Peter Gulia

CuseFan, thank you for your thoughtful observations, especially about using some low-balance cash-out as a way to avoid address-change work. About keeping up with address changes, some of those burdens and methods follow characteristics of the employee population, including how tech-savvy or even digital-native they are; how much the plan uses email addresses, preferably neutral email addresses not of any employer; and how capable the recordkeeper is in using services to find and fill-in updated addresses.

Bird, thank you for your nice help. Others with further thoughts?

After a detour, we’ve now come full circle; kmhaab’s originating post mentioned why the plan’s sponsor desires the provision asked about: “Employer is trying to move away from a union pension with an hourly accrual rate.”

In some volunteer work for a charity designing a new retirement plan, here’s a question I’m thinking about. Assumptions The plan’s investment alternatives are Vanguard and other managers’ mutual funds, with superior share classes obtained through the (independent) recordkeeper’s and its custodian’s omnibus purchasing power. None of the funds pays over any revenue-sharing or other indirect compensation. The employer pays nothing toward plan-administration expenses. (The charity’s executive director and board chairperson both tell me they can’t get grants or fundraise for any contribution to, or expense of, a retirement plan, and can’t budget for either.) So, all expenses are charged to individuals’ accounts. The absence of an involuntary cash-out provision won’t risk putting the participant count near the number that would invoke a CPA’s audit of the plan’s financial statements. That’s so for at least the next few years. Beyond maintaining former employees’ goodwill (which the charity cares about), does such an employer have its own economic stake about whether low-balance participants involuntarily exit the plan, or may, by choice, remain in the plan? Are there factors I’m not thinking about? For a participant who has only her $3,000 account, which is better: Staying in the former employer’s plan, or choosing a rollover into an IRA? (To simplify the comparison, assume the individual has no next employer, or the next employer has no retirement plan.) Is the individual’s choice as simple (mostly) as comparing the account charge under the former employer’s plan to the account charge of the IRA the individual could or would buy? Or are there more factors to consider? Your thoughts?

Belgarath, you’re right that stating a plan provision in a way that doesn’t follow an adoption-agreement form’s instructions loses reliance on the IRS’s preapproval. Revenue Procedure 2017-41, 2017-29 I.R.B. (July 17, 2017) at its § 6.03(17) states: “Opinion letters will not be issued for . . . Plans that include blanks or fill-in provisions for the employer to complete, unless the provisions have parameters that preclude the employer from completing the provisions in a manner that could violate the [tax-]qualification requirements[.]” No comment about whether an allocation fits the preapproved document you mention.

The condition for a participant’s or an alternate payee’s address refers to a mailing address. ERISA § 206(d)(3)(C)(i). The address recited in an order need not be the address of a place where the participant or alternate payee resides. Further, the address need not be the person’s only mailing address. At least one court decision suggests it might be enough that the address is a mailing address at which the individual could receive mail. Mattingly v. Hoge, 260 F. App’x 776 (6th Cir. Jan. 8, 2008). I’m aware of four potential solutions: (1) The individual’s attorney-at-law is willing to receive the retirement plan’s mailings at the attorney’s law office, and is willing for that address to be stated in the court order. (2) A friend or relative is authorized to receive the plan’s mailings, and is willing for the address to be stated in the court order. (3) The individual is permitted to receive the plan’s mailings at his or her place of business, which is separate from the residence not to be revealed, and the employer is willing for the address to be stated in the court order. (4) The individual opens a post office box to receive the retirement plan’s mailings. Stating a participant’s or alternate payee’s Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) is not one of the enumerated conditions for a DRO to be a QDRO. ERISA § 206(d)(3)(C)(i), 29 U.S.C. § 1056(d)(3)(C)(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. Nothing in ERISA § 206(d)(3) calls for any person’s guardian ad litem to sign an order. What matters is whether an order is the State domestic-relations court’s order. Whether a particular court or judge expects a person’s or her guardian’s signature is a matter of local law and procedure.

For a nonelective (not matching) contribution, there is a wide range of ways to allocate a contribution among participants’ accounts. I’m not seeing how an allocation that is a uniform amount for each hour worked would discriminate in favor highly-compensated employees or introduce a new difficulty in meeting coverage and nondiscrimination conditions. If the employer uses an IRS-preapproved document, you might check whether the desired allocation can be expressed within the adoption agreement’s contours or in some other way that does not lose reliance on the IRS’s preapproval (and does not contravene a collective-bargaining agreement).

Beyond confirming that Congress in 2019 enacted the change you describe, what information do you seek?

Are the S corporation and the partnership both participating employers under the same one plan?

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.