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I have made the (not all all difficult) decision to retire at the end of this year. I have agreed to work a couple of days a week during the early part of next year to help out my employer while they hire a replacement, but it's a limited engagement. I'll be lurking on these boards for a while yet. I'd like to take this opportunity to thank Dave and Lois for providing this magnificent resource - it has been a tremendous asset! I'd also like to thank all of you folks, past and present, for the invaluable assistance you have given to me over the years. I've certainly taken more than I've given, and your time, generosity, and expertise is appreciated more than you can ever know. It's not just the technical expertise, but the sounding board for discussions, sometimes griping (misery loves company) and humor in the face of statutory and regulatory foolishness that makes this such a great community. I wish you all the best in your future endeavors (I'm trying hard not to gloat) as you continue in this business, and I hope you all have a great Holiday season! Take care, and again, a heartfelt thanks!!!

In 1977, as I began law school, I started working as a law clerk and was quickly given responsibility for the firm’s qualified plan practice. When I passed the bar in 1980, I stepped fully into a career that has now spanned more than four decades. As I begin to slowly wind down those years as an ERISA attorney, I am deeply grateful for the opportunities that have come my way and for the encouragement and help of so many good men and women. I never dreamed, in the ’70s and ’80s, where this practice would take me. As this year began, my ERISA work fell into six main roles: I’m an author. I have written or co-authored five books dealing with retirement plans, and am nearly done with my sixth—the ERISA Fiduciary Navigator eSource—all published by ERISApedia.com. I head the ERISApedia ASK service, where my protégé, Adriana Starr, and I answer questions from ERISA practitioners. I present webcasts and live seminars on retirement topics. I draft plan documents and interim amendments on behalf of the Relius division of FIS. I serve as of counsel to the Ferenczy Benefit Law Center. I assist some clients in a private practice. One of the observations that has struck me over the years about the Employee Retirement Income Security Act is that it never defines “retirement.” My own working definition has been “separating from service once you’re old.” But the older I get, the older “old” gets. Still, as I near RMD age (even after SECURE 2.0), it's time to start thinking about saddling up and riding into the sunset. I envision retirement as gradually dropping things out of the saddlebags. So, with mixed emotions, I announce that I will no longer be acting as of counsel to the Ferenczy Benefit Law Center or conducting a private practice. I will consult on special cases, but otherwise, for now, my professional endeavors will focus on writing, teaching, FIS, and the ASK service. Planning for the financial side of retirement has been the easy part. The emotional and professional side is more challenging. My hope is that a slow and gentle ride toward tomorrow will make that transition easier. I am profoundly grateful to the colleagues, clients, and friends who have shared this journey with me—and I look forward to continuing to write, teach, and cheer you on from slightly lighter saddlebags.

Dude, congratulations!!! You have taken the time and thought to make more than 6,700 posts to these message boards, over more than 24 years. What a helpful and loving contribution you have made to your peers, the employee benefits industry, and hence to plan participants and plan sponsors all over the country! Unfortunately, your request for retirement is denied. (The fine print is in the Terms of Service, the plan documents, or somewhere.)

My understanding is that it is cumulative, that the preservation of capital requirement applies upon distribution unless the terms of the plan dictate otherwise, such as a zero percent annual floor. Using actual ROR can cause high 401(a)(26) minimums when there are low or negative investment returns and can cause low 415 lump sum payout limits when there are high investment returns, so be careful out there!

And the plan must have the safe harbor provisions. It is not considered safe harbor if the plan does not say it is safe harbor.

ADP refunds are not particpant-driven transactions. The decision is made by the plan administrator. The custodian should rely on the representations of the plan administrator and/or trustee in cases like these. Most of the record keepers I dealt with took direction from me (acting as 3(16) Plan Administrator). But I don't see why they can't/won't take direction from the Plan Administrator. Are these brokerage accounts?

If the buyer bought shares, LLC interests, or partnership interests of the seller organization such that the buyer now governs the seller organization, the buyer may decide what to do with the seller organization’s retirement plan. If the buyer bought assets from the seller organization (and not shares or other interests of the seller organization), the seller organization, acting by whoever has power to act for it, decides what to with its retirement plan. This is not advice to anyone.

I would like to make one comment to this statement to confirm my understanding. I agree that the timing is irrelevant. However, I don't believe the Final Regulations change the nature of a catch-up. Meaning a catch-up is still an amount that exceeds a limit, but any Roth deposit may satisfy the requirement. For example, let's say a 401k plan document is written to not match catch-up contributions. In January 2026, a participant (age 55) funds $8,000 Roth and $0 pre-tax February - December the participant funds $24,500 pretax. $0 Roth The Roth dollars satisfy the rule, but they are not catch-up dollars. The final $8,000 pre-tax dollars are still the catch-up dollars and stay as pre-tax. Therefore if a plan uses a pay period match formula, the Roth dollars are matched, the final $8,000 of pre-tax is not. This may be semantics, but I would change the statement to say: The first Roth dollar deposited can be used to satisfy the Roth catch-up requirement.

Personally, I am of the opinion that those records should be kept electronically and in perpetuity, if not by the TPA/RK/Trustee/Custodian then certainly by the plan sponsor with the assistance from one of the aforementioned entities. Doesn't need to be extensive, just needs to sufficiently prove someone has been paid out. Why? SSA sends me a letter saying my employer's plan from 35 years ago MAY owe me a benefit. Not remembering they paid me back then and instead of rolling it over I went to the casino and lost it, I have no record, so I make a claim on that plan. I don't accept their answer of we don't have you in our records any more so you must have been paid out, so I go screaming "I want my two dollars!" (bonus points for the movie reference) and threaten to talk to my lawyer, the DOL, the IRS because I've seen everything worthwhile on Netflix and have nothing better to do now. This sends the Plan Administrator scrambling, calling around to past and present service advisors, muttering "I don't have time for this" and "I'm getting too old for this sh1t" (yes, another movie reference) before caving like a Democratic senator and concluding it's easier to pay me my $2. The moral here is (1) someone should retain these records in perpetuity, logically the plan sponsor, and (2) responsible party(ies) need to be diligent in reporting deletions on Form 8955-SSA. Then the too often occurring scenario from above gets avoided.

Sounds like you should do the AE adjustment from March to December on the benefit, and then calculate the lump sum as of December based on the adjusted benefit.

No. A match of 100% on the first 6% satisfies the ADP and ACP safe harbor (assuming no allocation conditions, vesting rules, notice requirements, etc. are satisfied). The 4% rule you reference comes into play when a discretionary match is funded in addition to a safe harbor formula. If there is a discretionary match in addition to a safe harbor match, then to satisfy ACP safe harbor, the match cannot take into account more than 6% of pay and the match contribution cannot exceed 4% of pay.

No. If initial eligibility is satisfied for 3% SHNE and someone enters the plan they get the 3% SHNE for however long they were employed and in the plan, whether a day, a week or through year-end.

I hope your seventh book will be the music notation and lyrics of your songs about the law of retirement plans.

Derrin, I’m so very grateful for everything you’ve done for the retirement community and, especially for me. Without you (and Doug Jolley), I can’t imagine having survived the early difficulties in what became my career. Starting my own business way before it was rational to do so, I leaned rather heavily on PIX just to keep my head above water. Thank you, though that is woefully inadequate.

Well done! I can echo, after 40+ years as an actuary, it was difficult to "let go", so I endorse your gradual approach. Retirement is great!

@S Derrin Watson, you have been a trusted advisor, teacher, lecturer, and author for my entire career in the industry. I can easily say that you, @Ilene Ferenczy, and Sal have shaped me into the practitioner I am today. I wish you the best as you start this new chapter of your life!

😮noooo!!! Well, for the rest of us. Thanks for everything over the years, Derrin, and enjoy the wind-down!

Darrin you are the one and only person who has ever done singing continuing education classes that I have been in. You bring up your name in this industry and the conversation turns to the signing instructor. You also taught all of us a lot in those classes. Enjoy retirement.

Echoing @Belgarath and wishing you the best on your gradual exit from the industry. Hopefully others will continue your legacy so the next generation of service providers will know "who's the employer?" After 40+ years in the industry myself, I must say that my fondest memories of your contributions to us all were your musical renditions that added spice to otherwise boring and mundane (to most) topics. Enjoy life!

Hi, ho, Silver! We all wish you the very best as you enter this new phase of your life. We have valued having you as a resource, and we are glad that we will still be working together with ERISApedia. Be well, my friend, enjoy your life and family, and know that you are always in our thoughts. We love you - Ilene, Alison, and the rest of us at FBLC

Why do I get the feeling this is happening for hundreds and hundreds of plans...

https://pbinfo.com/locate-missing-participants/ This is one that we use.

Notice 2025-67 just released, with the official retirement plan limits for 2026.

Is everyone in their own group for profit sharing? That would be the typical method of accomplishing this.

You wouldn't pass the reasonable classification portion of the eligibility test (i.e., the safe harbor percentage or unsafe harbor w/ facts/circumstances) without any NHCEs. That would cause the HCEs (everyone in this case) to lose the Section 125 safe harbor from constructive receipt (i.e., be taxed on their contributions). Prop. Treas. Reg. §1.125-7(b): (b) Nondiscrimination as to eligibility. (1) In general. A cafeteria plan must not discriminate in favor of highly compensated individuals as to eligibility to participate for that plan year. A cafeteria plan does not discriminate in favor of highly compensated individuals if the plan benefits a group of employees who qualify under a reasonable classification established by the employer, as defined in §1.410(b)-4(b), and the group of employees included in the classification satisfies the safe harbor percentage test or the unsafe harbor percentage component of the facts and circumstances test in §1.410(b)-4(c). (In applying the §1.410(b)-4 test, substitute highly compensated individual for highly compensated employee and substitute nonhighly compensated individual for nonhighly compensated employee). Prop. Treas. Reg. §1.125-7(m): (2) Discriminatory cafeteria plan. A highly compensated participant or key employee participating in a discriminatory cafeteria plan must include in gross income (in the participant's taxable year within which ends the plan year with respect to which an election was or could have been made) the value of the taxable benefit with the greatest value that the employee could have elected to receive, even if the employee elects to receive only the nontaxable benefits offered.

If everyone is $160k+ you would want to use the top-paid group (top 20%) election for the cafeteria plan, which I'm assuming they are already doing for the 401(k) (unless it is safe harbor). Then you would have NHCEs and therefore likely no issues. Prop. Treas. Reg. §1.125-7(a)(9): (9) Highly compensated. The term highly compensated means any individual or participant who for the preceding plan year (or the current plan year in the case of the first year of employment) had compensation from the employer in excess of the compensation amount specified in section 414(q)(1)(B), and, if elected by the employer, was also in the top-paid group of employees (determined by reference to section 414(q)(3)) for such preceding plan year (or for the current plan year in the case of the first year of employment). Treas. Reg. §1.414(q)-1, Q/A-9(b)(2)(iii): (iii) Method of election. The elections in this paragraph (b)(2) must be provided for in all plans of the employer and must be uniform and consistent with respect to all situations in which the section 414(q) definition is applicable to the employer. Thus, with respect to all plan years beginning in the same calendar year, the employer must apply the test uniformly for purposes of determining its top-paid group with respect to all its qualified plans and employee benefit plans. If either election is changed during the determination year, no recalculation of the look-back year based on the new election is required, provided the change in election does not result in discrimination in operation.

Sure, explore that process. But get review by the plan's ERISA attorney. Also, consider whether you need review by your own attorney also.

I am curious about why the industry doesn't view this as purely a payroll function. While an RK needs DOBs for various reasons and can use them to determine whether a participant's catch-up needs to be returned because they are not the proper age, there is no other reason to collect SS wages except for this new rule. Why can't this responsibility be put on payroll companies to ensure they do it properly? They have all the records.

Congrats @Belgarath!!! You are coming back to discuss SECURE 3.0 with us just for fun though, right? Right? Bueller???

If the employee will have about $195,000 in Social Security wages (box 3) on one 2025 Form W-2 wage report, that would make her a § 414(v)(7)-affected participant for 2026 (if she otherwise is eligible for an age-based catch-up). That a portion of the wages was from union labor does not by itself exclude that portion from § 414(v)(7)’s measure of Social Security wages. This is not advice to anyone.

Sadly, telling a potential plan sponsor about how the safe harbor works during a sales meeting has no bearing on what they remember over a year later when you provide the contribution amounts.

I guess in a narrow view, nobody HAD to explain it to the ER. It's up to them to understand the plan document they are signing, and they are the ones (usually) tasked with operating the plan. However, I'm guessing someone approached the ER about setting up the plan and steering them to a SH arrangement. Whoever did that should have at least explained it to the ER the mandatory contribs and the conditions under which they would be made. It's certainly possible that the ER just tuned out and/or only heard the PS part of the funding. Or maybe thought the SH and PS were the same... I guess they can remove the SH for '26 and just do ADP testing. And tehy doen' even have to give refunds! They can do a QNEC. And guess what? Those don't even have to go to those employed on the last day of the year either!

Did no one explain this to the client during plan setup?

Last time, years ago, when I explained my aversion to naming the “employer” as plan administrator, I got pushback with the perfectly reasonable explanation that with respect to “small” employers my concerns were not well founded and my recommendations were impractical. A fair point. For sole proprietors, and some other businesses with a limited number of active owners, naming the employer as plan administrator is probably not worth much worry. I hope that those active owners understand that they are fiduciaries, and what that means, including potential personal liability. With respect to more complex businesses, the concerns are based on a corporate and agency law. To avoid need for a legal treatise, the practical question to address when the employer is the plan administrator is, “Who is the fiduciary?” Or, asked another way, “Who will be the warm body sitting behind the defendant’s table in a fiduciary lawsuit?” That person has an interest in 1) knowing that they are a fiduciary because without that knowledge, it is impossible to act in accordance with fiduciary standards (attention is the first requirement of a prudent person), and 2) being covered by appropriate insurance (e.g. E&O, D&O, special ERISA policies). To illustrate, if I were a plaintiff’s lawyer or the Department of Labor pursuing a claim of fiduciary breach, and a corporation were the “employer” named as plan administrator (without further specific identification or express delegation), I would name every individual board member and executive officer personally as defendants. And let us not forget the poor HR administrator, who is always on the front line of dealing with benefits and may be a fiduciary by default because they are forced by practicalities to engage in fiduciary activity without the pleasure of being named as a fiduciary. Maybe most of those people could get themselves dismissed, but it would not be fun or happy. This is how the “small employer” exception makes sense. A single owner who also handles all executive functions is on the hook as “employer” no matter what because there is no one else to bother. That is the crux of it. How best to identify the plan administrator, and to align fiduciary responsibility, depends on the organization, its personnel, and its circumstances. There is not an arrangement that fits all, and the appropriate arrangement is often not given any thought when a plan is adopted or restated. I suspect you were asking for some specific models. I am playing the lawyers card of “it depends”.* The organization could name the “employer” as plan administrator, but then a lot of other actions and documentation would be required to achieve the proper identification and alignment. For the most part, that ain’t gonna happen. Even if it does, the Department of Labor can be so ham-fisted that it won’t understand or respect the niceties, and it likes as many people as possible to sweat personal liability. *For a corporation, how about designating the CEO as plan administrator, with authority to delegate, including the authority to designate other named fiduciaries. Depending on circumstances, the CEO will delegate authority rather than directly undertake the functions. The CEO’s corporate responsibility for oversight of company business, and fiduciary responsibility for oversight of persons the CEO names as fiduciary, overlap nicely. For a large organization, corporate or partnership (e.g. professional services), I like fiduciary committees, which can be designated as plan administrator, and populated by a CEO or equivalent. The CEO is still a fiduciary for this purpose.

I hope you all have a great Thanksgiving, unsullied by productive thought. (We are having our meal on Saturday, as many family members can't make it tomorrow, so I'll be working tomorrow - great time to catch up on stuff with no phone/e-mails!)

Cuse is correct. If your client needs proof, you can point them to IRC sec. 401(k)(12) which requires that the contribution be made to "each employee who is not a highly compensated employee and who is eligible to participate in the arrangement." Also see Example 4 in 1.401(k)-3(c)(7) of the regulations which is exactly on point that you can not impose a last day requirement on a safe harbor contribution.

I'm frequently surprised at the litany of reasons why some people may not want to be found (or accept payment). Divorce, separation, child support, legal or illegal debt, avoiding a stalker, it goes on and on... we had one where the former employee was collecting disability, and getting a payment from the plan would have reduced or eliminated her disability payment. It'll probably get worse now with the ICE crackdowns.

I don’t think one can be too exacting about plan terms. Sometimes I wonder if I should be chagrined at the number of my posts that that assert something like, “the plan document sucks.” That said, sometimes it is appropriate to be vague, though not ambiguous. The issue with an artfully vague provision is that the fiduciary responsible for interpreting the provision has to apply it and might not be cued in to the intent behind the vagueness, and eventually may have to solidify the meaning over time as the provision is consistently applied. Also, the fiduciary may be uncomfortable with interpretation, especially if the fiduciary is unskilled or inexperienced (such as “the employer”, whoever that is at the moment — a dig at those who think it is OK to designate the employer as plan administrator). I hope you are not the fiduciary responsible for interpreting plan terms. As you describe the terms, the plan document sucks. If you are not, consult the poor fiduciary who is, as questions come up. If you are the fiduciary, consult the plan sponsor to determine the intent behind the provision, then to the extent feasible and consistent with qualification requirements and any history of interpretation/application, create a written interpretation that implements the appropriate intent and eliminates the uncertainties.

From the way the OP is worded, it sounds as if the client does not want to assume any responsibility for signing a plan document without fully understanding what they were signing, and they now want to declare this is totally the TPAs fault. One thing that is almost always certain, when the IRS discovers a disconnect between the plan document and plan operations, the plan document governs and the plan sponsor is accountable for the content of the document. The only instances where the IRS possibly may be possibly swayed on a hope and a prayer is if there is an overwhelming amount of documentation contemporaneous with the adoption of the plan and the original intent to have certain provisions that were not reflected in the document. The IRS more likely be agreeable to accepting the retroactive application of plan provisions that are favorable to participants and are not discriminatory in operation. Given the changes in question, there should be no issue with accelerating the vesting schedule, but be careful with the change in NRA for any participant who is withing three years of age 62 (since attaining NRA would trigger full vesting). Be a little wary of this client who will blame you when something goes off the rails, and make sure you maintain documentation of source data and any operational issues when they arise. This is particularly important in this environment when plans can be administered base on documented administrative procedures that have not yet been codified into the formal plan document.

Jayasar, you are correct. 1. Highly Paid Individuals for 2026 are those that earned more than $150,000 (indexed) in 2025, based on FICA wages (Box 3 of W-2). It is a lookback provision. 2. Those without W-2 wages (i.e. sole props, partners) are currently exempt from having to make catch-up as Roth. 3. Roth provisions must be in place before the first Roth contribution. The timing of the Roth catchup contribution is irrelevant. The first Roth dollar deposited can be counted as Roth catchup. The participant does not need to exceed the 402(g) limit for the contribution to be counted as catch-up. 4. One note of caution if you have HPIs that solely earn W-2 and are not HCEs: if the plan does not permit Roth and the HCEs get to make catchups (pre tax) because they don't earn W-2, but the HPIs are prevented from catchups, then you have a benefits, rights and feature issue. In your example, since owner makes $50k in W-3 income, they are not subject to the Roth Catchup requirement.

Since there are very good reasons to be suspicious of the request, you and the plan's fiduciaries need to protect the plan from potential fraud. Otherwise, if the request is fraudulent, then there will be a lot of finger-pointing (and potentially litigation) about who will make the plan and participant whole. If there is a concern about inviting the individual into your office or the client's office, consider choosing a public, safe place to meet. This could be at a bank or even at a police station, depending upon the level of concern. The purpose is to arrange for a notary or plan representative to validate the individual's identity. Ideally, someone who could recognize the participant could be available. If the level of concern is at the level that the plan fiduciaries are comfortable just having an election form notarized without their being present, then consider listing on the document being notarized specific items for the notary to confirm was presented at the signing. This could be at least one item with a picture (like a driver's license), and any additional documents that would acceptable like an original Social Security Card, Medicare ID or something similar. Ultimately, it is the plan fiduciaries call on how to approach the issue, but you need to make it abundantly clear to them that you believe additional steps need to be taken to confirm the participant's identity. We have not dealt with this particular set of circumstances, but have had a couple of incidents where we expressed our concerns to the plan fiduciaries and worked with them to document the participant's identity to their satisfaction. These are just some thoughts and is not advice to anyone.

It isn't really possible to adequately describe the profound impact (all good!) that you have had during my career in this business. Congratulations on the "slowdown" - and from a purely selfish standpoint, we are delighted to hear that the teaching and the ASK will still be on the table for now. Best wishes!

If a portion of the settlement might be “back pay” for wages (or, arguably, self-employment income) that would have happened had the claims complained-of not happened, there might be some opportunities for applying a participant’s elective-deferral election, matching or nonelective contributions (to the extent the plan provided), and years of service (possibly for eligibility, benefit accrual, and vesting). “Back pay. Payments awarded by an administrative agency or court or pursuant to a bona fide agreement by an employer to compensate an employee for lost wages are compensation within the meaning of section 415(c)(3) for the limitation year to which the back pay relates, but only to the extent such payments represent wages and compensation that would otherwise be included in compensation under this section.” 26 C.F.R. § 1.415(c)-2(g)(8) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-2#p-1.415(c)-2(g)(8). But the details of how to write the settlement agreement; how to allocate amounts to particular plan, limitation, and tax years; and how to time and document elections are tricky. And there are other employee-benefits issues. If your client does not have a regularly engaged employee-benefits lawyer or that lawyer wants to add one who is specially knowledgeable for this situation, Bradley Horne (Super Lawyers Rising Stars: 2024, 2025, 2026) at Smith & Downey has a developed knowledge of how to handle the retirement, health, and other employee-benefit plans’ aspects regarding settlements of employment-related disputes. https://www.smithdowney.com/professionals/bradley-j-horne/

I would tend to say that's not necessary. I've had IRS audits for clients where they checked the 'No' box and never got a bond, where the auditor simply says "...and tell them to get a bond". Your situation is even better because you can tell the agent that a bond was obtained and the year in question is retroactively covered. We can usually get the agent to tell us why a certain plan was selected for audit and my experience has been that it was never because of a lack of a bond.

Here's my take-- https://www.newfront.com/blog/the-550-carryover-vs-the-grace-period Important Note for Health FSAs Moving from the Grace Period to the Carryover: Employers generally should not amend a plan that offers the grace period mid-year to convert to the carryover for the current plan year. Employees may have made their elections intending to utilize their health FSA balance during the grace period by combining a year-one and year-two election for a high-cost procedure (e.g., laser eye surgery). IRS guidance suggests that this approach may be subject to non-Code legal restraints, such as an ERISA breach of fiduciary duty claim. Any such amendment to move from the grace period to the carryover should be made in a manner that ensures employees are aware of the change when making their health FSA elections at open enrollment.

Do they have to be "old" terminated employees? What about "young" or "middle aged" terminated emplolyees?

If the plan (including loan policy or procedure made under the plan) imposes no restriction or condition beyond those needed to meet tax law: Internal Revenue Code § 72(p)(2)(B)(ii): “Clause (i) [limiting a loan’s term to five years] shall not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant.” Many plans’ administrators’ process claims for a participant loan accepting the claimant’s statements, made under penalties of perjury, on a paper or electronic claim form. A claim form often had been designed to paraphrase text from the statute, regulations, or both. This is not advice to anyone.

Thank you for the pop-culture reference to Better Off Dead.

1. Why do you want to do this? 2. Are you thinking you can do a discretionary match only for the HCEs?

At this point, I agree, why not do individual PS groups and just give a 3% PS to the HCEs they want. If vesting is wanted, make the PS 100%. This would even give some flexibility to do 0-9% for any HCE provided you can pass cross-testing.