Peter Gulia

You might want to buy (inexpensively) Gary Lesser’s and Larry Starr’s Life Insurance Answer Book: For Qualified Plans and Estate Planning. Although the book ended with its third edition (2002), it explains the law you need. A web search on “Life Insurance Answer Book” shows, on the first page of results, used-book sources. But look carefully at which edition.

Yes, I understand the problem. It’s a result of employers expecting to get all plan documents from nonlawyer service providers. And of a documents regime not built for promptness. If you can produce your SECURE/CARES amendment for a fee your client doesn’t choke on, that’s likely ten times more efficient than asking the recordkeeper.

If the plan is an individual-account (defined-contribution) plan: If something must or may be distributed based on a beneficiary’s life expectancy: Could the plan provide for each beneficiary’s entitlement to be a separate share, so each beneficiary’s minimum is measured by his or her life expectancy?

I have no experience that would help answer your question. But your description of what a Fidelity rep said seems consistent with what Fidelity’s website (at least a subpage for small-business retirement plans) says: https://www.fidelity.com/retirement-ira/small-business/termination-guide “Am I going to receive additional amendments for the CARES and SECURE Acts? Any applicable amendments related to the CARES and SECURE Acts will be included in the next plan restatement cycle in approximately 6 years. In the interim you will receive good faith amendments for the preapproved plans for both pieces of legislation. These amendments will be distributed in accordance with the applicable amendment schedule.” And Fidelity’s “Summary of Changes” to accompany its plan and trust documents states: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/retirement/dcrp-summary-of-changes.pdf “Good-Faith Amendments: Legislative and regulatory changes since calendar year 2017 that impact your Defined Contribution Retirement Plan will be adopted as part of the next six-year restatement cycle. In the interim you may receive or be asked to complete good-faith amendments for your plan. You will be receiving certain good-faith amendments for both the SECURE and CARES Act.” One imagines Fidelity’s service agreement doesn’t obligate Fidelity to anything. Even if a retirement-services provider had its interim or good-faith amendment at the ready, such a text would have no IRS opinion letter and no assurance from the provider.

Has anyone from ftwilliam.com furnished an interpretation about what the adoption-agreement choice might mean?

An order to pay a person other than an alternate payee is not a QDRO. But a QDRO may direct payment to an alternate payee in an amount that reflects attorneys’ (or a guardian’s) fees within the child support ordered. See Trustees of Directors Guild of Am. Producer Pension Benefits Plans v. Tise, 234 F.3d 415 (9th Cir. 2000), amended by 255 F.3d 661 (9th Cir. 2001); see also Orlowski v. Orlowski, 459 N.J. Super. 95, 208 A.3d 1 (N.J. Super. 2019) (including in an amount awarded to a former spouse alternate payee an amount for the portions of attorneys’ and accountants’ fees allocable to their work in enforcing rights that could themselves be a subject of a QDRO). The smarter lawyers figure this out before one sends you a draft order. Others learn how to do it after you say an order that calls for a payment to a person other than an alternate payee would not be approved.

If the plan’s provision is no more restrictive than the tax-law rule: One hopes the claim form has the claimant state, under penalties of perjury and other false-statement crimes, that the hardship distribution is for: “Costs directly related to the purchase of a principal residence for the [participant][.]” 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(2) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(2) I read the phrase’s syntax to set a condition that the property bought, or to be bought, be or become the participant’s principal residence. I do not read it to require that the participant be or become an owner of that property. Others might interpret the rule differently. I do not give advice to anyone.

For the micro market (in the 1990s), I saw fidelity-bond insurance contracts that stated the coverage limit not by an amount but by a formula. For example: The Coverage Limit is the lesser of $500,000 or 10 percent of the funds the Insured handled, but no less than $1,000. Is it still done that way?

The American Institute of Certified Public Accountants’ Auditing Standards Boards’ Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, Statement on Auditing Standards No. 136 (July 2019) applies only for audits of the financial statements of an ERISA-governed employee-benefit plan. Its first numbered paragraph states: “This SAS should not be adapted for plans that are not subject to ERISA.” If your engagement’s scope is only an audit of a church plan’s financial statements with no added agreed-upon procedures, your firm might evaluate whether it is necessary or appropriate to consider whether the plan meets or fails an Internal Revenue Code § 403(b)(1)(D) non-discrimination condition. Even a failure of such a condition might be immaterial, insignificant, or even irrelevant, in some circumstances, to a plan’s financial statements. Consider also, in a particular church plan’s facts and circumstances, whether a § 403(b)(1)(D) nondiscrimination condition applies. See I.R.C. (26 U.S.C.) §§ 403(b)(1)(D), 403(b)(12)(B), 3121(w)(3)(A) (referring to “an elementary or secondary school which is controlled, operated, or principally supported by a church or by a convention or association of churches”).

Unless you’re already confident that the school’s plan is administered by or under the control of a church so that it is a church plan not governed by ERISA, your firm might evaluate whether the plan is “non-ERISA”. The plan provisions you describe seem logically inconsistent with saying there is no plan the employer established or maintains. After you’ve sorted out what kind of plan this is (and the scope of your engagement), you’d consider whether you should consider a nondiscrimination issue, and (if you do) which tax-law provision governs.

My research found that the published court decisions are about situations in which the domestic-relations parties sought to evade a defined-benefit pension plan’s provisions. In particular, airlines’ pensions. For an example of a case in which a State court denied a DRO, read Jago v. Jago, 2019 Pa. Super. 246 (Pa. Super. Ct. 2019) https://casetext.com/case/jago-v-jago?sort=relevance&resultsNav=false&q=. The petition did not ask for a divorce, or for any relief other than entry of an order to be directed to a retirement plan. The court “h[e]ld that absent a divorce or other domestic relations matter pending between spouses, they cannot obtain a QDRO for the sole purpose of moving funds in the participant/spouse's ERISA plan out of the plan to the non-participating spouse.” The opinion reflects the court’s reasoning because only one attorney appeared, and he presented the argument for allowing the domestic-relations order.

Alternatively, an employer and a would-be employee might negotiate the employee’s compensation based on the employer’s all-in expenses, adjusting the salary so the employer’s expenses, including for health and retirement benefits, meet what the employer is willing to spend to get the employee (and what makes the employee willing to work for the employer). Even if exclusions from one or more employee-benefit plans might be feasible, consider whether the employee might value some kinds of health or retirement benefits enough that she’s willing to accept a lower salary so the employer meets its all-in budget.

Beyond MoJo’s observations: A plan’s administrator must meet its responsibility “in accordance with the documents and instruments governing the plan[.]” ERISA § 404(a)(1)(D). An employer might amend its plan to provide an automatic-contribution arrangement for all. Or an employer might, subject to coverage and non-discrimination rules, amend its plan to provide an automatic-contribution arrangement only for a specified class of eligible employees. But it might be awkward for such an arrangement to specify that the default elective deferral is not a plan-provided and notice-specified percentage of a participant’s compensation but rather the elective deferral the individual elected under a specified former employer’s plan. Further, if your client states its plan using IRS-preapproved documents, it might be impractical to state the desired provisions within the form of those documents.

A 1992 ERISA Advisory Opinion suggests a plan’s administrator need not review the correctness of a State court’s decision about whether a person is, under a State’s domestic-relations law, the participant’s spouse, former spouse, child, or “other dependent”. See ERISA Adv. Op. 92-17A (Aug. 21, 1992) (A plan’s administrator may treat as a participant’s former spouse for QDRO purposes a person the State court decided was never the participant’s spouse.) https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1992-17a.pdf. A 1999 ERISA Advisory Opinion suggests that, when faced with circumstances that strongly suggest the divorcing parties’ perjury, a plan administrator may inquire about a court order to evaluate whether it is a domestic-relations order. Even that opinion, however, is unclear about whether a plan’s administrator must do so. ERISA Adv. Op. 99-13A (Sept. 29, 1999) https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/1999-13a. In another situation some might describe as a contrived divorce, the courts held that, even assuming a 100% allocation to the nonparticipant, continued cohabitation of the former spouses, not informing family or friends about the divorce, other facts inconsistent with the break-up of a marriage, and remarriage promptly after the plan’s QDRO distribution, a retirement plan’s administrator may not consider the participant’s and alternate payee’s motive for, or good faith in, obtaining a divorce. Brown v. Continental Airlines, Inc., 647 F.3d 221, 223 (5th Cir. 2011) (“[ERISA § 206(d)(3)(D)(i)] does not authorize an administrator to consider or investigate the subjective intentions or good faith underlying a divorce.”) https://casetext.com/case/brown-v-continental-airlines-inc. See also Blue v. UAL Corp., 160 F.3d 383, 385 (7th Cir. 1998) (“ERISA does not require, or even permit, a [retirement plan] to look beneath the surface of the order. Compliance with a QDRO is obligatory[.]”) https://casetext.com/case/blue-v-ual-corporation#p385. As QDROphile mentions, it would be at least unusual and, depending on the State’s law, might be improper for a domestic-relations court to award alimony or marital property during an undissolved and unseparated marriage. But if a court’s order recites that it “relates to the provision of . . . marital property rights to a spouse” (which might be a current, rather than former, spouse) and “is made pursuant to a State domestic relations law” (which might include a community-property law), a plan’s administrator might find that it need not consider whether the court correctly applied the State’s domestic-relations law. An administrator might find that it need not instruct the payment or set-aside the order calls for until the order has become final and non-appealable. Here’s my question for BenefitsLink neighbors: Imagine a plan’s administrator suspects a domestic-relations order is a workaround against a plan’s conditions for a distribution. But the plan is an individual-account (defined-contribution) plan and the QDRO distribution will not meaningfully affect the account of any individual beyond the participant. Should the plan’s administrator care about whether the domestic-relations order seems contrived? Or should the administrator simply apply its procedure and decide, looking to the text of the court’s order, whether the order is a QDRO?

Thanks for ratherbereading's thoughtful response. And here's a related question: If the requirement to use an automatic-contribution arrangement (for a plan that has a salary-reduction arrangement) is enacted, how will this change or affect the services you provide?

In today’s prepublication release about Form 5500 reports on 2022: The Agencies are still evaluating public comments on elements of the September 2021 proposal not included in these final forms revisions, including . . . changes in participant counting methodology for Independent Qualified Public Accountant (IQPA) purposes[.]”

If enacted as it passed the House of Representatives, the “SECURE 2.0” bill [H.R. 2954] would require a new § 401(k) or § 403(b) salary-reduction agreement to include an automatic-contribution arrangement. What do BenefitsLink neighbors think about this? Would you like the new requirement? Would you dislike it? And for either view, why would you like or dislike an automatic-contribution requirement?

Yes, the idea was in a rule-making project. The agenda I posted three weeks ago shows (as of yesterday) no more activity on that project. My note yesterday follows Bri’s observation about how some had hoped Congress might do what the Labor department has not done.

Scanning quickly the House of Representatives’ 582-page report on H.R. 2954, I do not see anything that would, if the legislation is enacted, change the count of participants that determines “large plan” treatment for Form 5500 reports. This despite two lengthy provisions excusing some notices to “unenrolled participants”. Also, the bill includes a provision directing the Labor and Treasury departments and the Pension Benefit Guaranty Corporation to “review” reporting and disclosure requirements and report to Congress. HR 2954 CRPT-117hrpt283.pdf

But does everyone concur that the individual may do a rollover of the portion that, but for the rollover, would be includible in gross income? And is it okay to leave behind in the IRA the nondeductible-contributions amount?

If the thing a retirement plan’s trust owns is a share of a fund of an SEC-registered investment company, one could report it on line 1c(13). But the plan’s administrator should confirm exactly the nature of the thing the plan’s trust owns. Some things people describe as ETF shares might not be registered investment company shares. If the ETF shares or interests are held in a brokerage-window account, the plan’s administrator might consider this alternate reporting: Note. For the 2021 plan year, plans that provide participant-directed brokerage accounts as an investment alternative (and have entered pension feature code ‘‘2R’’ on line 8a of the Form 5500) may report investments in assets made through participant-directed brokerage accounts either: 1. As individual investments on the applicable asset and liability categories in Part I and the income and expense categories in Part II, or 2. By including on line 1c(15) the total aggregate value of the assets and on line 2c the total aggregate investment income (loss) before expenses, provided the assets are not loans, partnership or joint-venture interests, real property, employer securities, or investments that could result in a loss in excess of the account balance of the participant or beneficiary who directed the transaction. Expenses charged to the accounts must be reported on the applicable expense line items. Participant-directed brokerage account assets reported in the aggregate on line 1c(15) should be treated as one asset held for investment for purposes of the line 4i schedules, except that investments in tangible personal property must continue to be reported as separate assets on the line 4i schedules. Form 5500 Instructions page 35 https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2021-instructions.pdf. This is not advice to anyone.

I would not assume an IRC § 415(c) excess. Rather, if no annual addition was credited to the individual account of the zero-compensation participant, there is no § 415(c) excess. If the $10,000 (with other 2021 nonelective contributions, if any) is allocated among eligible participants proportionately by 2021 compensation, there would be no annual addition credited to the zero-compensation participant’s individual account. If the plan restores to the employer the $10,000 (or $10,000 adjusted for loss), there might be no contribution, and so no annual addition credited to the zero-compensation participant’s individual account. Lou S., what do you think: Is it believable that an employer in January 2022 did not know that it had not paid its employee wages in 2021? How much room is there to interpret what the employer did as a mistake of fact?

If the employer contributed $10,000 to the plan and did not subtract that amount from any participant’s wages (and has not recorded the amount as at least a conditional debit against the participant’s earned income), shouldn’t the contribution remain in the plan’s assets unless the plan’s administrator finds the employer paid the contribution because of the employer’s or plan administrator’s mistake of fact? If the contribution remains in the plan (and is not an elective deferral credited to a particular participant’s account), what are the plan’s provisions for allocating such a contribution among participants’ accounts? Might the participant have been (for 2021) a partner, member, or other self-employed individual? If so, might she have earned income for 2021? Might her 2021 earned income yet be undetermined because the partnership’s, disregarded entity’s, or proprietorship’s 2021 income tax return is not yet completed? If treating this participant as a self-employed individual does not explain the situation, what do BenefitsLink neighbors think about whether mistake-of-fact allows the plan to return the employer’s money? Is it believable that an employer in January 2022 did not know that it had not paid its employee wages in 2021? If an amount is restored to the employer on an ERISA § 403(c) mistake of fact, a typical plan document provides that a gain attributable to the mistaken-contribution amount is not returned to the employer. Or a loss attributable to the mistaken-contribution amount reduces the amount to be returned. See Rev. Rul. 91-4, 1991-1 C.B. 57.

HCE, returning to your query: “We have been asked if we can process a QDRO provided to us after the death of the [alternate payee].” If a court order that might be a domestic-relations order is submitted to an ERISA-governed retirement plan’s administrator, that the order is submitted after a proposed alternate payee’s death might not, by itself, excuse the administrator from responsibility to decide whether the order is a DRO and, if so, a QDRO. The more challenging questions are: If an order specifies payments to an alternate payee who is no longer alive, is the order a QDRO? If an order specifies payments to an alternate payee’s named beneficiary or other successor-in-interest, is the order a QDRO? If a DRO may specify a successor-in-interest for an alternate payee’s portion, must the successor be someone who qualifies as the participant’s spouse, former spouse, child, or other dependent? If the administrator finds that the order’s payee otherwise could be a proper alternate payee, does the order specify the name and mailing address of that alternate payee? If the administrator finds that the order’s payee could be a proper alternate payee, might the order otherwise fail to qualify because it calls for “[a] type or form of benefit, or [an] option, not otherwise provided under the plan”? Beyond carefully reading the plan and the statute, an administrator might want its lawyer’s advice. Further, whether the administrator’s decision is thumbs-up or thumbs-down, an administrator might explain in a careful writing, whether immediately furnished to claimants or not, a thorough reasoning for the decision. Such a writing might improve the administrator’s defenses on a challenge. (A challenge might come from the participant or a would-be alternate payee, whichever is disappointed or frustrated by the administrator’s decision).

Consider this: T-13 Q. For purposes of defining a key employee, who is an officer? A. Whether an individual is an officer shall be determined upon the basis of all the facts, including, for example, the source of his authority, the term for which elected or appointed, and the nature and extent of his duties. Generally, the term officer means an administrative executive who is in regular and continued service. The term officer implies continuity of service and excludes those employed for a special and single transaction. An employee who merely has the title of an officer but not the authority of an officer is not considered an officer for purposes of the key employee test. Similarly, an employee who does not have the title of an officer but has the authority of an officer is an officer for purposes of the key employee test. In the case of one or more employers treated as a single employer under sections 414(b), (c), or (m), whether or not an individual is an officer shall be determined based upon his responsibilities with respect to the employer or employers for which he is directly employed, and not with respect to the controlled group of corporations, employers under common control or affiliated service group. A partner of a partnership will not be treated as an officer for purposes of the key employee test merely because he owns a capital or profits interest in the partnership, exercises his voting rights as a partner, and may, for limited purposes, be authorized and does in fact act as an agent of the partnership. The next Q&A, T-14, states: “There is no minimum number of officers that must be taken into account.” But the reasoning in T-13 suggests that the minimum is one, even if the one might not be a human or might not be a plan-eligible employee. The trustees or other fiduciaries of the ESOP might not, because of that role, be officers of the ESOP-owned corporation or company. But somehow the organization must have a way to operate. Someone—although he, she, or it might not be an employee—has authority to obligate the corporation or company. Also, T-15 explains that an organization other than a corporation has officers (in the sense provided for the top-heavy rule). 26 C.F.R. § 1.416-1 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.416-1