Peter Gulia

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?

As I mentioned above, some retirement plans would require an after-marriage consent. If a plan includes a provision ERISA § 205 requires (or a similar provision to get IRC § 401(a) tax-qualified treatment), a premarital agreement cannot be a spouse’s consent to waive those rights. Usually, a spouse’s consent must be signed by the spouse, and a person making a premarital agreement is not yet a spouse. See ERISA § 205, 29 U.S.C. § 1055; 26 C.F.R. § 1.401(a)-20, Q&A-28. See, for example: Appeals courts Hurwitz v. Sher, 982 F.2d 778 (2d Cir. 1992); Hagwood v. Newton, 282 F.3d 285 (4th Cir. 2002); Greenebaum Doll & McDonald PLLC v. Sandler, 2007 F. App’x 0822N (6th Cir. 2007); Howard v. Branham & Baker Coal Co., 968 F.2d 1214 (6th Cir. 1992); Pedro Enters. Inc. v. Perdue, 998 F.2d 491 (7th Cir. 1993); National Auto Dealers & Assoc. Ret. Trust v. Arbeitman, 89 F.3d 496 (8th Cir. 1996); Trial courts Robins v. Geisel, 666 F. Supp. 2d 463, 467–468 (D.N.J. 2009); John Deere Deferred Sav. Plan for Wage Employees v. Estate of Propst, No. 06 Civ. 1235, 42 Empl. Benefits Cas. (BL) 2076 (E.D. Wis. 2007); Davis v. Adelphia Communications Corp., 475 F. Supp. 2d 600, 605-606 (W.D. Va. 2007); Veolia Water Ret. Sav. Plan v. Smith, 2007 U.S. Dist. LEXIS 9754, 2007 WL 496425 (W.D. Va. Feb. 12, 2007); Neidich v. Estate of Neidich, 222 F. Supp. 2d 357 (S.D.N.Y. 2002); Ford Motor Co. v. Ross, 129 F. Supp. 2d 1070, 1073–1074 (E.D. Mich. 2001); Callahan v. Hutsell, Callahan & Buchino, P.S.C. Revised Profit Sharing Plan, 813 F. Supp. 541 (W.D. Ky. 1992), vacated and remanded on other grounds, 14 F.3d 600 (6th Cir. 1993); Nellis v. Boeing, No. 91 Civ. 1011, 15 Empl. Benefits Cas. (BL) 1651, 18 Fam. Law Rep. (BL) 1374 (D. Kan. 1992); Zinn v. Donaldson Co., 799 F. Supp. 69 (D. Minn. 1992).

Senators Durbin, Smith, and Warren implore Fidelity, a non-fiduciary, not to allow retirement plans’ fiduciaries even to consider whether to allow an account that invests in bitcoin as a possible investment some participants might choose for a portion (but no more than 20%) of an individual’s account. https://www.durbin.senate.gov/imo/media/doc/durbin_bitcoin_72622.pdf The letter’s opening sentence asks “why Fidelity . . . would allow plan sponsors the ability to offer plan participants [a choice about whether to invest in] Bitcoin.” Not openly stated is a worry that some plans’ fiduciaries’ decision-making—about whether a participant should be allowed a choice—might be imprudent. If one reads the letter as an effort to persuade Fidelity to change its business decision, it asks that Fidelity act as a super-fiduciary, preventing plans’ fiduciaries from making an imprudent decision by not presenting a choice to them. BenefitsLink neighbors, what do you think: Should a retirement-services provider sometimes recognize that many customers lack enough expertise to evaluate prudently everything that might be offered, and so limit what the provider offers?

The Form 5500 Instructions include this: If the filing due date falls on a Saturday, Sunday, or Federal holiday, the return/report may be filed on the next day that is not a Saturday, Sunday, or Federal holiday. https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2021-instructions.pdf

C.B. Zeller, thank you for this pointer about top-heavy. (I'm glad top-heavy is a non-issue for plans I advise about.)

The 75 days might be a reasonable expression that some might defend as slightly narrower than 2½ months. 365 / 12 = 30.4167 (average number of days in a month) 30.4167 x 2.5 = 76.0418 days The tax-law rule seems to allow a plan to count some recognized kinds of post-severance compensation, even if paid later than 2½ months after the severance, if it “is paid by . . . the end of the limitation year that includes the date of severance from employment with the employer maintaining the plan.” 26 C.F.R. § 1.415(c)-2(e)(3)(i) 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(e)(3)(i) (If the plan’s limitation year is the calendar year and the plan provides as much time as the tax-law rule allows, a severance before October 17 might get a tolerance more than 75 days. A severance in the first few days of January might get around 360 days.) Is the TPA’s software coder writing her code to allow also the limitation-year alternative?

I’m curious about what BenefitsLink mavens this about this: Is it simpler to make employees eligible for elective deferrals (but not to share in any allocation of nonelective or matching contributions) with no service condition? What are the advantages and disadvantages of such a design? If an employee is eligible for elective deferrals with no service condition (and not because of § 401(k)(2)(D)(ii)), does that excuse the plan from providing the unusual vesting described in § 401(k)(15)(B)(iii)?

An individual-account plan is ERISA title I’s lingo for the kind of plan that the Internal Revenue Code calls a defined-contribution plan. ERISA § 3(34) [29 U.S.C. § 1002(34)]: The term “individual account plan” or “defined contribution plan” means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant’s account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant’s account. ERISA § 105’s command for a lifetime-income illustration applies without regard to whether a plan provides or omits participant-directed investment.

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?