Which State’s law governs your client’s retirement plan?

[Peter Gulia]

If you have a moment on a summer afternoon, I’d welcome your sharing of information and experiences.

For a small-business retirement plan that is not ERISA-governed (because all participants, including eligibles, are self-employed individuals):

Do you know which State’s law governs your client’s plan?

Does your client know which State’s law governs one’s plan?

How often is the governing law not an adoption-agreement choice?

How often does a service provider cause the plan to specify a State law the service provider prefers?

Have you ever seen a situation in which the State law governing the plan matters?

[QDROphile]

Lazing on a sunny afternoon …

Does this small plan have a trust? Is the location of the trust or trustee, or choice of law provisions in the trust instrument, relevant to the applicable state law to the trust or the plan?

[Peter Gulia]

In a matter I advised on (now concluded):

Pennsylvania law governs the plan. (That did not result from an adoption-agreement choice.)

North Dakota law governs the trust agreement.

New York law governs the recordkeeper’s service agreement.

None of those choices of law resulted from anything about where the plan sponsor is or was organized or has or had a location.

I’m not seeking help for a particular matter.

Rather, I wonder how much small-business owners are aware of a choice of State law governing a retirement plan.

And about circumstances in which a choice of State law can matter.

[QDROphile]

Your illustrated heads-up is great, but but probably not very helpful where/when it would help most, which validates your point about general ignorance about the matters. I doubt that such plans are chosen with the benefit of consideration of the applicability or potential effect of state law. I propose that plans are chosen because of marketing or recommendation by providers (or recommendation by a provider) or colleagues, none of whom have any depth of concern for the personal needs of the sponsors or participants, and without legal advice (because who needs it? and  it is an apparently pointless expense). Also, any difference in material outcomes because of state law may be speculative at the time of adoption (what could go wrong?), and would not be much of a factor in decisions among options, if any.

Disclaimer: I have very little experience with this segment (non-ERISA small business retirement plans); I am blowing at least some smoke.

 

 

[herman34]

It usually comes down to the plan document and adoption agreement. If the governing state is not clearly chosen there so first check the document governing law provision rather than assume its based on the owner residence or business location.