Benefits to all

Just to chime in, I agree with Luke here. The Ninth Circuit summarizes the IRS position from a PLR: In advising retirement plans that they do not violate the tax laws by responding to garnishment demands pursuant to MVRA, 24 IRS Priv. Ltr. Rul. 200426027, at 11 (June 25, 2004), 2004 PLR [**66] LEXIS 315, at *20-21, the IRS noted that "the government is subject to the same constraints when enforcing its garnishment order that the Service is subject to when collecting a tax. The government steps into the shoes of the taxpayer . . . ." Id. at 12, 2004 PLR LEXIS 315, at *23. 25 "Though letter rulings are not binding, we think the Commissioner's position makes eminent sense." Jombo v. Comm'r, 365 U.S. App. D.C. 73, 398 F.3d 661, 665 (D.C. Cir. 2005) (citation omitted). This analysis from E.D. of Pennsylvania in U.S. v. King is also helpful: B. The Anti-Alienation Statutes of ERISA and the IRC Defendant argues that the retirement accounts sought to be garnished in this case are exempt due to the anti-alienation provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1056(d)(1), and the Internal Revenue Code ("IRC"), 26 U.S.C. § 401(a)(13). The Defendant relies on Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S. 365, 376, 110 S. Ct. 680, 107 L. Ed. 2d 782 (1990) and U.S. v. Smith, 47 F.3d 681, 684 (4th Cir. 1995). In Guidry, the United States Supreme Court held that any attempts to garnish pension benefits to satisfy a judgment, even where the beneficiary committed criminal acts, were barred by ERISA section 1056. 12 Guidry, 493 U.S. at 376. Specifically, the Supreme Court noted that: ERISA erects a general bar to the garnishment of pension benefits from plans covered by the Act. . .We see no meaningful distinction between a writ of garnishment and the constructive trust remedy imposed in this case. That remedy is therefore prohibited by § 206(d)(1). . .Section 206(d) [*14] reflects a considered congressional policy choice, a decision to safeguard a stream of income for pensioners (and their dependents, who may be, and perhaps usually are, blameless), even if that decision prevents others from securing relief for the wrongs done them. 493 U.S. at 371-72, 376. In neglecting to find exceptions to the anti-alienation provision, the Court asserted that this was not within their prerogative, but rather, "if exceptions to this policy are to be made, it is for Congress to undertake that task." Id. In 1996, Congress did just that with the enactment of the Mandatory Victims Restitution Act ("MVRA"). Though the Third Circuit has not had the opportunity to rule on what effect the MVRA has on the anti-alienation provisions of ERISA and the IRC, we find that the MVRA supersedes these protections. Our decision soundly rests on several grounds. First, the language of the MVRA supports this result. Section 3613(a) of the MVRA [*15] uses the clause, HN7 "notwithstanding any other Federal law. . .a judgment imposing a fine may be enforced against all property or rights to property of the person fined." See 18 U.S.C. 3613(a) (emphasis added). HN8 The Supreme Court has acknowledged that the use of a "notwithstanding" clause signals Congressional intent to supersede conflicting provisions of any other statute. Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18, 113 S. Ct. 1898, 123 L. Ed. 2d 572 (1993). Thus, the "notwithstanding" clause, as written in the MVRA, removes the "general bar" erected by ERISA and the IRC to the garnishment of retirement accounts. See DeCay, 620 F.3d at 540; US v. Irving, 452 F.3d 110, 126 (2d Cir. 2003); Novak, 476 F.3d at 1053. This finding is further reinforced by the fact that Congress explicitly exempted certain retirement plans, not relevant to this case, from garnishment under the MVRA. 13 See 18 U.S.C. § 3613(a)(1). Second, HN10 the MVRA directs that criminal fines should be enforced in the same manner as a tax liability. 18 U.S.C. § 3613(c). Accordingly, the only property that cannot [*16] be garnished in restitution is that which the government cannot seize to satisfy the payment of income taxes. 18 U.S.C. § 3613(a). Courts have recognized that ERISA and the IRC do not shield retirement benefits from being levied to collect unpaid taxes. See Shanbaum v. U.S., 32 F.3d 180, 183 (5th Cir. 1994); Irving, 452 F.3d at 126. Thus, it is consistent with the statutory scheme, language and intentions of Congress that the anti-alienation provisions of ERISA and the IRC should not protect retirement accounts from garnishment. Third, there is a clear consensus of judicial opinions that the MVRA has superseded the anti-alienation provisions of ERISA and the IRC. See Irving, 452 F.3d at 126; DeCay, 620 F.3d at 540-41; U.S. v. Hosking, 567 F.3d 329, 335 (7th Cir. 2009); Novak, 476 F.3d at 1053. These decisions are well reasoned and persuasive. In sum, we find that HN11 the MVRA supersedes the anti-alienation provisions of ERISA and the IRC. Thus, the Defendant cannot rely on them to protect against the garnishment of his retirement accounts as restitution for his criminal actions.

Any further thoughts on this topic? I don't think a failure to make the distribution of a grandfathered plan subjects it to Section 409A. My thoughts are that this is corrected under pre-409A tax principles and there is nothing to bring it within its purview. Pre-409A would view the individual as being in constructive receipt of the amount in the year it was due because he could have drawn upon it at any time, and therefore, the employer would go back and amend the tax return for the year in which the amount was due (here, 2007). If there was interest owed on the amount, the employer could provide interest since the distribution date and this would be reportable in the current year (as the year in which the right to interest arises). I don't see how a failure to pay would constitute a material modification under Section 409A, as that term is defined. I also don't see it as a further deferral since the fix would be to report it in the year it was due (without the benefit of further deferral), so there is no further deferral. Unfortunately, given the odd results in the Section 409A correction program, I am not sure if the IRS would agree or not. *not tax advice.

The regulations for corrective amendments (1.401(a)(4)-11(g)) provide for special rules for 401(k) plans; specifically, they instruct that when a plan fails coverage testing under 410(b) and corrects by corrective amendment, the contribution must be a QNEC. Anyone have any idea if it has to be a QNEC or a regular contribution if you are correcting for failure to satisfy benefits testing under 401(a)(4)? Essentially, a client is contributing an additional profit sharing contribution to NHCEs in the Plan after the client failed benefits testing (not coverage). The TPA is telling us it has to be a QNEC. I read the regulations to only require a QNEC when failing testing for coverage purposes. Thoughts? Sources? Thanks!

Bobolink, did you ever find any resolution on the Investment Company Act issue? This article is the most complete narrative I have found on this issue and this author suggests that any MEP would be an investment company (http://www.klgates.com/files/Publication/2e8a6c86-83f1-429e-a82d-0153b48c5480/Presentation/PublicationAttachment/1750591d-55f3-47bc-9fdf-0a6b74ecffe2/BNA_Article_Multiple_Employer_Plans.pdf) at pages 9-10. Practically, are MEPs still just operating under the risk of nonregistration?

Is there any duty to monitor the Escrow arrangement and who has the duty? Say, at the beginning of year, the escrow arrangement is funded 125% (or any amount over 110%) but due to bad investment performance, the funding level falls to 100% at the six month mark. Is there a duty that it needs to be re-upped then or just as an annual valuation (generally, when the Plan measures the "restricted amount" each year)? Does anyone know of any practical guidance of the "nuts and bolts" of setting an escrow arrangement up? I.e., who can be an escrow agent? Valuation dates? Who is responsible to make sure the escrow is funded? Who is party to each agreement (repayment agreement between plan and employee, and escrow agreement the employee and escrow agent)?

The service provider charges fees (not paid by plan assets) for certain investment advice programs. The fees are waived for participants 55 years or older so that they can get the investment advice anytime. I do not think the age discrimination claim applies (but am hardly an expert in such claims). There are HCEs under 55, and it may help testing. But the question still remains: is the investment advice program (optional to use) a right or feature of the Plan?

Thanks Belgarath. Just to be clear, you are saying that the investment advice is a "other right or feature", correct? As in, not listed as an exception to definition of other right or feature under -4(e)(3)(ii)? I agree with you but wish I could find an IRS comment on the matter.

If a plan is offering a service through a service provider that provides investment advice for a fee as allowed by ERISA section 408(b)(14) (as introduced by PPA to not make it a prohibited transaction), and the investment advice is offered for free to those participants over age 55, is it potentially discriminatory? The thrust of the question: is investment advice considered a "other right or feature" under 1.401(a)(4)-4(e)(3)? There appears to be little guidance on the issue. If anyone has a thought or direction to point, please share.

I have a client who has been checking the box for the exemption for small pension plans under Reg. 2520.104-46 in order to waive the annual audit requirement. However, the client has not been providing the requisite information to the participants as called for by the regulation. Does that mean the exemption is blown and we would have to go back and audit for the past decade? Any insight would be appreciated.

PMC, did you ever reach a consensus on this issue? I have a similar issue and have been trying to track down some guidance.

Looking to see if anyone knows of any IRS guidance out there that could help me out with the following. Company A & B cover their employees in a multple employer safe harbor 401(k) plan that has fulfilled all proper notice requirements. Halfway through the year (effective 5/1), however, Company B is going to shift its employees into a single employer SH 401(k) plan by amending the plan to simply say it is no longer a multiple employer play, it is a single employer plan, and establishing a separate trust. It will have all the same features as previously in place, contributions, protected benefits, etc. I think the argument is that it is the same plan, not the creation of a new one. It is a simple conversion; not the creation of a new plan. I cannot seem to find any IRS guidance on the issue. Any input/opinion would be appreciated.

I should clarify. There is no disability benefit under the Plan. The determination of disability just affects vesting and accruals. That is what I am worried about. If I change the definition of "disability" for those determinations, am I cutting back a feature of the benefit offered under the Plan?

If I define disability in a DB plan as having the same meaning as the company's long-term disability plan (as in effect at the time of the event giving rise to disability) and subsequently the company changes the long-term disability definition (not subsequent to the injury, but subsequent to the effective date of the definition), is this a prohibited cutback under 411(d)(6)? The problem is that the current LTD definition is a pretty low standard to clear, and I could foresee them changing it in the future to raise the bar a bit. Is that a cutback? At first thought, it would appear you are not cutting back anything that the participants are guaranteed already, as the definition is as it is in place at the event. But then I thought that could apply to anything. You cannot say "you are guaranteed whatever benefit we determine at the time." Thoughts?

Yeah, that is a possibility. There is a case that seems to suggest a pretty minimal asset transcaction combined with some lease assumptions would fit the "sale of assets" transaction, but I am not sure if it is directly on point. Thanks for the input.

Yeah, I understand. I appreciate all your help jpod!