Peter Gulia

Can the spouse get to the U.S. consulate? When a person is not present in the United States, her acknowledgment may be made before a United States ambassador, consul, consular officer, or consular agent. 22 U.S.C. §§ 4215, 4221. A consular officer must officiate and perform a notarial act an applicant properly requests. 22 U.S.C. § 4215. http://uscode.house.gov/view.xhtml?req=(title:22%20section:4215%20edition:prelim)%20OR%20(granuleid:USC-prelim-title22-section4215)&f=treesort&edition=prelim&num=0&jumpTo=true

If your plan’s governing documents allow it, a separation could excuse the spouse’s consent for a distribution or loan that otherwise requires that consent if the three conditions are met. (My explanation of the three conditions is grounded on 26 C.F.R. § 1.401(a)-20/Q&A-27. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)-20 Under the 1978 Reorganization Plan, that Treasury rule also is an authoritative interpretation for ERISA § 205.) Because a separation exception’s conditions include a court order, it’s wise for the participant to consider whether a court would grant the order he requests, and what legal provisions a judge would want in effect before granting the separation order. My last paragraph mentioned the domestic-relations point because a judge who understands that a separation order could deprive the spouse of her survivor annuity might want to first make some other provision to get the spouse her share of marital property. Remember, no court order means no exception to the spouse’s-consent provision.

About a separation, a plan’s governing documents may (but need not) provide that a spouse’s consent is excused if the plan’s administrator decides (1) the participant and the spouse are legally separated, (2) the participant has a court order to that effect, and (3) no QDRO requires the spouse’s consent. The combination of these three conditions is unlikely. About an abandonment, a plan’s governing documents may (but need not) provide that a spouse’s consent is excused if the plan’s administrator decides (1) the participant has been abandoned (within the meaning of local law), (2) the participant has a court order to that effect, and (3) no QDRO requires the spouse’s consent. A judge who understands the ERISA and retirement plan effect of either order might be reluctant to grant it without first dividing marital property, which might include making a qualified domestic relations order.

If the not-for-profit corporation owns all of the capital and profits interests in the limited-liability company, shouldn't you presume that the corporation controls the limited-liability company?

Yup. I’m aware of the view that an IRC § 125 cafeteria plan is a means for excluding something from a participant’s gross income for Federal income tax purposes, and (at least in that sense) is not itself a pension or welfare employee-benefit plan within the meaning of ERISA § 3(3). But IRC § 125(a) recognizes a cafeteria plan’s “participant may choose among the benefits of the plan.” And if a health flexible spending account is such a benefit, it seems that the benefit somehow involves an employee-benefit plan (whether separately stated or integrated with the writing that states the cafeteria plan). Else, what person provides the benefit, and by what means does some person provide it? Further, the Labor department’s Technical Release assumes that § 125 wage reductions exchanged for a welfare benefit are “participant contributions” and “plan assets”. While some might feel the Labor department ought to have published guidance, they didn’t. Sometimes, we get to be lawyers, and can form our own interpretations (unconstrained by an administrative-law document). That said, I don’t yet know how I would answer the questions.

Q-14: Must a payor or plan administrator withhold tax from an eligible rollover distribution for which a direct rollover election was not made if the amount of the distribution is less than $200? A-14: No. However, all eligible rollover distributions received within one taxable year of the distributee under the same plan must be aggregated for purposes of determining whether the $200 floor is reached. If the plan administrator or payor does not know at the time of the first distribution (that is less than $200) whether there will be additional eligible rollover distributions during the year for which aggregation is required, the plan administrator need not withhold from the first distribution. If distributions are made within one taxable year under more than one plan of an employer, the plan administrator or payor may, but need not, aggregate distributions for purposes of determining whether the $200 floor is reached. However, once the $200 threshold has been reached, the sum of all payments during the year must be used to determine the applicable amount to be withheld from subsequent payments during the year. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-31/subpart-E/section-31.3405(c)-1 BenefitsLink neighbors, in your experience, do some or many payers simplify operations by withholding normally even if a distribution is less than $200?

“[A] written determination may not be used or cited as precedent.” Internal Revenue Code of 1986 (26 U.S.C.) § 6110(k)(3). A letter ruling itself can be “substantial authority” for a tax treatment only if, with other conditions, the ruling is “issued to the taxpayer[.]” 26 C.F.R. § 1.6662-4 (d)(3)(iv)(A). But a taxpayer (or a lawyer, certified public accountant, or enrolled agent who advises a taxpayer) may consider “private letter rulings and technical advice memoranda issued after October 31, 1976” in interpreting other sources of authority. 26 C.F.R. § 1.6662-4 (d)(3)(iii). Consider also a practical point. The surviving spouse might not be an advisor’s only audience. An IRA custodian or insurer, if it sees the situation, might want some comfort or protection about the rightness of the surviving spouse’s tax position.

It’s easy to concur with the idea that the Treasury department’s proposed interpretation of Internal Revenue Code of 1986 § 125 is not, and even if made final would not be, binding authority to interpret part 4 of subtitle B of title I of the Employee Retirement Income Security Act of 1974. About cafeteria plans, fiduciaries and practitioners are accustomed to the Labor department’s non-enforcement of ERISA § 403’s command to hold plan assets in trust. Yet, consider the last paragraph of DOL Enforcement Policy for Welfare Plans with Participant Contributions, Technical Release No. 1992-01 (May 28, 1992): The Department cautions that the foregoing [non]enforcement policy in no way relieves plan sponsors and fiduciaries of their obligation to ensure that participant contributions are applied only to the payment of benefits and reasonable administrative expenses of the plan. Utilization of participant contributions for any other purpose may result not only in civil sanctions under Title I of ERISA but also criminal sanctions under 18 U.S.C. [§] 664 [and other crimes]. See U.S. v. Grizzle, 933 F.2d 943 (11th Cir. 1991). https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/92-01 But it leaves open the question, exactly what is “the plan”? Is it narrowly just the health flexible spending account? (Brian Gilmore presents a useful reasoning for that view. Other analyses are possible.) Is it just those of a welfare plan’s benefit structures classified as health benefits? Or is it the whole of a welfare plan, including welfare benefits beyond health benefits? If one follows Brian Gilmore’s reasoning (or the health FSA is the employer’s only welfare benefit), what steps might a fiduciary take if, for a year, health FSA experience gains exceed the expenses of administering the health FSA? Might the employer/administrator set up a reserve to be used to meet future years’ experience losses or plan-administration expenses? Must such a reserve be a formal trust? Or may it be a quasi-trust accounting entry in the employer’s financial statements or other records?

Call Denise Appleby at 973-313-9877.

While recognizing Brian Gilmore’s reasoning . . . . To extend the analysis, are there situations for which a health flexible spending account’s provisions could (perhaps especially for a salary-reduction-only FSA) result in an experience loss? Could an employer have an obligation to pay a benefit more than the “premiums” collected from or for the participant? If that could happen, might it be fair for such an employer to absorb experience losses and enjoy experience gains?

Yes, an agreement might undo community property. One would evaluate whether the agreement truly separates the property and, if so, whether the agreement is legally enforceable. In doing that analysis, one might consider the internal law, and conflict-of-laws law, of each jurisdiction that might have some connection to the situation, including: the State of company A’s organization or formation, the State in which the first community-property interest was created, each State in which there was (or might have been) an addition to community property, each State in which there was insufficient accounting between separate and community property, the domicile of each spouse, the residence of each spouse, the State in which each spouse signed the agreement, the State law the agreement specifies as governing the agreement, and the State law that governs the agreement. A practitioner would want to fact-check the situation with no less care than Circular 230 calls for. Before pursuing an agreement, each spouse should consider the consequences, including for property ownership, income taxes, estate planning, and estate and inheritance taxes. Under some States’ laws, an agreement might be invalid unless each spouse has separate counsel. Even when that’s not a State-law condition, S. Derrin Watson in Who’s the Employer? (1998) suggested: “Such an agreement should not even be considered unless husband and wife are separately represented by experienced counsel, even in a friendly situation.” The American College of Trust and Estate Counsel’s Commentaries on the Model Rules of Professional Conduct describes more nuanced views.

And to discern whether community property might affect some point, one might consider all States or other jurisdictions in which the spouses resided. That spouses now live in a State that does not ordinarily establish community property for those domiciled or resident in the State might not always undo a community-property interest established under the law of another State.

And for those employers that don't yet maintain a plan and might prefer not to be burdened by an automatic-contribution arrangement, should the salespeople say one needs to create a plan now or soon so it will be in effect as of the date of enactment?

Under ERISA’s title I, the command to file a yearly report is on the plan’s administrator. Under Internal Revenue Code § 6058, the command to file a yearly information return is on the employer. If the plan’s employer/administrator is a corporation, limited-liability company, registered partnership, or other organization, either agency will pursue any human they assert could have acted to file the Form 5500 report. If the plan’s trustee is a human who would have had knowledge of the employer/administrator’s breach, EBSA can pursue such a trustee for failing to meet a co-fiduciary’s duty under ERISA § 405(a)(3). Even if the corporation or other organization named as the plan’s administrator is legally dissolved, under many States’ laws a dissolved organization still has some powers as needed to wind up the organization’s duties and obligations. Likewise, a former shareholder or member, director or manager, or officer might still have powers to act for the organization. Even if one might lack a power, how would filing a Form 5500 report harm the organization or a third person? Sometimes, EBSA can be assertive. Among other abandoned-plans cases I handled, in one EBSA asserted that a former assistant vice-president who had ended all associations with the employer many years before EBSA’s contact (and also years before the employer/administrator’s business failure and abandoning of the plan) was responsible to administer her former employer’s plan. Even after we showed EBSA proof of her resignations from all possible roles with the former employer, EBSA persisted. They guessed (correctly) that their target would learn that the expense of paying me to fight the Labor department would be much more than the expense of paying me to work the final administration. The recordkeeper and the trustee, also motivated to get rid of the abandoned plan, never questioned that my client lacked authority to instruct them. About “no more money”: Fighting EBSA would chew up many hours of a lawyer’s time, and in many of these situations has little prospect for a successful defense. Many lawyers would want an advance retainer against the first $10,000-worth of time, and would stop work when the advance retainer isn’t replenished. Paying BG5150’s fees to prepare the needed Form 5500 reports might be much less expensive than trying to show EBSA or IRS why they lack a right against the individual.

JG-12: Is the limited-liability company a tax-exempt organization or a taxable business? Which person owns the LLC’s capital interests? Which person owns the LLC’s profits interests (if any)? Does any person have a guaranteed income interest? Which person owns the LLC’s loss interests (if any)?

Yesterday evening, the House Ways and Means Committee, by a 22-20 vote, approved the retirement provisions.

If a plan permits a participant (or other directing individual) to specify different investment directions for non-Roth and Roth subaccounts, some will use that opportunity. Some advisors and authors suggest ordering one’s investment allocations to take advantage of the different tax treatments. Here’s my related question: Which recordkeepers and service arrangements facilitate separate investment directions for non-Roth and Roth amounts?

Leaving aside church plans and governmental plans, an annuity under or from an individual-account (defined-contribution) retirement plan—whether a qualified joint and survivor annuity, qualified optional survivor annuity, qualified preretirement survivor annuity, or something else—is what results from using the distributee’s account balance (or the portion of it the distributee uses to get an annuity). A typical individual-account plan does not provide a benefit subsidized by the employer, or that invades others’ individual accounts.

Further, an individual-account plan might provide that, beyond a choice to take an annuity rather than a single sum or other payout, the selections of the insurer and of a particular contract among those an insurer offers (and not contrary to the plan) are the participant’s or other distributee’s decisions (unless obeying the distributee’s direction would be inconsistent with ERISA’s title I). Opinions might differ on whether such a provision could cause a plan not to meet the condition of proposed Internal Revenue Code § 414(aa)(7): “A plan or arrangement shall be treated as meeting the lifetime[-]income requirement described in this paragraph if the plan or arrangement permits participants to elect to receive at least 50 percent of their [sic] vested account balance in a form of distribution described in section 401(a)(38)(B)(iii).”

Consider the statute, Internal Revenue Code of 1986 § 401(a)(9)(C)(ii)(I): Subclause (II) of clause (i) [“the calendar year in which the employee retires”] shall not apply—except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 72[.] And the rule, 26 C.F.R. § 1.401(a)(9)-2/Q&A-2: (c) For purposes of section 401(a)(9), a 5-percent owner is an employee [or deemed employee] who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70½ [72]. Even if applying these law sources yields a clear answer, a plan’s administrator might read the plan’s governing documents to consider whether the plan provides an involuntary distribution earlier than is needed for the plan to tax-qualify. Further, a plan’s administrator might evaluate whether a “winding down” partner who perhaps has “flexibility” about how little he works might be retired within the meaning of § 401(a)(9)(C)(i)(II). In doing so, one might read the partnership agreement to consider the obligations it provides or omits.

Thanks. I’ve seen service providers use door #2: the service agreement states that the service provider may perform its services according to the default in a request for instructions (if the plan’s administrator did not respond timely with a different instruction). Do others have different experiences?

ESOP Guy, Bird, and BG5150, thank you for your helpful observations. This call for a “lifetime income” provision would be neither an ERISA title I command nor a condition for a plan’s tax treatment. Rather, a participant’s opportunity to get an annuity would be one of six elements of an “automatic contribution plan or arrangement” an employer (of more than five employees) would maintain if it prefers an excise tax not to apply. https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/Subtitle%20B%20Retirement%20Committee%20Print.pdf The excise tax “on any failure with respect to an employee [would] be $10 for each day in the non-compliance period with respect to such failure.” For example, if there are 100 affected employees and not maintaining a satisfactory arrangement persists for a whole year, the excise tax would be $365,000. At least Insured Retirement Institute has announced support for the provision. Some lobbying positions might be somewhat muddled because some organizations that otherwise might oppose a requirement for a “lifetime income” provision might tolerate it to support the push that an employer should make facilitate a retirement-savings opportunity.

A situation like this might result if a service provider treats a sponsor/administrator’s non-response to a notice as a plan amendment or as a service instruction. I’m wondering which source grants a service provider such a power or right. Is it: a power in an IRS-preapproved document to amend a user’s plan? a right under a service agreement to treat the sponsor/administrator’s non-objection to a requested service instruction as the administrator’s instruction? neither (a service provider just did it without authority)?

Most of us can describe evidence, some anecdotal and some with more rigor, that few participants in employment-based individual-account retirement plans (besides those of charities, schools, and governments) choose an annuity payout. The legislative idea says that a participant ought to have an opportunity to get an annuity, and to get it from one’s employment-based plan. (Those who want an annuity can get it by first directing a rollover into an IRA. Many insurance companies would gladly sell a § 408(b) Individual Retirement Annuity.) About the plan-administration expense of illustrating annuity choices and getting a spouse’s consent, would that expense be lessened somewhat by not allowing choice for the larger number of participants who lack a $200,000 balance?

According to Pensions & Investments, the House Ways and Means Committee this week will consider legislation that would “require plans to offer participants with more than $200,000 in their accounts an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution.” House Committee to consider requiring employer-sponsored retirement plans | Pensions & Investments (pionline.com) What do BenefitsLink mavens think about this?