Peter Gulia

Bifurcated mess, just for BenefitsLink friends’ curiosity: Which spouse asked the court to grant a bifurcated divorce? Did the participant ask? Or did the would-be alternate payee ask? Did the spouses together assent to the bifurcated divorce? Or did the court grant it despite a spouse’s opposition? For ERISA practitioners who might not know the concept, a bifurcated or divisible divorce is “[a] divorce whereby the marriage itself is dissolved but the issues incident to the divorce . . . [which might include dividing property] are reserved until a later proceeding.” Divorce, divisible divorce, Black’s Law Dictionary 603 (11th ed. 2019). California Family Code § 2337 https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=2337.&lawCode=FAM California Rules of Court https://www.courts.ca.gov/cms/rules/index.cfm?title=five&linkid=rule5_390 Since (at least) the mid-1980s, family lawyers’ mainstream guidance is that a spouse who might want some portion of the other’s pension should oppose bifurcation because a divorce defeats one’s pension rights as a spouse or surviving spouse.

The Form 5500 report’s attachment you mentioned states: “The lnsperity 401(k) Plan is a single employer plan which is operated consistent with the requirements for a “Multiple Employer Retirement Plan” as defined in Revenue Procedure 2002-21. Revenue Procedure 2002-21 defines a “Multiple Employer Retirement Plan” as a defined contribution plan (including a plan that includes a cash or deferred arrangement described in section 401(k)) intended to satisfy the requirements of section 401(a) or section 403(a), and section 413(c), under which each Client Organization is “treated as” an employer.” It seems Insperity might assert that the plan is a multiple-employer plan within the meaning of the Revenue Procedure’s special definition, but is not “a plan maintained by more than one employer” described in Internal Revenue Code § 413(c) and is not other than a single-employer plan defined in ERISA § 3(41). The Revenue Procedure’s definitions § 6.02 states: “The term ‘Multiple Employer Retirement Plan’ means a defined contribution plan (including a plan that includes a cash or deferred arrangement described in § 401(k)) intended to satisfy the requirements of § 401(a) or § 403(a), and § 413(c), under which each CO [client organization] is treated as an employer. Rev. Proc. 2002–21, 2002-19 I.R.B. 911, (May 13, 2002) https://www.irs.gov/pub/irs-irbs/irb02-19.pdf

The filed Form 5500 report is a public record. Unless your client is the PEO or some investment or service provider named in the report, you might attach the report here without revealing a secret or confidence of your client. Reading the report might help us consider whether there is some reasonable interpretation to support the reporting you observed.

Liz Hallam, thank you for your further information.

MoJo makes the sensible point that a TPA might not need its auditor’s review of some other person’s controls. So, let’s ask these questions: If a TPA often or sometimes works with data when the data is on the TPA’s system (rather than in the custodian’s, recordkeeper’s, or employer/administrator’s system), should such a TPA engage a data-security audit (focused on what would be on the TPA’s system)? Even if a TPA always works with data sitting only on someone else’s system, should such a TPA nonetheless engage a data-security audit about the TPA’s controls for identifying the TPA’s users and safeguarding a user’s powers to access others’ systems?

EBECatty, thank you for this excellent help.

It’s typical for a recordkeeper to get assurance reports of the kinds MoJo describes. But is an assurance report about data security typical for a third-party administrator (one that’s not part of, and not affiliated with, a recordkeeper)?

Just curious, if the employer adopts the CPA’s tax-return preparation, does it affect anything in the pension plan’s administration or the actuary’s valuations?

Some governmental employers allocate a matching contribution under a § 401(a) plan on a participant’s deferral under a § 457(b) plan. Does any provider’s IRS-preapproved document allow a user to specify this within the adoption agreement’s check-the-boxes (or allowed fill-in) choices? If not, how the IRS would respond to a Form 5307 application in which this point is the only variation from the preapproved document?

For purposes such as whether a corrective distribution was made by March 15 or April 15 (or such a date as adjusted under a holidays rule), I’ve heard some providers reason that a distribution is made on the day the instruction is processed such that mutual fund shares are redeemed, or collective trust fund units are withdrawn, as of that day. Do BenefitsLink mavens concur?

For an explanation of some rules about holidays, see https://benefitslink.com/boards/index.php?/topic/69147-6302021-5500-due-today-or-monday-the-18th/#comment-322161. If your client did not file Friday and files today, your BenefitsLink neighbors would welcome information about whether the government’s systems treat today’s filing as timely. As I mentioned in the other discussion, one might imagine the Labor department having set the software to follow a combination of Federal holidays and the tax-law rule, which looks also to a District of Columbia holiday.

How did an applicant obtain fiduciary liability insurance without furnishing at least the most recent Form 5500 report as a part of the application for the insurance?

If the records show an account with neither a name nor a taxpayer identification number, the plan’s administrator might investigate whether that supposed participant ever existed, or whether there is an error in the records. Is the plan a defined-benefit plan, or an individual-account plan? What does the record show as the accrued benefit? If not for the plan’s termination, what otherwise would have been the vested benefit? How strong or weak are the employer’s other records, particularly on employment-law matters? Would finding one or more Form W-2 wage reports that used the “bad” SSN, show a name the employer then assumed was associated with the number? What information describes that the SSN is “incorrect”?

It’s an interesting line of reasoning. And if a person seeking to get a disclaimer recognized were my client, I might consider using that reasoning with other arguments. The minimum-distribution rule includes: “Accordingly, if a person disclaims entitlement to the employee’s benefit, pursuant to a disclaimer that satisfies section 2518 by that September 30 thereby allowing other beneficiaries to receive the benefit in lieu of that person, the disclaiming person is not taken into account in determining the employee’s designated beneficiary.” 26 C.F.R. § 1.401(a)(9)-4/Q&A-4(a) (emphasis added). The rule recognizes the possibility that a plan’s administrator might recognize a disclaimer. But there is no Federal statute (and no rule or regulation interpreting a Federal statute) that requires (whether as an ERISA command, or as a condition of IRC § 401(a) tax treatment) a plan to recognize a disclaimer. (For a governmental plan or a church plan, if not ERISA-governed, one would consider applicable and relevant State laws.) If a plan’s administrator plausibly interpreted the plan to not require recognizing a disclaimer, I doubt a contingent beneficiary’s claim for a benefit, or action for equitable relief on a fiduciary’s breach, would succeed. Many plans’ documents grant the administrator powers to interpret the plan. At least since February 21, 1989, courts defer to a fiduciary’s exercise of that discretion unless an ostensible interpretation is so obviously unreasoned that it is an abuse of discretion. (The result might be different in an interpleader action. Courts sometimes interpret ERISA by filling a perceived gap with Federal common law.) All that observed, I imagine many practitioners would interpret a plan that does not expressly preclude a disclaimer to allow a qualified disclaimer. Such an interpretation would be logically consistent with a common-law idea that a person ought not to be compelled to accept a gift.

CuseFan and Patty, thank you for confirming that many documents are silent, and that many administrators might interpret such a document to not preclude a disclaimer. fmsinc, many retirement plans, including individual-account plans, use the lingo “death benefit” or “death distribution” to distinguish between a distribution to a participant on or after her severance-from-employment or attainment of a specified age (a “retirement distribution”) and a distribution to a beneficiary after the participant’s death. Bob the Swimmer, your memory is good. Many States have laws based on uniform laws or model laws recommended by the Uniform Law Commission. A majority of States have laws based on one or both versions of the Uniform Disclaimer of Property Interests Act. https://www.uniformlaws.org/committees/community-home?CommunityKey=7118ea8a-f4f9-4b0a-be20-d918c59bd650 That current recommended law states: “A person may disclaim the interest or power even if its creator imposed . . . a restriction or limitation on the right to disclaim.” But a State law cannot compel an ERISA-governed plan to accept a disclaimer. ERISA § 404(a)(1)(D), § 514. However, a State law might affect whether a disclaimer is respected for Federal tax purposes, or accepted by a retirement plan’s administrator. Every plan document I write (and even others’ documents I supplement) includes a detailed provision on what makes a disclaimer acceptable.

A typical rollovers-as-business-startups transaction has the retirement plan pay into the corporation an amount in exchange for original-issue shares of the corporation. The typical valuation sets the fair-market value of those shares as the same amount that will be paid in. But if a corporation yet has no real property, no contracts, no money (until the purchase of the shares), no other assets, and no operations, isn’t its fair-market value $0.00?

BenefitsLink neighbors, let’s turn this into a survey. Does your set of plan documents: 1) expressly provide for a disclaimer? 2) say nothing about a disclaimer? 3) expressly preclude a disclaimer? And if a plan’s document is silent, would you interpret it to: a) permit a disclaimer? b) preclude a disclaimer?

Some plans allow a beneficiary to disclaim a death benefit; some plans do not. If a beneficiary makes a legally valid disclaimer that the plan’s administrator accepts, the retirement plan benefit will be distributed (or distributable) as if the disclaimant had died before the participant’s death (or before the creation of the benefit disclaimed). If a beneficiary makes a valid disclaimer that also meets all requirements of Internal Revenue Code § 2518 (see 26 C.F.R. § 25.2518-1, § 25.2518-2), the disclaimed benefit will not be in the disclaimant’s estate for Federal estate tax purposes, and will not be the disclaimant’s income for Federal income tax purposes. Some States have a similar rule for State estate or inheritance tax purposes. To be effective for Federal tax and retirement plan purposes, a disclaimer usually must meet all these requirements: 1. The disclaimer must be made before the beneficiary accepts or uses the disclaimed benefit. 2. The disclaimant must not have received any consideration for the disclaimer. 3. The benefit must pass with no direction by the disclaimant. 4. The disclaimer must be in writing, and must be signed by the disclaimant. 5. The writing must state an irrevocable and unqualified refusal to accept the benefit. 6. The writing must be delivered to the trustee, custodian, insurer, or plan administrator. 7. The writing must be so delivered by nine months after: a. the date of the participant’s death, or b. the date the beneficiary attains age 21, whichever is later. 8. The disclaimer must meet all requirements of applicable or relevant State law. To write a disclaimer (and to get advice about what the plan’s administrator would accept), the beneficiary might consult her estate-planning lawyer.

One more play: Did you read the forms the participant signed (whether in ink, or electronically) when she claimed the hardship distribution? Some recordkeepers design those forms to include the claimant’s assent to her responsibility to resume deferrals.

Following Bri’s theme of looking to the documents, here’s another way to think about the question ldr asks. Imagine a plan’s sponsor has adopted nothing beyond whatever results from using the package of IRS-preapproved and related documents you usually present. The only documents, including plan-administration procedures and a summary plan description, are those that result from your service. Would those documents: (1) make the participant responsible to act affirmatively to resume elective deferrals? (2) make the administrator responsible for resuming the participant’s deferrals? (3) not provide an answer in either direction? And if it’s #3, how would you interpret the plan?

fmsinc, ERISA (the statute itself, not a rule or regulation), in its definitions section includes this: The term “State” includes any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, American Samoa, Guam, Wake Island, and the Canal Zone. . . . . ERISA § 3(10).

For an ERISA-governed individual-account retirement plan, when an alternate payee may get a QDRO distribution goes like this: A plan must allow a QDRO distribution if the participant is entitled to a distribution under the plan. A plan must allow a QDRO distribution on the later of the participant’s age 50 or the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service. ERISA § 206(d)(3)(E), 29 U.S.C. § 1056(d)(3) 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 A plan may provide an alternate payee’s QDRO distribution before the plan provides a distribution to the participant. 26 C.F.R. § 1.401(a)-13(g)(3); https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)-13#p-1.401(a)-13(g)(3) Whether an individual-account plan provides a QDRO distribution before the participant’s earliest retirement age is a plan-design choice.

Does anyone know whether the Labor department yet has sent delinquency or deficiency letters on 2020 Form 5500 reports that ought to have been filed by October 15, 2021?

Brian Gilmore, thank you for your always helpful information. Is specifying which health-coverage alternative is the default when the plan’s administrator does not receive an affirmative choice a settlor (non-fiduciary) decision? If so, does anything beyond applicable wage-withholding constraints preclude a sponsor from specifying a default most advantageous to the employer? Even when choosing a default is a fiduciary’s decision, might a fiduciary loyally and prudently choose as the default (subject to applicable wage-withholding constraints) the health-coverage alternative for which QMCSO adverse selection or experience does the least harm to the plan?

While whether and what to file is one’s client’s choice, wouldn’t the mainstream advice be to file amended reports (including changes from -EZ to -SF) for the years affected by the mistakes?