Peter Gulia

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.

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.