Peter Gulia

Belgarath, thank you. Just curious, if either an adoption agreement or an appendix (or some call it an addendum) invites a user-specific provision, is there some legal, procedural, or document-specific difference between such an appendix and an adoption agreement? Neighbors, has anyone seen an IRS-preapproved document in which a divorce revokes a beneficiary designation but the user is not offered a check-the-box or fill-in line to vary that provision?

If a document provider missed a point like this when designing a document for governmental plans’ use, one wonders what else the provider missed? (Or if the IRS required this, one wonders what other inapt provisions the IRS required?) Does the document state other provisions unnecessary for a desired tax treatment? Does the document state provisions contrary to the user’s State law? Does the document state provisions the user does not intend? How much professional time would it take to find, and negate, the provisions the user does not intend?

If BenefitsLink neighbors can help with an informal survey about IRS-preapproved documents: Is a provision that divorce revokes a beneficiary designation (to the extent it names the participant’s former spouse) in the basic plan document? Is a provision that divorce does not revoke a beneficiary designation (even if it names the participant’s former spouse) in the basic plan document? Does the adoption-agreement form display a choice about whether a divorce revokes a beneficiary designation? If a few answer, even on just one document, until we’ve described the most widely used documents, we’ll have a useful sense about how plans’ documents handle this point.

Form 990 Part VII (Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors) includes deferred compensation. For an amount not yet paid, other compensation includes amounts accrued under a deferred compensation plan. “Deferred compensation to be reported in column (F) includes compensation that is earned or accrued in one year and deferred to a future year, whether or not funded, vested, qualified or nonqualified, or subject to a substantial risk of forfeiture.” https://www.irs.gov/pub/irs-pdf/i990.pdf Further, the organization’s accrual-basis financial statements will, somehow, show the deferred compensation obligation.

We don’t know why a particular IRS-preapproved document includes that text. But if using the document might state (or even purport to state) a provision a plan sponsor does not intend, the plan sponsor might reevaluate whether it is wise to use the document.

Do we assume both plans’ benefit-accrual year, limitation year, nondiscrimination year, and other measurement periods all are calendar years? What is the employer’s or service recipient’s tax-accounting year? Are you confident the worker is an employee? Might she be a shareholder, partner, or member who is a deemed employee? Might she be a statutory employee? Do any circumstances suggest the payment or a portion of it is a disguised dividend? Is the pay unconditional? Does the worker keep the whole pay even if she does not perform services for the whole of the anticipated period? Perhaps what leads you to think twice is this phrase in a rule about what counts in § 415 compensation: “amounts received . . . for personal services actually rendered in the course of employment[.]” 26 C.F.R. § 1.415(c)-2(b)(1) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-2#p-1.415(c)-2(b)(1). But might services rendered include availability? If the payee does not perform her services through June 2023, does she have an obligation to return some amount to the payer? If there is no such obligation, was the amount paid for services, including availability? I don’t know an answer to that question; but it seems likely at least one BenefitsLink maven knows.

Yes. My added point is that, even if a trustee’s resignation or removal took effect, a custodian or other service provider might not be responsible for a harm that results from the provider’s good-faith reliance on the apparent authority of someone the provider does not yet know is no longer a trustee or other fiduciary.

About what’s required: “Every employee benefit plan shall . . . provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan[.]” ERISA § 402(b)(3), unofficially compiled as 29 U.S.C. § 1102(b)(3). Yet, the Supreme Court holds that stating as little as “[t]he Company” may amend the plan is enough to meet ERISA § 402(b)(3)’s two requirements—that a plan “provide a procedure for amending [the] plan, and [a procedure] for identifying the persons who have authority to amend the plan[.]”). Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 18 Empl. Benefits Cas. (BL) 2841 (Mar. 6, 1995). For a restatement or other amendment, one looks to the governing documents (as they exist just before the restatement one is about to adopt) to find what the documents require for an amendment of them to be effective. An IRS-preapproved document likely allows almost anything as an amendment. About “each partner with their own corp.”, check whether each corporation is a participating employer or a participant. (For situations in which the corporations comprise the partners of the partnership, either configuration is possible.) If a corporation is a participating employer, check that it signs whatever the documents require for an organization to join as a participating employer. Likewise, if the adoption agreement doesn’t name the participating employers, one might add something to show the plan sponsor’s assent. Whether to do something more than what ERISA, the Internal Revenue Code, and the governing documents require is up to the organizations’ business judgment.

CuseFan, thank you for the observations about work related to a cycle, and about plan terminations. C.B. Zeller, thank you for the reminder about a return preparer. https://www.irs.gov/instructions/i2848#:~:text=An unenrolled return preparer is,or regulations) to sign the

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.