Peter Gulia

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.

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.