Peter Gulia

C.B. Zeller and MoJo, thank you for all three bits of wonderfully helpful information. Do others have different business methods?

Whatever one likes or dislikes about the VFC program, I’m curious: Have recordkeepers and third-party administrators developed assembling a VFC submission into a standard service that is (or could be) routinely offered?

The condition BG5150 mentions is: “[II]F.(1) With respect to any transaction described in Section I. [the transactions one may correct under VFC], the applicant has not taken advantage of the relief provided by the VFC Program and this exemption for a similar type of transaction(s) identified in the current application during the period which is three years prior to submission of the current application.” The source is the 2006 amendment of class Prohibited Transaction Exemption 2002-51 https://www.govinfo.gov/content/pkg/FR-2006-04-19/pdf/06-3675.pdf.

Recognizing the practical reality Bird describes, some third-party administrators: confirm that the TPA did not advise using a W-2; inform one’s client about relevant tax law and the IRS’s view of it; invent a method for combining W-2 and K-1 amounts in some way that approximates the correct measure of compensation for one or more retirement plan purposes; remind one’s client that it owns the risk of whatever inaccuracy or incompleteness results from using the invented method.

Beyond points mentioned above, an allocation of plan-administration might not be a binary choice between an equal amount for each individual and amounts in proportion to individual accounts’ balances. For example: One might allocate expenses half by heads and half by balances. A client considered this because many bigger-balance participants, almost all 59½ and older, were exiting the employer’s plan to direct rollovers into (for them) less expensive IRAs. Or put a constraint on a lower-balance portion of the range. For example, divide an expense into equal amounts for those accounts charged, but don’t charge an account if its balance is less than $n,nnn. Or constrain what’s charged to a bigger-balance participant. For example, charge individuals’ accounts in proportion to balances, but no charge exceeds $nnn. BenefitsLink mavens who know much more math than I know could imagine more ways. I do not advocate any particular allocation. Rather, I mention only that choices might be wider than the two described in EBSA’s bulletin. Of course, a plan’s fiduciary must consider whether an allocation would be within the recordkeeper’s, third-party administrator’s, or other service provider’s contracted or available service. And even if that’s not a constraint, sometimes KISS—keep it simple, striver—might be prudent.

Returning to Ahuntingus’ originating question, Nate S’s explanation resolves it. No excise tax return is due for an excise tax that would have been no more than $100 if one submits under the Voluntary Fiduciary Correction program and meets VFC’s conditions, which include paying into the plan the amount that otherwise would have been the excise tax. (The conditions include showing EBSA an unfiled Form 5330 or a computation showing what would have been the excise tax.) This can get the relief of the related prohibited-transaction exemption. Under the 1978 Reorganization Plan, the Labor department has authority to make exemptions under Internal Revenue Code § 4975. Or, no VFC = no de minimis.

Based on the information Nate S describes, is there a difference between correcting under the Labor department's Voluntary Fiduciary Correction program and correcting without using that program?

In internal guidance to government employees, here’s what the Employee Benefits Security Administration in 2003 said: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2003-03 The bulletin includes this: “A per capita method of allocating expenses among individual accounts ([that is], expenses charged equally to each account, without regard to assets in the individual account) may also provide a reasonable method of allocating certain fixed administrative expenses of the plan, such as recordkeeping, legal, auditing, annual reporting, claims processing[,] and similar administrative expenses.” I express no view about that or any other interpretation in the bulletin.

Without doubting that Brim or Sanders said what D Lewis describes, seminar-law statements of IRS employees are preceded by the warning that nothing they say is the Treasury’s, or even the Internal Revenue Service’s, rule, interpretation, or position. While the March 24, 2011 IRS forum I quoted likewise is not authority, it’s safer to follow a statement confirming the absence of a dispensation than to rely on ostensible relief stated in no rule or regulation and in no administrative-law publication Internal Revenue Code § 6662 permits one to treat as authority.

I’ve never needed to think about your question. But if any beneficial interest under an ESOP might count, perhaps it might matter exactly what rights the participant has under the ESOP’s provisions? For example, some S corporation ESOPs are designed so even a retiree never can get a delivery of shares, and instead gets only a payment that redeems shares.

An edited transcript of a 2011 IRS telephone forum about Form 5330 includes this: Question 3: “Please confirm that there is no de minimis exception to the excise tax, the Form 5330 should be filed and the tax paid, regardless of the amount of excise tax due.” The simple answer to that is that there is no [c]ite to quote for de minimis exception to the excise tax. At this time and in all the years I’ve been with the IRS, we have not deviated from this stance. There is no de minimis exception to the excise tax, no matter how small it is. https://www.irs.gov/pub/irs-tege/5330_phoneforum_transcript.pdf That statement is not authority. But it is logically consistent with Form 5330’s Instructions.

Many of us are asked to advise only on the retirement plan’s administration. For equitable remedies regarding a plan’s distributee who is not the participant’s surviving spouse (or regarding money or other property distributed from a plan that need not and did not provide that a participant’s surviving spouse is the participant’s beneficiary), ERISA might not preempt a State court’s order—made after the ERISA plan has paid or delivered the plan’s benefit—that does not involve the plan or any fiduciary of it (and does not seek to interfere with a surviving spouse’s enjoyment of a survivor annuity or other ERISA § 205 benefit). For example, Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131, 52 Empl. Benefits Cas. (BL) 2514 (3d Cir. 2012); Andochick v. Byrd, 709 F.3d 296, 56 Empl. Benefits Cas. (BL) 2865 (4th Cir. 2013); Metlife Life & Annuity Co. of Connecticut v. Akpele, 886 F.3d 998, 63 Empl. Benefits Cas. (BL) 2024 (11th Cir. 2018). But see Melton v. Melton, 324 F.3d 941, 943–945 (7th Cir. 2003) (ERISA preempts a State-law constructive-trust remedy); Reliastar Life Ins. Co. v. Keddell, No. 09-c-1195, 2011 U.S. Dist. LEXIS 3164, 2011 WL 111733, at *3 (E.D. Wis. Jan. 12, 2011) (“A constructive trust would violate ERISA’s preemptive force even if it applied after the funds from the [plan] were actually distributed.”); Ragan v. Ragan, 2021 COA 75, 494 P.3d 664, 666 [¶ 5] (Colo. App. 2021) (“ERISA preemption extends to post-distribution lawsuits [even regarding a benefit for which ERISA § 205 does not apply, and recognizing that the plan provided the benefit to the participant’s former spouse].”) (distinguishing between after-distribution lawsuits to enforce an express waiver and lawsuits to apply a revocation-on-divorce statute). I have seen no Federal court decision that legitimates a State court’s order that imposes a constructive trust or other equitable remedy for a surviving spouse to pay over a benefit the plan provided under ERISA § 205. At least one State court’s decision recognized after-distribution remedies against a surviving spouse. Moore v. Moore, 297 So. 3d 359 (Ala. 2019). However, that court did not consider whether ERISA preempts State law to preclude an after-distribution remedy that would interfere with a surviving spouse’s enjoyment of a benefit a plan provides under ERISA § 205. See Boggs v. Boggs, 520 U.S. 833, 841-844 (1997) (rejecting an argument that a State-law claim, which affected only an after-distribution disposition of proceeds, did not implicate ERISA: “The statutory object of the qualified joint and survivor annuity provisions . . . is to ensure a stream of income to surviving spouses[.] ERISA’s solicitude for the economic security of surviving spouses would be undermined by allowing a predeceasing spouse’s heirs and legatees to have a community property interest in the survivor’s annuity. It would undermine the purpose of ERISA’s mandated survivor’s annuity to allow Dorothy, the predeceasing spouse, by her testamentary transfer to defeat in part Sandra’s entitlement to the annuity [§ 205] guarantees her as the surviving spouse. This cannot be. States are not free to change ERISA’s structure and balance.”); Carmona v. Carmona, 603 F.3d 1041, 1061 (9th Cir. 2008) (“state law doctrines (including constructive trusts) may not be invoked to assign benefits to parties other than those designated as beneficiaries under ERISA.” Allowing a constructive trust to redirect a survivor annuity from the participant’s former spouse to his current spouse “would allow for an end-run around ERISA’s rules and Congress’s policy objective of providing for certain beneficiaries, thereby greatly weakening, if not entirely abrogating, ERISA’s broad preemption provision.”); see also Hillman v. Maretta, 569 U.S. 483 (June 3, 2013) (Federal law preempts State law not only about providing and paying a benefit under the Federal Employees’ Group Life Insurance Act of 1954 but also to preempt a State law that could make a payee liable to pay over a benefit she would not be entitled to if State law were not preempted.). That Alabama case also illustrates a difficulty of after-distribution remedies. The participant’s brother/beneficiary/executor filed his lawsuit the same day he learned that the plan had (eight days before) paid the surviving spouse. The court granted a temporary restraining order about 3½ weeks later. Despite that and other courts’ orders, he “recover[ed] approximately half of the funds that [the plan] disbursed to [the surviving spouse who breached her prenuptial agreement].” Moore v. NCR Corp. Plan Admin. Comm., Civil Action No. 1:20-CV-4140-CC (N.D. Ga. Aug. 30, 2021) (finding no standing in Federal court because the plaintiff lacked even a colorable claim to challenge the administrator’s and its service provider’s conduct). Whatever happens outside the retirement plan’s administration is (mostly) not the administrator’s worry.

Consider whether the executive has or lacks a right to prevent an assignment or other change of the deferred compensation obligation. The executive’s lawyer might advise her not to assent to a novation, transfer, assignment, or other change unless (at least) (i) the next obligor is more creditworthy than the current obligor, and (ii) a law firm with assets available to pay on a malpractice judgment addresses to the executive a written opinion that the change does not result in a loss of a deferral or another unwelcome tax consequence. Entity A might evaluate whether the proposed change could breach a duty or obligation Entity A owes to any of A’s creditors. Entity B might evaluate whether an increase in its debt, even if it is a contingent obligation, and even if there would be a corresponding increase in assets, could breach a duty or obligation Entity B owes to any of B’s creditors.

I’ll answer my own question. I saw nothing in the Revenue Procedure that permits the Provider to correct such an error, even if one treated it as an obvious typographical error (which I wouldn’t). Further, I saw nothing in the Revenue Procedure that permits an Adopting Employer to correct such an error. For an employer that seeks to rely on an IRS preapproval, I sometimes write an administrator’s interpretation of an ambiguous, illogical, or incomplete plan provision. If the employer maintains such a writing attached or adjacent to a governing document, the writing affirmatively states it is not an amendment or modification of any governing document.

The law of retirement plans and accounts has enough complexity, including questions not directly answered on the surface of public law sources alone, that using a treatise (whether hardbound, or internet) often is worthwhile. Roth IRA Answer Book likely answers your questions, and your continuing reference need. https://law-store.wolterskluwer.com/s/product/roth-ira-answer-book-9e-misb/01t0f00000J4cWd And if it doesn’t, Gary Lesser invites subscribers to ask him (or a coauthor) to figure out an answer for you. We use readers’ queries to improve the book. If you’d use two or more Answer Books—for example, 401(k), 403(b), 457, and many others, you might consider a package-pricing deal. If you were wondering, I have no royalty or other economic stake on any of the six books I’m a contributing author in. While BenefitsLink is a wonderful resource, some questions might be more readily or more thoroughly answered in other ways.

A premarital agreement itself cannot waive survivor-annuity rights. ERISA § 205(c)(2)(A)(i); 26 C.F.R. § 1.401(a)-20, Q&A 28. Among several reasons, the spouse’s consent to a participant’s qualified election must be made by the spouse, and a person making a premarital agreement is not yet a spouse. Recognizing the 1984 statute and the 1988 rule, especially after a few early 1990s court decisions followed it, a prenuptial agreement might include an obligation for each contractor to execute, promptly after the marriage is made, waivers and consents to implement the arrangements made in their agreement. But such an agreement should have no effect in an ERISA-governed plan’s administration. Rather, a plan’s administrator waits for a participant’s qualified election supported by the spouse’s consent, with witnessing and in a form the administrator finds meets ERISA § 205’s and the plan’s provisions. Even if a State court’s order might command a prenuptial agreement’s contractor to sign a consent, such an order, without more, is not a qualified domestic relations order, and absent personal jurisdiction of the plan’s administrator, should have no effect in the plan’s administration. Rather, a spouse decides whether to meet or breach an obligation under a prenuptial agreement, or obey or disobey a court’s command. Whatever dissension there might be between a participant and a spouse is for them to sort out. An ERISA-governed pension plan’s administrator administers the plan according to its provisions and ERISA. ERISA § 404(a)(1)(D). If the participant submits a State court’s order, the plan’s administrator should follow ERISA § 206(d)(3) and the plan’s QDRO procedure. If the participant submits anything that might be a claim, the plan’s administrator should following ERISA § 503 and the plan’s claims procedure.

Just for our BenefitsLink community learning: If the incomplete “more than” expression was in the adoption agreement form (rather than a line for a user’s writing), is the error of a kind the preapproved document’s sponsor may correct without asking the IRS and within the preapproval?

If, in this context, intranet refers to a site available only to an employer’s employees, one doubts it is a public website, at least regarding those who lack access to the site. While I have not read the statute or any interpretation of it, it seems the notice should at least be available to continuees and to alternate recipients. Further, the text of the model notice mentions a “public website of the plan[.]” Does the plan have a website that is distinct from the employer’s website? If the plan has a website, is it a public website? If not, does a continuee or an alternate recipient have access to the plan’s site?

Even if other interpretations are possible, it might be simpler for a fiduciary to defend its interpretation that resolves an ambiguity by providing no less vesting or non-forfeiture than the preceding document provided.

When whichever person is responsible asks for its lawyer’s or certified public accountant’s advice, one might consider: Exactly which person paid the nonemployee contractor? Did a real-estate holding company pay the contractor? Did a real-estate service company pay the contractor? Or did a trustee of the retirement plan’s trust pay directly? If it was a direct payment from the retirement plan’s trust, was that payment made “in the course of [the trust’s] trade or business”? https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

In 1985, I designed a worksheet and software to calculate something 403(b) salespeople called the “maximum exclusion allowance” or “MEA”. (I wasn’t alone in this; many workers for annuity insurers and mutual-fund custodians and their intermediaries did similar work.) The Technical Amendments Act of 1958 enacted § 403(b) of the Internal Revenue Code of 1954. With other conditions, it set a new limit on before-tax contributions to an annuity contract. The statute’s text spoke in terms of what one could exclude from gross income, looking to contributions that had been made for a tax year that had ended. One of the allowance’s elements was includible compensation. That element excluded the portion of annuity contributions properly excluded from gross income. The tax Code’s text had enough internal logic if one was acting only as an individual taxpayer filling-out her tax return based on known facts after a year ended. But people wanted to know what “the max” would be before an employer did the contributions. An employee needed to know this to plan her contributions. An employer insisted on knowing this so it would restrict contributions so as not to fail to apply Federal (and State) income tax withholding on a portion of the employee’s wages for which withholding was required. Some of us remembered enough elementary algebra to recognize the task was one of simplifying the equation to isolate the variable to be solved for.

Your surmise is sensible. In the mid-1990s, many investment and service providers for governmental 457(b) plans were based in life insurance companies. (Most of the biggest players still are.) That’s why lobbying on what became § 457(g) sought to allow trust substitutes, do so with recognized forms, and include annuity contracts as trust substitutes. When providers in 1996-1999 implemented the § 457(g) condition, many were done by adding one or two sentences of exclusive-benefit lingo to an annuity contract. When a governmental plan’s investments did not include collective trust units, some put non-annuity mutual fund shares under a custodial account. A large governmental § 457(b) plan often negotiates for the recordkeeper to provide a trust company, which might be a subsidiary or affiliate, to serve as the plan’s directed trustee.

Some banks, trust companies, and related service providers presume or assume that the responsibility of a trustee, even a directed trustee, sometimes could be more than the responsibility of a custodian that is not a trustee. Some governmental 457(b) plans lack a lawyer or consultant who might advise a plan’s fiduciary about differences between a trusteeship, even if directed, and a custodianship.

I have deep experience with abandoned plans. That includes experiences as inside counsel to a recordkeeper and its affiliated trust company, seeking to support final administrations; as outside counsel to service providers, advising them about how to manage liability exposures; as counsel to a voluntold administrator; and as the named administrator of an abandoned plan. What advice a lawyer provides turns on the governing documents, applicable law (not all of which is Federal law), facts, and one’s client’s exposures, risks, goals, and other interests. If the bank seeks to end its obligation, the bank needs the advice of the bank’s lawyer. If the wife/beneficiary wants her account, almost always there is at least one way (and often a choice of ways) to get it.

Despite whatever tolerances the Internal Revenue Code might allow about one or more conditions for treatment as a tax-qualified plan, consider that not amending the plan to end the participation of the no-longer-commonly-controlled organization might result in a multiple-employer plan. A multiple-employer plan might affect consequences under laws beyond tax law, including ERISA’s title I and banking, insurance, and securities laws. The plan’s sponsor, administrator, trustee, and investment manager might check the plan’s investment arrangements to find whether any requires the investor to be a single-employer plan. Some collective investment trusts and other kinds of investments not registered under one or more securities laws are available only to a single-employer plan. Others might respond to your question about whether all three organizations may or should share in a contribution for a year for which the three organizations were two (unrelated) IRC § 414 employers.