Peter Gulia

There is no Labor department rule. In ERISA Advisory Opinions, PWBA (now EBSA) has suggested some distinctions between an amendment for a provision a plan sponsor adds or changes as an element of one’s plan design, and an amendment made to state provisions needed to meet conditions for Internal Revenue Code § 401(a) or § 403(b) treatment. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2001-01a https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/settlor-expense-guidance An ERISA Advisory Opinion may be relied on only by the particular requester, and only to the extent of the facts the requester specified. Some fiduciaries endeavor to estimate the portion of a restatement fee one treats as attributable to plan administration (which so might be paid or reimbursed from plan assets). If the only expense is a recordkeeper’s or TPA’s fixed fee that does not vary with the user’s choices for the plan’s provisions, a fiduciary likely must estimate the relative portions between settlor expense and plan-administration expense. Or if a plan sponsor asks for nothing new and merely adopts a restatement solely as needed to maintain tax-qualified treatment, a fiduciary might reason that a whole fee, if reasonable and prudently incurred, is plan-administration expense. Further, consider that some service providers by contract set restrictions on what expenses may be paid from a plan-expenses account the service provider controls or processes. Some do not allow a payment or reimbursement of a plan-documents fee from a plan-expenses account. As always, a plan fiduciary should get its lawyer’s advice.

David Rigby reminds us that a disclaimer might have no practical effect if the disclaimant has no benefit to disclaim. ERISA § 205(f) permits a plan to omit a qualified joint and survivor annuity or a qualified preretirement survivor annuity if the participant and the spouse had not been married (or treated as married) throughout the one-year period ending on the participant’s annuity starting date or death. I read § 205(f)’s variation as mattering only if the plan otherwise would provide a QJSA or QPSA. But many individual-account plans lack a survivor annuity, and instead provide a surviving spouse the whole of the participant’s nonforfeitable accrued benefit. See ERISA § 205(b)(1)(C)(i). The discussion above considers what consequences might result if a surviving spouse has a benefit but disclaims it in a disclaimer the plan’s administrator accepts.

Yes, a TPA (if it does not add what retirement-services people call a § 3(16) service) typically has service arrangements designed to keep the TPA a non-fiduciary contractor. But PamR’s originating post states: “We are signed on as a Fiduciary on the Investment Advisory side[.]”

EBP, thank you for this wonderfully helpful information.

Thank you for your quick help. And thank you for mentioning some other points. It seems Martha, still a 20-something, might need to maintain distinct retirement-savings accumulations under two or more separate plans (XYZ has commonly controlled organizations in several nations) for about three decades or more.

XYZ US and XYZ UK are commonly controlled business organizations. XYZ US maintains a 401(k) plan. XYZ UK is not a participating employer under that plan. Martha ends her employment with XYZ US on June 30, and becomes XYZ UK’s employee on July 1. If employment by a business organization commonly controlled with the 401(k) plan’s sponsor otherwise would mean a change is not a severance-from-employment, is there anything that varies such a rule if the next employing organization is outside the USA?

While plans vary (and many are ambiguous), a plan’s administrator (using its powers to construe and interpret the plan) might treat a surviving spouse’s disclaimer as removing the spouse from those of the plan’s provisions that require treating a spouse as a participant’s beneficiary. If so, and especially for a beneficiary designation made before its maker had a spouse, the effect might be to recognize the participant’s designation of a (non-spouse) beneficiary. Depending on what beneficiary designation a participant made and which persons might become direct or ultimate takers under a plan’s provision for a default beneficiary, the disclaimer reasoning and the default reasoning might result in the same or different takers.

Ed Snyder, thanks.

Bri, thanks. Anyone with a different outlook? Because everything in a preapproved document states provisions that were already in effect years ago, I'm not seeing a reason for or against any imaginable fill-in for the restatement date. Or is there some point about how to use these documents that I'm too dense to understand?

Just to be clear, I did not suggest a course of action, in either (or any) direction. My only suggestion was a way to think about the problem PamR described, so one might have some background to prepare to seek a lawyer’s advice. I’m widely published for the idea that an investment adviser, if it is an ERISA plan’s fiduciary, should be mindful of its co-fiduciary responsibilities.

An IRS-preapproved plan’s adoption agreement has a fill-in for the effective date of the cycle 3 restatement. (But that date does not apply to a provision for which the basic plan document, the adoption agreement, an “addendum”, or something else in the IRS-preapproved documents specifies a special effective date.) Imagine the user’s plan has for decades used the calendar year for the plan year, limitation year, and other provisions. If in July 2022 a user specifies a date on the fill-in for the general restatement date, what would you choose: July 31, 2022? July 1, 2022? January 1, 2022? Something else? What is your reasoning for the restatement date you choose?

Does any provision of the State court’s domestic-relations order make the former spouse a deemed spouse for the plan’s survivor-annuity provisions?

With its lawyer’s advice, a plan’s administrator might consider: Do the plan’s governing documents recognize a disclaimer? Do the documents preclude a disclaimer? Are the documents silent on whether a disclaimer is recognized or precluded? If the documents are silent and the administrator has discretionary powers to interpret the plan, the administrator would prudently consider the plan’s purposes and circumstances to discern whether to recognize a disclaimer. If the administrator decides to recognize a disclaimer, it might require a disclaimer that (at least) meets the conditions of Internal Revenue Code § 2518. See IRS Gen. Couns. Mem. 39,858 (Sept. 9, 1991); Ltr. Ruls. 92-26-058, 90-37-048, 89-22-036. If a beneficiary makes a valid disclaimer that the retirement plan’s administrator accepts, the plan benefit’s will be distributed (or distributable) as if the beneficiary/disclaimant had died before the participant’s death (or before the creation of the benefit disclaimed). See generally Unif. Disclaimer of Property Interests Act (1999, amended 2006), 8A U.L.A. 281–331 (2014) & Supp. (2021); Unif. Disclaimer of Property Interests Act (1978), 8A U.L.A. 333–349 (2014). Also, if a beneficiary makes and delivers, within nine months of the participant’s death, a qualified disclaimer the retirement plan accepts, the disclaimant is treated as not a beneficiary for tax-law minimum-distribution conditions. Prop. Treas. Reg. § 1.401(a)(9)-4(c)(2)(ii). An administrator should read carefully the plan’s governing documents and the particular beneficiary designation to discern the effects of them and whether the surviving spouse’s disclaimer “revives” a beneficiary designation that otherwise might have been precluded by the plan’s provision for a surviving spouse.

In my recent experiences, people in retirement-services providers have become so accustomed to so many things that call for 30 days’ notice that some of those workers reflexively presume any change calls for some notice. Usually, they back off if the sponsor/administrator points out the absence of a statute or rule that requires notice. But a service provider’s agreement might not obligate the service provider to process something as quickly as relevant law allows and the sponsor/administrator might prefer.

Does the plan include a provision that allows a joint-and-survivor annuity with someone who is not the participant’s spouse? If the participant had no spouse (and no QDRO requires the plan to treat a former spouse as a surviving spouse), a qualified joint and survivor annuity is “a single annuity for the life of the participant.” What periodic amounts would the plan have paid the participant had the plan’s administrator known there was no spouse?

Without stating any conclusion or point of view, here’s another mode for analysis: Even if you consider the possibility that the plan’s administrator furnished proper notices to everyone eligible and not one did not opt out, the facts you describe suggest circumstances in which a prudent fiduciary might not close its eyes to the obvious, and, absent the other fiduciary’s written assurance of facts that would show no breach, might further investigate the facts. The investment adviser should want its lawyer’s advice about how to evaluate the situation to consider what to do next. With your lawyer’s advice, consider: Of the TPA and the investment adviser, is one of those companies or operations a fiduciary? If the services are provided by one company, would the law treat one operation’s knowledge as the company’s knowledge? Or if the services are provided by companies that are commonly controlled (and perhaps have some workers or executives in common), might the law impute one company’s knowledge to another? Even if the governing documents and their ERISA §§ 402-405 allocations make clear that a fiduciary has no direct responsibility for collecting contributions, every fiduciary has co-fiduciary responsibility. Even if a fiduciary does nothing to enable another fiduciary’s breach, knowledge imposes a responsibility: ERISA § 405 [29 U.S.C. § 1105] Liability for breach of co-fiduciary (a) Circumstances giving rise to liability In addition to any liability which he may have under any other provisions of this part {ERISA §§ 401-414}, a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan in the following circumstances: (3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach. Mere resignation is, at least in the Labor department’s view, not enough effort to remedy another fiduciary’s breach. Further, a fiduciary’s resignation (without other steps) might be imprudent, especially if the resignation would increase a breaching fiduciary’s control or make it likelier that no one calls attention to the breach. One unpublished trial-court decision included a finding of fact, without analysis, that a fiduciary made reasonable efforts to remedy another fiduciary’s breach by promptly filing a Federal court proceeding against the breaching fiduciaries. In the range between those points, there is no published Federal court decision that interprets in meaningful detail what steps are enough to prove an observing fiduciary used “reasonable efforts” to remedy another fiduciary’s breach. Is informing the Labor department enough? (If there is a co-fiduciary responsibility, doing nothing is not enough.) If there was a theft and it becomes detected, a plaintiff might pursue everyone that has collectible assets. Yet, many service providers dislike blowing the whistle on a client or customer. So, even if there is a co-fiduciary responsibility, the TPA and investment adviser might want their lawyer’s evaluation of the size of potential liability exposure and how probable or improbable it is that the adviser will become liable.

This guy who began work with the Retirement Equity Act of 1984 remembers the pilot episode of television series L.A. Law. Norman Chaney, one of the firm’s founding partners—the one who did tax, dies at his desk, with his hand in a ring binder. That episode aired about five weeks before the enactment of the Tax Reform Act of 1986, Congress’s Act that rewrote and renamed the Internal Revenue Code. Later, CCH made several before-1986 publications. I still use my CCH Pension Plan Guide bound volumes for “Pre-1986 IRS Revenue Rulings” and “Pre-1986 IRS Tax Releases Other Than Revenue Rulings”.

A business owner, with his or her lawyer’s advice, might consider: Did the bank present a negligent communication? If so, did the communication induce a purported signature on a writing the purported maker did not intend to adopt? Absent a plan document, did the ostensible plan never exist? If the plan never existed, the ostensible trust had no purpose. The trustee would return all amounts. If the plan and trust never existed, the employer or service recipient and the employee or self-employed individual would file or amend all tax returns and tax-information reports to report the correct facts.

From context, I guess the plan you ask about is an individual-account (defined-contribution) plan. If a fiduciary (such as the employer in its role as the plan’s administrator or trustee) pays an amount “to restore losses to a plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under title I of the Employee Retirement Income Security Act of 1974 . . . or under other applicable federal or state law,” such a payment is not an annual addition for Internal Revenue Code § 415. For the details and conditions, see 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C). If there is no risk of liability, an employer could pay the plan an amount that adjusts the stable-value contract’s values, but would do so within annual-additions limits, and within coverage and nondiscrimination constraints. Either way, the employer pays the restoration or other adjustment into the employer’s retirement plan. When the stable-value insurer or bank gets the money, it and the recordkeeper adjust the individual accounts’ balances before the plan pays its final distributions (whether rolled to an IRA or not).

Or an employee-benefits lawyer who is not only knowledgeable but also experienced with these and other practical problems seeks to involve a few people to help get more carefully considered decision-making, but is told her client won’t pay for that time.

To support the 60-day bridge loan the participant seeks, shouldn’t we assume the steps are: 1. Claim a distribution from the employer’s plan. Do not instruct a direct rollover. 2. For 50+ days, use the money. 3. Before the 60 days for an indirect rollover runs out, complete a rollover contribution into an IRA. 4. If the individual prefers an employer’s plan over an IRA, do a rollover contribution (preferably, a direct rollover) from the IRA into the employer’s plan.

Am I right in thinking IRC § 408(d)(3)(B)’s once-in-the-one-year-period rule applies for IRA-to-IRA rollovers, but does not constrain the frequency of rollover contributions into a § 401(a) plan? And am I right in thinking IRC § 402(c) does not impose such a once-a-year constraint for a rollover contribution into a § 401(a) plan?

For those called to consider tax reporting about Lifestyle Spending Accounts: There might be some difference between what an individual has constructively received (and should put in her Federal income tax return), and how much the employer/payer knows and must or should tax-report. Could an employer have “reasonable cause” to report one or more boxes of Form W-2 wages counting only the LSA amounts paid? Might an employer consider its particular arrangement’s terms and an employee’s circumstances and reason that the W-2 reporter might not know a particular employee has constructive receipt of an LSA-available amount? Some imagine an arrangement with a wide array of reimbursable items might result in every employee having constructive receipt up to the LSA’s maximum. But could there be an employee who, in the year a W-2 reports on, found no product or service on which to seek a payment or reimbursement? And until a particular employee claims her reimbursement or payment, how much does the employer know? Depending on the LSA’s terms and other surrounding facts and circumstances, is it plausible, or at least arguable, that a particular employee (who is the subject of a W-2 report) neither paid nor incurred an expense for which the LSA provides a reimbursement or a payable, and that some portion of an LSA limit or sublimit was not “available” to the particular employee? I have not considered the merits or weaknesses of any such reasoning. An employer might want its lawyer’s written advice, and might want it to be no less complete and careful than the practices described in 31 C.F.R. § 10.33.

If the plan is ERISA-governed, an order does not fail to be a DRO or a QDRO (as ERISA § 206(d)(3) defines those terms) because of when the court made the order. (An order might fail to be a QDRO based on how what the order would provide relates to facts and circumstances that might have changed since the court made the order.) If the plan is a governmental plan, a church plan (that did not elect to be ERISA-governed), or otherwise not ERISA-governed, read the plan’s governing documents. Some plans of those kinds set detailed conditions for an order the plan recognizes, and those conditions might be stricter than ERISA § 206(d)(3) and Internal Revenue Code § 414(p).

After you read Luke Bailey’s good guidance, including the § 1.457-4 and § 1.457-5 rules: You asked whether “this is a code[-]specific interpretation and not something specific to plan provisions[.]” Internal Revenue Code of 1986 § 457(b)-(e) and the Treasury department’s rules to interpret IRC § 457 describe outer limits on what a plan may provide within Federal income tax treatment as a § 457(b) eligible deferred compensation plan. In my 38 years’ experience with governmental plans in all 50+ States, many (but not all) State or local government employers allow payroll deferrals as much as Federal tax law permits. But some plans do not allow § 457(b)(3) deferrals, and some plans allow some § 457(b)(3) deferrals but with more restraint than Federal tax law requires. While this was uncommon in the 1970s, 1980s, and 1990s, it has happened a little more often after the Economic Growth and Tax Reconciliation Relief Act of 2001 led to a somewhat wider array of service providers for some kinds of governmental plans. Also, an employer, the participant, or a service provider might evaluate exactly which three of the participant’s tax years are her § 457(b)(3) years. A carefully written plan might allow a participant maximum flexibility to choose her § 457(b)(3) years. But on this point many governmental § 457(b)(3) plans’ documents state provisions more restrictive or burdensome than is needed to make a plan tax-eligible. Among other points, plans differ considerably about how a participant elects her hypothetical normal retirement age that determines which years are her § 457(b)(3) years. MS, depending on your client’s role and other aspects of the context and particular circumstances, consider whether you should or need not read one or more plan documents of City A, one or more plan documents of City B, and one or more plan documents of State X.