Peter Gulia

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.

Does the plan's governing document include a definition for day of service? Does that definition count all days someone is an employee, or only days the employee worked? How do the plan's provisions apply to someone who works on only two days in each week? Would the plan's definitions and provisions always result in measurements like your examples? Even if the governing document's provisions are complete and clear, is it possible someone in the sponsor/employer imagines that "days of service" means something different than what the plan provides? Is it possible the sponsor prefers a term that relates to a record in the employer's human-resources-management or payroll systems?

Considering today’s information, my inferences are: Many non-ERISA plans involve only one owner. A participant who is the owner is unlikely to assert a fiduciary-breach claim against herself. A participant who is the owner’s spouse is unlikely to assert a fiduciary-breach claim against the owner/fiduciary (if the marriage remains content). Some non-ERISA plans involve several owners. Even if a participant/owner was not involved in the fiduciaries’ decision-making, such an owner is unlikely to assert a fiduciary-breach claim against her partner (unless there is another reason for discontent). At least non-tax fiduciary points are beyond a TPA’s usual work. Even if understanding differences between ERISA and non-ERISA fiduciary law might bear some academic interest, there’s not much here for practitioners. Thank you, friends, for your good help.

Consider asking your client this rhetorical question: If the employer declared a nonelective contribution, paid it into the plan’s trust, and some portion of that contribution were allocable to a participant who had delivered no investment direction (and worse, might persist in furnishing no direction), how would the plan’s administrator and trustee direct the custodian to invest the contribution’s portion allocated to that participant’s account? And how much responsibility would each fiduciary bear for that decision-making? Also, there might be a default investment, even if it is not directly expressed in the plan’s governing documents. A broker-dealer’s securities account often has account terms that provide how to invest an amount for which the broker-dealer has received no other instruction.

It would be inappropriate to attempt even a general answer without seeing much more information, including information that might be improper or unwise to communicate without a lawyer-client relationship. If your friend the ERISA lawyer wants my suggestions about how to sort the issues, that person is welcome to call me. Lawyers’ professional-conduct rules allow ways for a lawyer to reveal her client’s confidential information to get another lawyer’s advice about the client’s matter or the lawyer’s conduct. I often help as a lawyer’s lawyer.

Thank you for this great help. While there is a filter for plans coded as including self-employed individuals, I see nothing to capture a plan with only self-employed individuals. And while there are many employer and plan codes, I see none about service codes. But thank you for your smart thinking.

Another curiosity, how many of these plans have an investment adviser, and how many lack an investment adviser?

Bill Presson, thank you for your helpful information. Of my clients, there is no small-business plan sponsor/administrator I advise, and even my indirect experience from advising law, accounting, and actuarial firms and retirement-services providers is rather limited. That’s why I sometimes ask BenefitsLink neighbors to share experiences. A mid-size law firm I advise asked for my advice about a non-ERISA plan’s trust and investment arrangements. That got me wondering about how often TPAs work with only-owners (not just one owner) plans. And about what differences one might face because State law, rather than ERISA’s title I, governs a plan. For some points, differences are slight because meeting Internal Revenue Code conditions for § 401(a) treatment results in many provisions ERISA §§ 201-210 would require or permit. But for some points about participant-directed investment, investment managers, investment advisers, co-fiduciary responsibility, trusts, prohibited transactions, and other fiduciary law issues, there can be meaningful differences between ERISA and a State’s law. Does this affect a TPA’s work? Or are the fiduciary points beyond a TPA’s usual work? I imagine no fiduciary issue is raised for a plan with only one owner/participant. But what about a plan for several partners, with not all of them involved in the fiduciary decision-making?

TPApril, when you say there is no QDIA, do you mean there is no default investment alternative at all, or that there is a default but it is not a qualified default?

BG5150, thank you for your information, which helps me. In your work, do you encounter issues or questions that come up because ERISA’s title I does not govern the plan? Or because State law governs the plan?

And your firm might want your lawyer’s advice about when and how to end your services while managing risks of your exposures to, if not liabilities, at least defense and other expenses.

Yes, I am asking about owners-only plans. How often does it happen? Is an owners-only plan a regular aspect of a TPA's practice?

Does the plan provide any contribution beyond a participant's elective-deferral contribution or rollover contribution?

Is the issuer of the employer securities a C corporation or an S corporation? Does the issuer's certificate of incorporation restrict stock ownership to employees? What does the plan provide about whether a distribution is, to the extent an account has employer securities, a delivery of the employer securities (and not a payment of money)?

Leaving aside your question about a lag between a discontinuance or termination date and the plan’s final distribution: Following your idea that the plan’s documents “must be fully up to date” when the plan terminates, wouldn’t at least some provisions in a cycle 3 restatement be needed for the plan’s termination? Wouldn’t the plan’s sponsor want the cycle 3 restatement and whichever further amendments are needed to make the user’s document up-to-date for the termination?

Recently, I was asked for advice on State-law fiduciary issues about a retirement plan. The plan’s sponsor, a profit-seeking limited-liability company (treated as a partnership for Federal income tax purposes), has no employee, and no intent to hire an employee. Everyone who works in the business is an LLC member. And yes, I checked that the LLC interests are real, and not a sham to evade treating a worker as an employee. How often does this happen—that every worker is a partner, an LLC member treated as a partner, or otherwise an owner treated as not an employee? Does it happen often enough that a service provider would plan for these situations?

JM, thank you for pointing us to California’s Family Code § 1101. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=FAM&sectionNum=1101 That California or another of the States with a community-property regime (or a State with provisions for dispositions of community property acquired under another State’s regime) has such a statute, or even that the statute is classified under California’s Family Code or another State’s title for domestic-relations law, might support, but does not control, whether such an order always is a domestic-relations order within the meaning of ERISA § 206(d)(3)(B)(ii). That question involves interpreting Federal law. For those who don’t disdain legislative history as sometimes a possible indicator of what a legislature meant, one might consider Congress’s purposes for the Retirement Equity Act of 1984, including its portions that amended ERISA sections 205 and 206. And even an interpreter who considers only an enacted statute would interpret the whole statute, including (at least) ERISA sections 2, 3, 205, 206, 404, and 514. Even ignoring the intent of the participant, the nonparticipant spouse, and the court that issued the order, and without failing to accept the State court’s factual findings and application of State law, a plan’s administrator could decide that a reordering of the spouses’ property unrelated to a divorce or separation action is not a domestic-relations order. Or an administrator could decide that it is a DRO and, if other conditions are met, a QDRO. Either way, a court reviewing an administrator’s decision should defer to the administrator’s discretionary decision-making unless it was so lacking in reasoning that it was not an exercise of the plan-granted discretion.

I hope BenefitsLink neighbors will help me by responding to this survey about methods and customs in delivering documents for a managed-account service. Assume an individual-account retirement plan that provides participant-directed investment. Assume the plan’s top fiduciary approves a registered investment adviser’s offer of its managed-account service. The service is provided only to a participant (or other investment-directing individual) who agrees to the extra service, and agrees that the investment adviser’s fee is charged against her plan account. Does the adviser deliver its investment-advisory agreement: 1) as a paper document? 2) as a pdf attached to an email? 3) by showing a hyperlink that points to a webpage on which the agreement is hosted? 4) by some other means, and if so what? Does the participant/advisee sign the agreement: 1) with ink on paper? 2) using an electronic-signature service? 3) by clicking an “I approve” button in the plan’s or the adviser’s website? 4) by some other means, and if so what? When the adviser later must deliver a required disclosure, is it: 1) paper sent by US mail? 2) a pdf attached to an email sent to each participant/advisee? 3) a notice-and-access email with a pointer to the website on which the document is hosted? 4) notice in a quarterly statement? 5) by some other means, and if so what? Thank you for your good help and practical observations.

Among other possibilities: If a participant dies, what distribution might a surviving spouse or other designated beneficiary be entitled to? Which valuation would the plan’s administrator use to determine the beneficiary’s right or the plan’s obligation? If a participant quits her job after the intra-year valuation is available (and before the close of the year), which valuation would determine such a participant’s after-severance distribution?