Peter Gulia

A service provider relies on information one’s client furnishes. Service providers vary in what steps, and how much effort, one uses to check whether a client misunderstood or misapplied a point of information to be furnished. About how to count compensation for one or more retirement plan purposes, some service providers might mention ways for one’s client to look for internal and logical consistency among an employer’s tax returns and wage (or self-employment) and tax-information reporting.

While I say nothing about whether any guidance is an appropriate interpretation or explanation of any law, consider these FAQs. January 10, 2022 https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-51.pdf Q1 states: “[A] plan or issuer may . . . require a participant, beneficiary, or enrollee who purchases an OTC COVID-19 test to submit a claim for reimbursement to the plan or issuer (in accordance with the plan’s or issuer’s reasonable internal claims procedures, consistent with applicable federal and [not superseded] state law).” Consider whether a claims administrator might look to a Universal Product Code as some evidence about whether the thing someone bought is a test that meets the conditions specified in the statute. Further, Q4 states: “A plan or issuer may require reasonable documentation of proof of purchase with a claim for reimbursement for the cost of an OTC COVID-19 test. Examples of such documentation could include the UPC code for the OTC COVID-19 test to verify that the item is one for which coverage is required under section 6001 of FFCRA, and/or a receipt from the seller of the test, documenting the date of purchase and the price of the OTC COVID-19 test.” For more background, see these FAQs. October 4, 2021 https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-50.pdf February 26, 2021 https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-44.pdf February 26, 2021 https://www.cms.gov/files/document/faqs-part-44.pdf June 23, 2020 https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-43.pdf April 11, 2020 https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf April 11, 2020 https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf

Jakyasar, it seems BenefitsLink neighbors have given you a range of potential solutions to consider. But to consider how the plan, before a change, applies, test the employer/administrator’s assumption about whether the individual lacks 1,000 hours of service. If that owner is a partner of a partnership or a member of a limited-liability company (and not an employee), does the “employer” service recipient count the self-employed individual’s time worked? Labor department rules interpret how to count and credit hours of service for some purposes under ERISA §§ 202-204 and Internal Revenue Code §§ 410-411. See, in part: 29 C.F.R. § 2530.200b-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-2 29 C.F.R. § 2530.200b-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-3#p-2530.200b-3(a) These rules recognize that not all workers punch a time clock, and provide ways to approximate a measure of service. These rules even recognize situations in which a service recipient does not count a worker’s hours, days, weeks, or even months. Rather, a worker might be paid or entitled to payment without regard to any unit of time worked. “In the case of an employee whose compensation is not determined on the basis of a fixed rate for specified periods of time, the employee’s hourly rate of compensation shall be the lowest hourly rate of compensation paid to employees in the same job classification as that of the employee or, if no employees in the same job classification have an hourly rate, the minimum wage as established from time to time under section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended.” 29 C.F.R. § 2530.200b-2(b)(2)(ii)(C) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-2#p-2530.200b-2(b)(2)(ii)(C) Thus, a working partner’s draw of as little as $7,250 might get 1,000 hours of service. It’s unclear whether this concept (or any of the equivalencies 29 C.F.R. § 2530.200b-3(d)-(f) provides) applies to someone who is not an employee. But a plan’s administrator might interpret the plan to analogize methods for crediting hours of service for a nonemployee the Internal Revenue Code treats as a deemed employee.

BG5150 reminds us of an important point many plans face about some part-time employees. Basically’s originating post doesn’t mention whether the plan includes or omits a § 401(k) arrangement. Section 401(k)(2)(D)’s condition about some part-time employees applies only if the plan has an arrangement the plan’s sponsor intends as a § 401(k) arrangement. A plan with only nonelective contributions might exclude employees with fewer than 1,000 hours of service.

The statute—the Employee Retirement Income Security Act of 1974—is the source for the question EBspecialist asks. But the source that post cites, 29 C.F.R. § 2510.3-3, is not any part of the statute; it is an agency rule that interprets the statute about a particular point. A court might defer to the interpretation of the statute expressed in the rule (if the court finds the statute is ambiguous, and that the rule is a permissible interpretation of the statute). But the rule’s interpretation does not completely or precisely answer EBspecialist’s question: Is a plan that provides a pension or welfare benefit only to former employees (and never covered anyone when she was an employee) an ERISA-governed plan? Depending on the exact nature and measure of the benefit the employer would provide and other facts and circumstances, there might be no one clearly settled (and nationally uniform) answer to that question. EBspecialist, if your client wants a confident answer, there might be no shortcut; rather, you might continue your research to find all related decisions and interpretations, and use all the reasoning you find.

CuseFan, thank you for the good news. And Bloomberg BNA's Tax Management Portfolio "International Pension Planning - Puerto Rico" (which I didn't have until today) confirms that Hacienda has a procedure for approving a prototype plan.

Beyond Bill Presson’s gracious offer, several BenefitsLink discussions speak to some questions you might have. These include: https://benefitslink.com/boards/index.php?/topic/66061-life-insurance/ https://benefitslink.com/boards/index.php?/topic/68502-prohibited-transaction-purchase-of-life-insurance-from-plan/ https://benefitslink.com/boards/index.php?/topic/67649-rev-rul-74-307/ https://benefitslink.com/boards/index.php?/topic/67772-pte-79-60-commission-for-an-insurance-agentbroker-who-is-the-employer/ Also, some BenefitsLink commenters, including Gary Lesser and Larry Starr, are coauthors of Life Insurance Answer Book: For Qualified Plans and Estate Planning.

MDCPA, thank you for confirming what I feared. A practical result is that my pro bono client, a charity, cannot provide a retirement plan for a member charity's Puerto Rico employees. I am not admitted to practice before Puerto Rico’s Hacienda. Engaging a lawyer or certified public accountant who is admitted and competent to tax-qualify a retirement plan under Puerto Rico’s law is beyond either charity’s budget.

Brian Gilmore, thank you for your always helpful information. In December (after I posted), my client and its client (neither of which is the employer) readily observed that the tax consequences and penalties the Internal Revenue Service and the State’s tax authority could impose on the employer if it lacked reasonable cause for its tax-reporting and tax-withholding positions would be less than the expense anyone would incur to get a lawyer’s or certified public accountant’s advice to support reasonable-cause relief at even the lowest level of confidence. (And that’s without counting any expense for editing the HRA’s written plan.) Thank you for your information about a custom.

The temporary rule, in the same Q&A EBECatty cited, includes this: However, the payor or plan administrator may instead permit the payee [the distributee] to remit to the payor or plan administrator sufficient cash to satisfy the withholding obligation. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-35/section-35.3405-1T

Does any vendor of IRS-preapproved plan documents offer a version that is similarly Hacienda-preapproved to meet Puerto Rico’s tax-qualification conditions? If any, is it available with IRC § 401(a)? with IRC § 403(b)? If not available as a dual-qualified document, does any vendor offer a document on which Hacienda issued a preapproval letter so a user may rely without submitting its own application?

And if any property (other than money) is not sold, a plan’s administrator, trustee, and payer might consider what procedures they use (or each uses) to estimate the fair market value of that property.

Part 2 of subtitle B of title I of ERISA does not apply to “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 201(2), unofficially compiled as 29 U.S.C. § 1051(2) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1051%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1051)&f=treesort&edition=prelim&num=0&jumpTo=true The command: “Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order.” is in ERISA § 206(d)(3)(A), 29 U.S.C. § 1056(d)(3)(A) 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. So, an ERISA-governed unfunded deferred compensation plan that meets the select-group conditions need not provide anything about a domestic-relations order. ERISA does not require anything of a church plan that has not elected to be ERISA-governed. ERISA does not require anything of a governmental plan. I serve and have served as counsel for plans that do not pay or provide anything to a participant’s former spouse (or separated spouse).

AKowalski, thank you for your strong thinking (and much appreciated completeness).

C.B. Zeller, thank you for your further smart reasoning on your good idea.

That website’s information seems to distinguish between electronic and paper bonds, and suggest a simpler Yes for electronic bonds. https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm#who And the website furnishes these points of further information: https://www.treasurydirect.gov/indiv/help/TDHelp/help_ug_292-EntityAccountsLearnMore.htm https://www.treasurydirect.gov/indiv/help/TDHelp/help_ug_292-EntityAccountsLearnMore.htm#Trust I have not considered the accuracy, completeness, or appropriateness of any of this information.

Luke Bailey and C.B. Zeller, thank you for contributing your helpful thinking. About A, the plan yearly runs a cleanup on participant records, using a commercial publisher’s service with databases that include the Social Security death records. (If the Social Security Administration records a death, this should, at least in theory, result in no more than about 13 monthly payments after the participant’s death.) About B, if I’d suggest a plan provision (and I’m not there yet), I might consider providing that the plan’s benefit obligation is met to the extent of what the receiving bank properly accepted. (Who’s entitled to take from that bank account is governed by the account’s terms and applicable law.) The provision would apply only to the extent of what the plan does not (and need not) provide to the participant’s surviving spouses (including an alternate payee treated as a surviving spouse). Asking a payee to confirm her continuing existence might not catch many deaths (beyond those a records cleanup finds) because anyone who has access to the participant’s address, whether postal or email, might return the requested confirmation, and it’s impractical for the recordkeeper to test whether such a response is genuine. A part of the problem is that those who have access to the receiving bank accounts—whether properly, innocently, or (sometimes) fraudulently—see that the periodic payments will continue until the plan gets notice of the death (or the account balance runs out). The plan’s recordkeeper is a big life insurance company, which is also a big insurer of annuity contracts. A life-contingent annuity would shift a risk to the insurer. But even if the plan’s sponsor might allow participants a choice of an annuity, the sponsor is unlikely to provide that a life-contingent annuity is the only way a participant may get periodic payments. Perhaps a sensible approach is to continue the plan’s records cleanups, and monitor whether the breakage remains in reasonable ranges and doesn’t result in more than reasonable plan-administration expenses.

If neither the paying retirement plan nor the receiving bank knows the participant is dead, can it be correct for the previously instructed payments to continue? For many months? For years?

Mojo, thank you for the helpful information.

I mentioned the service-of-process point because it was a part of the Labor department's reasoning in the 1977 rulemaking.

If a plan’s administrator uses a summary of material modifications (rather than a restated summary plan description), consider this logic path. An SMM describes “any material modification to the plan and any change in the information required by section 102(b) of [ERISA] and § 2520.102-3 of these regulations to be included in the summary plan description[.]” 29 C.F.R. § 2520.104b-3(a) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.104b-3 The referred-to rule about the contents of a summary plan description requires “[t]he name, title and address of the principal place of business of each trustee of the plan[.]” 29 C.F.R. § 2520.102-3(h) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-B/section-2520.102-3. The need for a name and address follows the preceding requirement that an SPD or SMM include “a statement that service of legal process may be made upon a plan trustee or the plan administrator[.]” 29 C.F.R. § 2520.102-3(g). Even if a change in trustee from one bank to another is innocuous and otherwise immaterial, the information is not idle. For some ERISA claims, a participant or beneficiary must sue the trustee, even if only so the court will have jurisdiction to order the trustee to do (or refrain from doing) something. And the plaintiff or her attorney needs to know where to send the process server. About the timeline, the plan’s administrator may furnish its SMM as late as “210 days after the close of the plan year in which the modification or change was adopted.” 29 C.F.R. § 2520.104b-3(a). Depending on when the plan’s sponsor adopted or adopts a cycle 3 restatement, is there an opportunity to integrate the trustee information with an SPD or SMM used to meet other disclosure needs? Also, has the plan’s administrator considered electronic disclosures for those who affirmatively consent, are required to use electronic communications as an “integral part” of the employee’s work, or furnished (or were assigned) an electronic address and did not opt out of an electronic-disclosure regime?

Just curious, with many service providers using, primarily or even exclusively, electronic-signature methods, how often do problems of the kind described above happen with ink-on-paper signatures rather than electronic signatures recorded in a computer system?

That 1996 statute (amended in 2006) is 4 United States Code § 114. http://uscode.house.gov/view.xhtml?req=(title:4%20section:114%20edition:prelim)%20OR%20(granuleid:USC-prelim-title4-section114)&f=treesort&edition=prelim&num=0&jumpTo=true

Yup. There often are practical trade-offs about whether a plan’s administrator should treat as if it were a QDRO an order that doesn’t meet the plan’s QDRO provision (especially if the order is one a court likely might find is a QDRO). In some circumstances, one might balance ERISA § 404(a)(1)(D)’s command to obey the plan’s governing documents with § 404(a)(1)(A)(ii)’s purpose of incurring no more than “reasonable expenses of administering the plan[.]” While concurring with QDROphile’s observation about what often might be a path of least resistance, lots of factors can affect what’s less or more expensive—for an individual instance, or for the full range of a plan’s (or a service provider’s) domestic-relations matters.

A QDRO does not order a payment to a participant. A qualified domestic relations order “creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan[.]” ERISA § 206(d)(3)(B)(i)(I). Likewise, ERISA § 206(d)(3)(C)(ii) refers to “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee[.]” Whatever is not assigned to the alternate payee is the participant’s portion of the participant’s benefit, and remains governed by the plan’s terms. Even without the attempted convoluted provisions, one might justifiably be grumpy about an order that purports to state its command only by incorporating a marital-settlement agreement. An order that merely describes what the divorcing parties agree between them (even if it says, in passive voice, what the alternate payee “shall receive”) is not the same thing as a court’s command that a specified person do (or refrain from doing) a specified thing. Under the statute’s definition of a QDRO, an order can be a QDRO only if the order “clearly specifies” the amount the plan must pay the alternate payee. ERISA § 206(d)(3)(C)(ii). Once an administrator decides to deny that a submitted order is a QDRO, a good denial letter explains all potential grounds for denying QDRO treatment. The order RatherBeGolfing describes might have more defects. Among them: Even if the plan’s administrator were to interpret the order as commanding the plan’s payment only to the alternate payee, doing so when the administrator has some reason to know the alternate payee might have some duty or obligation to pay over some amount to the participant could allow the participant to get indirectly a benefit the plan does not provide. A QDRO “does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan[.]” ERISA § 206(d)(3)(D)(i). 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