Peter Gulia

For purposes such as whether a corrective distribution was made by March 15 or April 15 (or such a date as adjusted under a holidays rule), I’ve heard some providers reason that a distribution is made on the day the instruction is processed such that mutual fund shares are redeemed, or collective trust fund units are withdrawn, as of that day. Do BenefitsLink mavens concur?

For an explanation of some rules about holidays, see https://benefitslink.com/boards/index.php?/topic/69147-6302021-5500-due-today-or-monday-the-18th/#comment-322161. If your client did not file Friday and files today, your BenefitsLink neighbors would welcome information about whether the government’s systems treat today’s filing as timely. As I mentioned in the other discussion, one might imagine the Labor department having set the software to follow a combination of Federal holidays and the tax-law rule, which looks also to a District of Columbia holiday.

How did an applicant obtain fiduciary liability insurance without furnishing at least the most recent Form 5500 report as a part of the application for the insurance?

If the records show an account with neither a name nor a taxpayer identification number, the plan’s administrator might investigate whether that supposed participant ever existed, or whether there is an error in the records. Is the plan a defined-benefit plan, or an individual-account plan? What does the record show as the accrued benefit? If not for the plan’s termination, what otherwise would have been the vested benefit? How strong or weak are the employer’s other records, particularly on employment-law matters? Would finding one or more Form W-2 wage reports that used the “bad” SSN, show a name the employer then assumed was associated with the number? What information describes that the SSN is “incorrect”?

It’s an interesting line of reasoning. And if a person seeking to get a disclaimer recognized were my client, I might consider using that reasoning with other arguments. The minimum-distribution rule includes: “Accordingly, if a person disclaims entitlement to the employee’s benefit, pursuant to a disclaimer that satisfies section 2518 by that September 30 thereby allowing other beneficiaries to receive the benefit in lieu of that person, the disclaiming person is not taken into account in determining the employee’s designated beneficiary.” 26 C.F.R. § 1.401(a)(9)-4/Q&A-4(a) (emphasis added). The rule recognizes the possibility that a plan’s administrator might recognize a disclaimer. But there is no Federal statute (and no rule or regulation interpreting a Federal statute) that requires (whether as an ERISA command, or as a condition of IRC § 401(a) tax treatment) a plan to recognize a disclaimer. (For a governmental plan or a church plan, if not ERISA-governed, one would consider applicable and relevant State laws.) If a plan’s administrator plausibly interpreted the plan to not require recognizing a disclaimer, I doubt a contingent beneficiary’s claim for a benefit, or action for equitable relief on a fiduciary’s breach, would succeed. Many plans’ documents grant the administrator powers to interpret the plan. At least since February 21, 1989, courts defer to a fiduciary’s exercise of that discretion unless an ostensible interpretation is so obviously unreasoned that it is an abuse of discretion. (The result might be different in an interpleader action. Courts sometimes interpret ERISA by filling a perceived gap with Federal common law.) All that observed, I imagine many practitioners would interpret a plan that does not expressly preclude a disclaimer to allow a qualified disclaimer. Such an interpretation would be logically consistent with a common-law idea that a person ought not to be compelled to accept a gift.

CuseFan and Patty, thank you for confirming that many documents are silent, and that many administrators might interpret such a document to not preclude a disclaimer. fmsinc, many retirement plans, including individual-account plans, use the lingo “death benefit” or “death distribution” to distinguish between a distribution to a participant on or after her severance-from-employment or attainment of a specified age (a “retirement distribution”) and a distribution to a beneficiary after the participant’s death. Bob the Swimmer, your memory is good. Many States have laws based on uniform laws or model laws recommended by the Uniform Law Commission. A majority of States have laws based on one or both versions of the Uniform Disclaimer of Property Interests Act. https://www.uniformlaws.org/committees/community-home?CommunityKey=7118ea8a-f4f9-4b0a-be20-d918c59bd650 That current recommended law states: “A person may disclaim the interest or power even if its creator imposed . . . a restriction or limitation on the right to disclaim.” But a State law cannot compel an ERISA-governed plan to accept a disclaimer. ERISA § 404(a)(1)(D), § 514. However, a State law might affect whether a disclaimer is respected for Federal tax purposes, or accepted by a retirement plan’s administrator. Every plan document I write (and even others’ documents I supplement) includes a detailed provision on what makes a disclaimer acceptable.

A typical rollovers-as-business-startups transaction has the retirement plan pay into the corporation an amount in exchange for original-issue shares of the corporation. The typical valuation sets the fair-market value of those shares as the same amount that will be paid in. But if a corporation yet has no real property, no contracts, no money (until the purchase of the shares), no other assets, and no operations, isn’t its fair-market value $0.00?

BenefitsLink neighbors, let’s turn this into a survey. Does your set of plan documents: 1) expressly provide for a disclaimer? 2) say nothing about a disclaimer? 3) expressly preclude a disclaimer? And if a plan’s document is silent, would you interpret it to: a) permit a disclaimer? b) preclude a disclaimer?

Some plans allow a beneficiary to disclaim a death benefit; some plans do not. If a beneficiary makes a legally valid disclaimer that the plan’s administrator accepts, the retirement plan benefit will be distributed (or distributable) as if the disclaimant had died before the participant’s death (or before the creation of the benefit disclaimed). If a beneficiary makes a valid disclaimer that also meets all requirements of Internal Revenue Code § 2518 (see 26 C.F.R. § 25.2518-1, § 25.2518-2), the disclaimed benefit will not be in the disclaimant’s estate for Federal estate tax purposes, and will not be the disclaimant’s income for Federal income tax purposes. Some States have a similar rule for State estate or inheritance tax purposes. To be effective for Federal tax and retirement plan purposes, a disclaimer usually must meet all these requirements: 1. The disclaimer must be made before the beneficiary accepts or uses the disclaimed benefit. 2. The disclaimant must not have received any consideration for the disclaimer. 3. The benefit must pass with no direction by the disclaimant. 4. The disclaimer must be in writing, and must be signed by the disclaimant. 5. The writing must state an irrevocable and unqualified refusal to accept the benefit. 6. The writing must be delivered to the trustee, custodian, insurer, or plan administrator. 7. The writing must be so delivered by nine months after: a. the date of the participant’s death, or b. the date the beneficiary attains age 21, whichever is later. 8. The disclaimer must meet all requirements of applicable or relevant State law. To write a disclaimer (and to get advice about what the plan’s administrator would accept), the beneficiary might consult her estate-planning lawyer.

One more play: Did you read the forms the participant signed (whether in ink, or electronically) when she claimed the hardship distribution? Some recordkeepers design those forms to include the claimant’s assent to her responsibility to resume deferrals.

Following Bri’s theme of looking to the documents, here’s another way to think about the question ldr asks. Imagine a plan’s sponsor has adopted nothing beyond whatever results from using the package of IRS-preapproved and related documents you usually present. The only documents, including plan-administration procedures and a summary plan description, are those that result from your service. Would those documents: (1) make the participant responsible to act affirmatively to resume elective deferrals? (2) make the administrator responsible for resuming the participant’s deferrals? (3) not provide an answer in either direction? And if it’s #3, how would you interpret the plan?

fmsinc, ERISA (the statute itself, not a rule or regulation), in its definitions section includes this: The term “State” includes any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, American Samoa, Guam, Wake Island, and the Canal Zone. . . . . ERISA § 3(10).

For an ERISA-governed individual-account retirement plan, when an alternate payee may get a QDRO distribution goes like this: A plan must allow a QDRO distribution if the participant is entitled to a distribution under the plan. A plan must allow a QDRO distribution on the later of the participant’s age 50 or the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service. ERISA § 206(d)(3)(E), 29 U.S.C. § 1056(d)(3) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true A plan may provide an alternate payee’s QDRO distribution before the plan provides a distribution to the participant. 26 C.F.R. § 1.401(a)-13(g)(3); https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)-13#p-1.401(a)-13(g)(3) Whether an individual-account plan provides a QDRO distribution before the participant’s earliest retirement age is a plan-design choice.

Does anyone know whether the Labor department yet has sent delinquency or deficiency letters on 2020 Form 5500 reports that ought to have been filed by October 15, 2021?

Brian Gilmore, thank you for your always helpful information. Is specifying which health-coverage alternative is the default when the plan’s administrator does not receive an affirmative choice a settlor (non-fiduciary) decision? If so, does anything beyond applicable wage-withholding constraints preclude a sponsor from specifying a default most advantageous to the employer? Even when choosing a default is a fiduciary’s decision, might a fiduciary loyally and prudently choose as the default (subject to applicable wage-withholding constraints) the health-coverage alternative for which QMCSO adverse selection or experience does the least harm to the plan?

While whether and what to file is one’s client’s choice, wouldn’t the mainstream advice be to file amended reports (including changes from -EZ to -SF) for the years affected by the mistakes?

Your description of the facts describes father as the 100% owner. But might his son have become a partner or shareholder (and someone forgot to tell you)?

Since the mid-1980s, many people (including many with no lawyer) have proposed such a sentence in the text of the court’s order. Why? It might help support a plan administrator’s finding that an order “is made pursuant to a State domestic relations law[.]” It might help meet an element on a QDRO administrator’s checklist. (An absence of such a sentence might result in a kick-out to read the order and, in some circumstances, consider context information or relevant law to discern whether the order was made under domestic-relations law.) The sentence is especially helpful if the issuing court’s jurisdiction is not restricted to domestic-relations matters and the order’s text does not mention (as it often might not) the claim that was grounds for the court’s order. Some plans’ administrators might accept without question a judge’s finding that the order was made under domestic-relations law, unless the administrator knows the finding is obviously wrong.

No. The Form 5500 instructions state: “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.” If a Form 5500 return is only a tax return (and not a report under ERISA, or to the Pension Benefit Guaranty Corporation), the Treasury department’s tax-law rule for holidays, 26 C.F.R. § 301.7503-1, applies. That rule recognizes a holiday observed in the District of Columbia. Because Emancipation Day’s April 16 is in 2022 a Saturday, this holiday is observed on Friday, April 15. D.C. Code § 28-2701. But neither Emancipation Day nor Good Friday (nor any other day in April) is a Federal holiday. 5 U.S.C. § 6103(a) http://uscode.house.gov/view.xhtml?req=(title:5%20section:6103%20edition:prelim)%20OR%20(granuleid:USC-prelim-title5-section6103)&f=treesort&edition=prelim&num=0&jumpTo=true Because the EFAST2 software receives returns and reports for three agencies, one might imagine the Labor department having set the software to follow a combination of Federal holidays and the tax-law rule. But absent a Labor department document specifying the relief, my client would want to submit a report on an ERISA-governed plan by April 15.

Not only to keep each plan’s count of participants small but also for many business and plan-administration reasons, an employer might prefer to establish and maintain two or more distinct plans. One kind of distinction is between [PIN 002] “employees who are included in a unit of employees covered by . . . a collective bargaining agreement . . . , if there is evidence that retirement benefits were the subject of good faith bargaining[.]” and [PIN 001] employees not represented by any labor union. See Internal Revenue Code of 1986 (26 U.S.C) § 410(b)(3)(A) http://uscode.house.gov/view.xhtml?req=(title:26%20section:410%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section410)&f=treesort&edition=prelim&num=0&jumpTo=true

If the plan you ask about is Massachusetts Teachers' Retirement System (which also covers some non-teacher workers), here's a starting point: https://mtrs.state.ma.us/

Ananda, is your client considering limiting such a joint-and-survivor annuity to one that is the actuarial equivalent of the plan-provided annuity for the participant’s life alone?

And about anything that might ask the Internal Revenue Service for reasonable-cause relief, consider advising your client about the practical difficulties of getting the IRS even to process, and much harder to get a human to read, anything not submitted by e-filing.

Thank you for your further information. And thank you for your kind offer. So I can seek your help and you can advise Ascensus without either of us revealing his or her client’s confidential information on a website, I sent you an email.

Comparability of illustrations would result if plans’ administrators obey the rule. If two individual-account retirement plans (neither of which allows an annuity payout) furnish the rule’s required lifetime-income illustrations for: the same last day of the statement period, the same account balance, the same age for the participant, and neither participant is older than 67, the illustrations would show the same amounts if both plans’ administrators completely and accurately follow the rule. This is so because a plan’s administrator lacks discretion in setting assumptions for the required illustration. The rule sets those assumptions. The assumed interest rate is “the 10-year constant maturity Treasury securities yield rate for the first business day of the last month of the period to which the benefit statement relates[.]” For example, an illustration generated from a statement for the quarter-year ending December 30, 2022 would assume for the interest rate the 10-year CMT yield on December 1, 2022. 29 C.F.R. § 2520.105-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.105-3 Explanation https://www.govinfo.gov/content/pkg/FR-2020-09-18/pdf/2020-17476.pdf Some practitioners guess the first few years’ illustrations likely will involve several kinds of errors or other failures. That can happen with any new rule. But Congress decided it would be worthwhile to try something.