 2021 accounts can be determined by late October, the plan’s administrator might consider then running the illustrations and furnishing them no later than with the summary annual report on 2021. If the lateness is a month or two in this first cycle, how likely is it that EBSA will pursue enforcement? A participant’s, beneficiary’s, or alternate payee’s enforcement might be remote. Furnishing illustrations run with December 31, 2000 account balances, 2000 mortality assumptions, and the December 1, 2000 interest rate might be a way to meet the ERISA § 105 command by a compliance date. But a plan’s fiduciary might evaluate whether such an outdated illustration would confuse some participants, beneficiaries, and alternate payees even more than an on-cycle illustration confuses them. Whichever, the plan’s administrator should choose and own the responsibility.

Thanks to Dare Johnson for showing us the linked-to resource. But understand that some elements of those priorities turn on the fact that the employer is the United States government. Some priorities one might infer from that regime would not be appropriate for another employer.

It’s easy to put taxes and garnishments ahead of voluntary wage reductions and deductions. And many people put retirement last (or near last) in a triage. The difficult choices are priorities among other employee benefits and some fringe benefits. For example, many employers put health ahead of disability and other welfare benefits. But some employers, especially with workers who don’t drive to the work location, might put a before-tax transportation fringe ahead of other benefits, perhaps even health. Why? A worker who can’t afford her travel expenses to get to the employer’s work location could quit or lose the job. And for those who think about a written procedure for this, does anyone know whether ADP, Paychex, and other big payroll-service providers have designed systems and methods for getting an employer customer’s instructions for dealing with this triage?

Some employers might prefer that plans’ documents would state priorities about what to do when a worker’s paycheck lacks enough money to meet (all of): Federal, State, and local taxes to be withheld; child-support and other wage garnishments; setoffs for amounts owed to the employer; wage-reduction “premiums” and contributions for health, disability, life-insurance, retirement, and other employee benefits; and wage reductions for dependent care, transportation, and other fringe benefits. This can work well if one widely knowledgeable professional writes or edits the documents for the full range of the employer’s benefits. (In theory, it also should work if one human-resources person oversees the full range.) But many employers use for each benefit a document from that benefit’s service provider. And even if all documents are from one service provider, IRS-preapproved and other off-the-rack documents typically don’t specify provisions of this kind. If it’s not feasible to specify the details in the plans’ documents, an employer, in its role as the several plans’ administrator, might make a written procedure. But who within an employer gets that task? And if an employer needs an outside professional’s work, how much is the employer willing to pay for this?

As I said, “Consider . . . .”. Practitioners and plans’ administrators have differing views, with some preferring to show the current identifying information, and others using the identifying information as it was on the last day of the year reported on. If the plan’s administrator prefers to show the current identifying information, the form has an element designed to report also the preceding information so EBSA and IRS are not confused.

Consider using the plan’s and its sponsor’s names as in effect when the administrator approves the Form 5500 report. To show the continuation and avoid a confusion, the Form 5500 Instructions specify a reporting for this: Part II Line 1a: “. . . . If the plan has changed its name from the prior year filing(s), complete line 4 to indicate that the plan was previously identified by a different name.” “Line 4. If the plan sponsor’s or DFE’s name and/or EIN [has or] have changed or the plan name has changed since the last return/report was filed for this plan or DFE, enter the plan sponsor’s or DFE’s name, EIN, the plan name, and the plan number as it appeared on the last return/report filed.” https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2021-instructions.pdf

An auditor must document her work thoroughly enough that a “cold” reader—an independent peer reviewer, or the Secretary of Labor—could see from the auditor’s work papers alone that the auditor met all ERISA § 103(a)(3)(C) conditions and other generally accepted auditing standards. About whether the company established a plan, has bzorc or another professional evaluated whether the human who signed a document had been authorized to adopt the document as the company’s act?

The only dumb question is the one we didn’t ask. For a governmental § 457(b) plan, a governmental plan is not governed by ERISA’s title I. For an ERISA-governed plan, an administrator of an unfunded plan of deferred compensation for a select group of management or highly-compensated employees might avoid the ERISA § 105 requirement for a lifetime-income disclosure if the administrator met the conditions of the “alternative method of compliance” for such a select-group plan. ERISA § 110, 29 U.S.C. § 1030 (empowering the Secretary to “prescribe an alternative method for satisfying any requirement of this part [part 1 of subtitle B of title I, ERISA §§ 101-111] with respect to any pension plan, or class of pension plans[.]”). http://uscode.house.gov/view.xhtml?req=(title:29%20section:1030%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1030)&f=treesort&edition=prelim&num=0&jumpTo=true 29 C.F.R. § 2520.104-23 (Alternative method of compliance for pension plans for certain selected employees). https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-D/section-2520.104-23#p-2520.104-23(a)

A few cautions: If the plan is a governmental plan, check the plan’s documents and State law. If the plan is a church plan, check the plan’s documents. Even if no external law calls for a particular provision, a sponsor might decide that providing for a participant’s spouse (or, at least, not depriving a spouse of an interest without the spouse’s consent) follows the church’s faith. If a plan is neither a governmental plan nor a church plan and the charitable organization believes it is not a plan within the meaning of ERISA’s title I, consider that a disappointed surviving spouse might assert that the plan is an ERISA-governed plan. A Federal court decides a defendant’s motion to dismiss a complaint for failure to state a claim considering only the complaint’s alleged facts, with no opportunity for a defendant to introduce facts. Because of this, a defendant might not persuade a judge that a complaint is so implausible that it asserts no claim. Even if a plan is unquestionably not ERISA-governed, read the annuity contract or custodial-account agreement. In my experience, some older annuity contracts provide a survivor annuity, absent the spouse’s consent, and provide this even if no plan the contract was purchased under imposes such a provision.

The lifetime-income disclosure is an element of an ERISA title I command for a pension-benefit statement. ERISA § 105(a)(2)(D), unofficially compiled as 29 U.S.C. § 1025(a)(2)(D) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1025%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1025)&f=treesort&edition=prelim&num=0&jumpTo=true This ERISA provision does not apply to: a plan that is not an individual-account plan, a one-participant or no-employee plan, a governmental plan (including a public-schools employer’s plan), a church plan (if the plan did not elect to be ERISA-governed), or a voluntary-only § 403(b) plan if the employer’s involvement is so limited that there is no plan for ERISA title I’s purposes.

ERISAGirl, thank you for the helpful information on ASC. Barbara, thank you for double-checking on Datair. It seems these four document providers’ consensus is showing a user a choice, and setting as the default undoing a beneficiary designation that would provide for a former spouse.

If ERISA governs the retirement plan, the plan’s administrator decides the plan’s distributee applying ERISA and the plan’s governing documents. ERISA supersedes States’ laws, at least for administering the plan. Some (but not all) courts have held that ERISA does not preempt a State court’s order—if the order does not involve the plan or any fiduciary of it—about ordering property interests between the plan’s distributee and others who might have a property interest. Such an adjustment happens after the ERISA plan has paid or delivered the plan’s benefit (or does not constrain the ERISA-governed plan’s administration).

Belgarath, thank you. We now have information on Datair, FIS, and ftwilliam. Beyond ASC, is there another widely used documents provider we're missing?

Barbara and cathyw, thank you for your helpful information about ftwilliam and Datair documents. Especially helpful is the information that the choice in ftwilliam processes into a summary plan description. Does anyone know what the ASC documents do?

Even if one imagines an audit of a retirement plan trust’s financial statements that report no asset (beyond a right to collect a contribution if the employer declares one), no income, and no expense, don’t be surprised if an independent qualified public accountant seeks a minimum fee it charges for any ERISA audit, no matter how little work the IQPA anticipates. And don’t be surprised if the IQPA requests some writing in which “management” confirms that no contribution was declared.

If the IRS-preapproved documents allow a user plan sponsor to choose or negate a provision that a divorce undoes a beneficiary designation, does the software for assembling other documents to follow the user’s choices: put a conditional text in, or omit a text from, the summary plan description? put a conditional text in, or omit a text from, the beneficiary-designation form?