Is SECURE 2022 law?

[Peter Gulia]

In Texas v. Garland, No. 5:23-CV-034-H [document 110] (N.D. Tex. Feb. 27, 2024), the court holds that the Consolidated Appropriations Act, 2023 is not an Act of Congress because the House of Representatives lacked a constitutional quorum on December 23, 2022 when the House voted on the Senate-passed bill.

SECURE 2022 is division T of that Consolidated Appropriations Act, 2023, Pub. L. No. 117–328 (Dec. 29, 2022), 136 Stat. 4459 (2022).

The court’s orders, even if all stays expire or otherwise end, do not act on division T. Rather, the court enjoins only the U.S. government’s enforcement of the Pregnant Workers Fairness Act against the State of Texas.

Yet, until there is a final decision of the Supreme Court of the United States:

Might a plan sponsor that dislikes SECURE 2022’s added or extended provisions about long-term part-time employees (not challenging the provisions enacted in SECURE 2019) assert that the Treasury department’s Internal Revenue Service cannot require those provisions as a condition for a plan’s tax-qualified treatment?

If, next year, a person who would be eligible if added ERISA § 202(c) is law is denied her elective-deferral opportunity, might the plan’s administrator argue that a judge must dismiss the participant’s complaint because it fails to state a claim on which relief could be granted?

About permissive provisions a plan sponsor likes, one imagines neither the Labor department nor the Treasury department would assert that a SECURE 2022 provision is not law because such an assertion would be contrary to at least the litigation position of the United States.

Texas v Garland (Is SECURE 2022 not law).pdf

[Belgarath]

Interesting. I'm completely unqualified to opine on the legal technicalities - but what (for me) passes as common sense, leads me to ask why in the world would an employer attempt to litigate this when the only practical effect is allowing certain employees to defer ONLY - no employer contributions, top heavy, etc., etc.?

Seems like the expense, and hassle, is the losing end of a bad deal.

[Peter Gulia]

One need not start litigation. Rather, a plan’s sponsor or administrator might assert that SECURE 2022 is not law as a defense. And not necessarily in litigation but perhaps in some examination or administrative procedure before the IRS, or under the plan’s claims procedure in responding to a claim by a might-be participant. Consider two examples:

If a plan’s administrator interpreted the plan to exclude those long-term part-time employees who would be entered only if SECURE 2022 applies and the IRS seems headed toward tax-disqualifying the plan, one might persuade an IRS examiner’s supervisor to drop a point. The IRS often considers the hazards of litigation, and sometimes abandons a point or negotiates a closing agreement. Even if a first effort does not persuade the IRS supervisor, a taxpayer or its representative may request that the IRS’s examining staff get chief counsel advice. A lawyer there might advise her client that the United States prefers not to litigate, apart from the Texas case, whether the Consolidated Appropriations Act, 2023 is law.

If a might-be participant seeks to make an elective deferral and the plan’s administrator denies entry, it is the might-be participant who must exhaust the administrator’s claims procedure and evaluate whether to sue (if not bound by arbitration). Would such a plaintiff find an attorney to advocate her case? If one does, might a court find that the plan administrator’s interpretation, grounded on a Federal court’s interpretation, is, even if not correct, at least reasonable enough that it is not arbitrary and capricious and so gets Firestone deference?

I concur with your view that some plan sponsors might have only relatively weak reasons to exclude people from an elective-deferral-only opportunity if allowing it does not affect coverage, nondiscrimination, and top-heavy tests. Others have sensible gripes about difficulties in implementing LTPT eligibility, and how it relates to those tests. As some BenefitsLink discussions (and associations’ comment letters filed with the government agencies) have shown, some employers and some service providers have different, and sometimes strong, views about the LTPT provisions.

My only point is to be aware of law’s opportunities.

[MoJo]

My only response is to shake my head and mutter "only in Texas...."  After all, aren't they the ones who are intentionally and militarily refusing to abide by a SCOTUS ruling....

For what it's worth, the House itself gets to decide what it's rules are and can enforce or not enforce the quorum rules affirmatively or negatively.  I would suggest that enforcement of the House's quorum rules is reserved to the members of the House.  In other words, if a House member doesn't object, then the House has made a defacto determination that a quorum exists, or that it doesn't apply at the time.  "After the fact" determinations are inapplicable, inappropriate, and inconsistent with a Federal form of government.  Individual states have no power to overturn what the legislative body has done.  Constitutional determinations can only be made on the basis of the text of the Constitution, not the internal (or inferno) rules of a specific body....

[Peter Gulia]

While the House of Representatives might set its own internal law, it cannot make any that contravenes the Constitution of the United States.

The opinion’s reasoning interprets the Constitution’s article I, § 5, clause 1.

In the reasoning, the opinion considers only facts Congress itself stated in Congress’s records.

The Federal court holds that the House of Representatives lacked a constitutional quorum on December 23, 2022 when the House voted on the Senate-passed bill.

The judge was nominated by both Presidents Obama and Trump.

Without liking or disliking the court’s reasoning, my note is about opportunities for a plan sponsor to be aware of, and perhaps in some circumstances, exploit uncertainty about whether SECURE 2022 is law.

[CuseFan]

1 hour ago, MoJo said:

shake my head and mutter "only in Texas...."

LOL - thinking the same thing, but then easily could be Florida, Alabama, Arkansas, .......

[MoJo]

8 minutes ago, Peter Gulia said:

While the House of Representatives might set its own internal law, it cannot make any that contravenes the Constitution of the United States.

The opinion’s reasoning interprets the Constitution’s article I, § 5, clause 1.

In the reasoning, the opinion considers only facts Congress itself stated in Congress’s records.

The Federal court holds that the House of Representatives lacked a constitutional quorum on December 23, 2022 when the House voted on the Senate-passed bill.

The judge was nominated by both Presidents Obama and Trump.

Without liking or disliking the court’s reasoning, my note is about opportunities for a plan sponsor to be aware of, and perhaps in some circumstances, exploit uncertainty about whether SECURE 2022 is law.

The question from that perspective is whether the proxy voting rules adopted by the House is applicable, and constitutional.  The House, which can determine it's own rules, said yes.  And by the way - anything to prevent the protection of pregnant workers.  Anything....  Gotta wonder....

[MoJo]

3 minutes ago, CuseFan said:

LOL - thinking the same thing, but then easily could be Florida, Alabama, Arkansas, .......

Let's not forget Arizona....

[Peter Gulia]

“The question from that perspective is whether the proxy voting rules adopted by the House is applicable, and constitutional. The House, which can determine its own rules [but not the application of the Constitution], said yes.”

But an Article III judge, nominated by two Presidents, and confirmed by the Senate, said no.

We’ll see how the inevitable further litigations play out.

[MoJo]

5 minutes ago, Peter Gulia said:

We’ll see how the inevitable further litigations play out.

Yes we shall.  As a constitutional scholar (in my mind, anyway) and a published author on the "independence" of the judiciary due to lifetime appointments (which, I argued, cause a reversion to the middle) ... I now feel as though that independence has been eroded by partisan ideology (both ways).  If you agree with this decision, then virtually EVERYTHING passed between 2020 through 2022 is now null and void.  Bye bye CARES Act.  Bye bye every spending bill, budget, foreign aid, Social Security payments, VA benefits and pensions.  EVERYTHING.  What a world that would be....

[rocknrolls2]

Bringing this back to the present

reality, LTPTEs are not the best example because they were enacted as part of SECURE 1.0. SECURE 2.0 merely reduced the number of consecutive years needed to become LTPTEs from 3 to 2 and extended their application to 403(b) plans. Better examples would be PLESAs or the mandatory auto enrollment rule.

[ratherbereading]

Go Texas!!! 

[Peter Gulia]

rocknrolls2 is right: My illustration [above] that an advocate or negotiator might use uncertainty about whether SECURE 2022 is law could be useful for a defect about an LTPT employee who would be entered only if SECURE 2022 applies; it’s not useful for a defect about someone the plan makes eligible under SECURE 2019 without SECURE 2022’s changes.

Thank you for noting that a plan sponsor could assert that an automatic-contribution arrangement is not a tax-law condition for a new § 401(k) arrangement.

Perhaps there are more sometimes unwelcome SECURE 2022 changes one might argue against.

[Peter Gulia]

Last Friday, the United States filed its notice of appeal.

Texas v. Garland, No. 5:23-CV-034-H, 2024 WL 814498 (N.D. Tex. Feb. 27, 2024), notice of appeal [document 113] filed Apr. 26, 2024.

I express no view about whether the appealed-from decision is a correct or incorrect interpretation of the Constitution of the United States.

Texas v Garland notice of appeal 177116797415.pdf

[Peter Gulia]

Again, not suggesting any view of the merits or weaknesses:

The most recent docket entry [#110, Nov. 13, 2024] shows the United States’ reply brief.

That suggests some possibility the appeals court might schedule an oral argument in 2025.

A Fifth Circuit decision might be a precedent that might affect an employer that resides in Louisiana, Mississippi, or Texas. https://www.uscourts.gov/sites/default/files/u.s._federal_courts_circuit_map_1.pdf

I don’t here state any prediction.

[Peter Gulia]

In the United States’ appeal, now captioned Texas v. Bondi, a panel of the Court of Appeals for the Fifth Circuit (Judges Graves, Higginson, and Wilson) heard oral argument on February 25, 2025. A recording of the oral argument is available at https://www.ca5.uscourts.gov/OralArgRecordings/24/24-10386_02-25-2025.mp3.

I offer no prediction about what the panel, the whole Fifth Circuit, or the Supreme Court might decide. And I don’t offer my observations about the strengths and weaknesses of either litigant’s interpretation of applicable law, or about how law applies on the facts of Congress’s proceeding.

A disposition likely would directly affect only whether the United States may or must not enforce the Pregnant Workers Fairness Act. Further, the appealed-from judgment provides relief only to the State of Texas.

Yet, until there is a final decision of the Supreme Court of the United States, a plan’s sponsor or administrator might negotiate or defend something by asserting that SECURE 2022 is not law.

This is not advice to anyone.

[Kirk Vaughn]

On 2/28/2024 at 9:30 AM, Belgarath said:

Interesting. I'm completely unqualified to opine on the legal technicalities - but what (for me) passes as common sense, leads me to ask why in the world would an employer attempt to litigate this when the only practical effect is allowing certain employees to defer ONLY - no employer contributions, top heavy, etc., etc.?

Seems like the expense, and hassle, is the losing end of a bad deal.

There's more to it than LTPT deferrals. There are other administratively burdensome provisions, like requiring Roth catch-up contributions and mandatory automatic enrollment. Additionally, if SECURE 2.0 goes away, 403(b) sponsors  don't have to worry about any LTPT rules, not just an alteration of who counts as an LTPT employee, which impacts things like vesting.
 

Also, I could see someone who is facing a very expensive audit cap related to a botched mandatory automatic enrollment using the threat of a lawsuit as leverage when negotiating with the IRS. A medium sized employer could find itself in a situation where the combined cost of correcting MDOs, paying lost earnings, and the fine could exceed the cost of the lawsuit. If multiple employers all facing similar situations were to band together, the cost of the lawsuit could easily be far less than the cost of complying with SECURE 2.0.

 

[Peter Gulia]

And much might be accomplished using no litigation but a plausible threat of litigation.

A taxpayer in an IRS examination may request that the IRS’s Office of Chief Counsel advise the IRS about any question of law relevant to the examination.

Considering that a taxpayer can challenge in Federal courts an IRS decision to tax-disqualify a plan, a Chief Counsel lawyer might, before responding in writing to a request, advise the IRS that the United States prefers not to litigate, apart from the pending Texas case, whether the Consolidated Appropriations Act, 2023 is law, and that the government’s interests could be served by negotiating a closing agreement, even if its terms are more favorable to the taxpayer than the IRS otherwise would offer.

[John Feldt ERPA CPC QPA]

Of course, if compliance with SECURE 2.0 is the only thing upon audit that the IRS can find wrong with a plan, then they’re not looking hard enough.