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One of the requirements for using the net unrealized appreciation (NUA) strategy is that the plan participant take a lump sum distribution. If a participant takes an LSD and does NUA at age 59 1/2 without separating from service, it's never been clear to me whether they can continue in the plan for years after the year the LSD is paid. Any thoughts? If the answer is no, any references where the IRS or a court has said this?

Thanks in advance.

By now, many retirement-services people have learned that an applicability date of an executive agency’s rule that interprets Congress’s statute does not control when the statute applies.

About the recently published catch-up rule, many articles explain that one follows the final rule by 2027, and for 2026 may defend a good-faith interpretation of the statute.

Considering the opportunities and flexibilities the final rule allows, why not follow it for 2026 too?

To do something beyond what the final rule allows, the employer and the plan administrator would need to think about what that something is and be ready to defend how one formed a prudent finding that it is a reasoned interpretation of the statute.

Even if an interpretation need not be formed with an ERISA fiduciary’s prudence, a good-faith interpretation must be formed with at least the ordinary prudence that would be used by a business-prudent employer that is conscientiously seeking to follow tax law. Such an effort might be more expensive than simply following the final rule.

And for a TPA, recordkeeper, or other service provider to maintain a pretense that it did not provide tax or other legal advice, might it be simpler to follow the final rule?

Yet: BenefitsLink neighbors, if time, effort, and money were no constraint, is there anything you’d want to allow in 2026 that the 2027-applicable interpretation doesn’t allow?

What is the ERISA penalty on a failure to furnish requested documents? Still $110 a day? Or inflation-adjusted again?

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A CPA that I work with asked me this question.  I don't do 457b plans, but here's what I think is the correct response - figured I'd get the experts here to check me on it.

He picked up a personal tax client who is a participant in government 457b plan.  The person is an attorney who also owns 50% of a law practice.  He is maxing his 457b deferrals ($30,500 in 2025).  The law practice has a 25% Keogh (I didn't realize anyone still had a plan called a "Keogh plan").  Is there any interplay between the contributions that has to be considered?  From what I can see, no; in fact, he could get a max employer allocation under the 457b plan (if allowable by the plan document), and then get his 25% under the Keogh.

Can I get a confirmation or a correction?  Thanks.

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I'm curious how much detail EBSA requires on a VFCP application for Lost Earnings?

Whereas we have individual amounts that were calculated by the recordkeeper for each period, the recordkeeper will not provide their actual calculation, ie how they calculated it.

Per application requirements, is it sufficient to just submit the individual lost earnings amounts that were deposited for each late contribution, or do we need more than that?

One-person plan has annuities in his plan.

He has beneficiaries designated for the plan (his children).

However the annuity company is asking for a beneficiary for their records.

I'm unsure, is the Plan the beneficiary, so that the Plan can receive the proceeds and then distribute the assets upon death?

Or do the annuities designate the children specifically since that is who is ultimately getting the proceeds?

How would you address this hypo?

S is in a parent-sub controlled group with 6 subsidiaries: C, D, E, F, & G.

S will sell to B all of S's assets in subs C through F. All of those subs' employees will work for B post-sale. At an uncertain future date, S will sell G's assets to B. At no point will S become part of B's controlled group. 

S participates in a multi-employer DC Plan with Z. They are the only two participating employers. S controls all aspects of the Plan. S owns a small stake in Z, but not enough to bring Z into S's controlled group. S's plan operates on a fiscal year, ending on 9/30. The plan uses a NEC SH. The plan will continue NEC contributions for the upcoming plan year.

If S were to terminate its plan on 10/20, the date of closing, or shortly thereafter would it qualify for the IRC § 410(b)(6)(C) short final year exception for the NEC SH, despite no change in controlled group?

Likewise, S will no longer own any part of Z as of 12/31. Does this change your analysis at all? 

I'm stumped on this because Treas. Reg. § 1.410(b)-2(f) states that an asset sale qualifies under 410(b)(6)(C), however Section 410(b)(6)(C) also states that a change in controlled group must occur for the exception to apply. It just does not make a lot of sense for an asset sale to qualify under 410(b)(6)(C) when asset sales infrequently result in controlled group changes, as the seller remains intact immediately post-closing.

My hunch is that 410(b)(6)(C) does not apply for either the 10/20 asset sale because no change in controlled group will occur, and that the sale of S's interest in Z to Z's other owners does not alter this analysis.

I feel like this is a dumb question. With a new comparability profit-sharing allocation for a safe-harbor 401(k) PSP. Would you still need to test the average benefits test, rate group and gateway for a pro-rata allocation to all eligible participants?

Having a discussion in our office.....

Plan has immediate entry for deferrals and 90 days for match and profit sharing enter 1st of month following.  (MT & PS have no allocation requirements)

I have a participant hired 9/23/2024 and a termination date is 12/20/2024.   Was not employed on 1/1/2025 but received a final payroll on 1/3/2025.  

Would she be entitled to receive the match and profit sharing?

All this time we have been reading and planning for this provision to start 1/1/2026.  However, I saw in the final regs "The final regulations generally will now apply with respect to contributions in taxable years beginning after Dec. 31, 2026." Does this mean that plans do not have to implement this until 1/1/2027? Am I reading this wrong?

Please indicate if the years of service of which defined benefit minimum serve as a function must also occur as years of participation.

URL https://www.ecfr.gov/current/title-26/section-1.416-1 

Citation 26 CFR § 1.416-1

M-2 Q. What is the defined benefit minimum?

A. (a) The defined benefit minimum requires that the accrued benefit at any point in time must equal at least the product of (i) an employee's average annual compensation for the period of consecutive years (not exceeding five) when the employee had the highest aggregate compensation from the employer and (ii) the lesser of 2% per year of service with the employer or 20%.

(b) For purposes of the defined benefit minimum, years of service with the employer are generally determined under the rules of section 411(a) (4), (5) and (6). However, a plan may disregard any year of service if the plan was not top-heavy for any plan year ending during such year of service, or if the year of service was completed in a plan year beginning before January 1, 1984.

(c) In determining the average annual compensation for a period of consecutive years during which the employee had the largest aggregate compensation, years for which the employee did not earn a year of service under the rules of section 411(a) (4), (5), and (6) are to be disregarded. Thus, if an employee has received compensation from the employer during years one two, and three, and for each of these years the employee earned a year of service, then the employee's average annual compensation is determined by dividing the employee's aggregate compensation for these three years by three. If the employee fails to earn a year of service in the next year, but does earn a year of service in the fifth year, the employee's average annual compensation is calculated by dividing the employee's aggregate compensation for years one, two, three, and five by four. The compensation required to be taken into account is the compensation described in Question and Answer T-21. In addition, compensation received for years ending in plan years beginning before January 1, 1984, and compensation received for years beginning after the close of the last plan year in which the plan is top-heavy may be disregarded.

M-2 seems to allow the reckoning of average compensation to remain vague, though usually § 415 amounts apply for this situation. If so, please indicate if the amendment of 415 as described affected 416 defined benefit minimums.

26 USC 415: Limitations on benefits and contribution under qualified plans

(3) Average compensation for high 3 years
For purposes of paragraph (1), a participant's high 3 years shall be the period of consecutive calendar years (not more than 3) during which the participant both was an active participant in the plan and had the greatest aggregate compensation from the employer. In the case of an employee within the meaning of section 401(c)(1), the preceding sentence shall be applied by substituting for "compensation from the employer" the following: "the participant's earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)".

https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section415&num=0&edition=prelim

Subsec. (b)(3). Pub. L. 109–280, §832(a), struck out "both was an active participant in the plan and" before "had the greatest".

 

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If an employer adopts a NQDC Plan with a built in expiration date int he plan document, does the employer have to wait 36 months after the plan expires to adopt a new plan? Or can it do so immediately upon expiration of the old plan?

Employer (bank) has limited amount of company stock (bancshares) in a 401k plan.   About half the outstanding share are attributable to term vested participants.  They have a written procedure for the handling of bancshares that allows terminated or active employees to sell shares, active employees are notified of the shares for sale and shares are sold on a first come first serve basis.   Term vested participants also have the option of an in-kind transfer to a self directed IRA where they would have the option to sell to other non-401k individuals through the bank's trust department.   Another wrinkle in the written procedures, If there are no active 401k plan buyers of the company stock at the time an active or terminated participant offers up the shares for sale, the active employees also have the option of rolling out the company shares to a self directed IRA where they can either hold it and roll it back into the 401k at a later time or they can sell to an outside individual within that SD IRA.   Active employees are offered a 1 week period to buy any shares offered up for sale.   Per the CEO, they have always let all other employees have the first opportunity to buy shares and if they shares or portion of shares remains unpurchased at the end of the 1 week offering period, the CEO or other officers have stepped in an bought the outstanding shares available.  

Disclaimer:  This is a plan I am reviewing for possible takeover.   I do not know yet if they have discussed with an ERISA attorney and I intend to address that with them.      The written procedure on bancshares noted above is just a separate document of procedures, none of that is written into the plan document (at least the current document that I have, I have requested the prior document to see if current TPA forgot to include those provisions).   There are concerns with the current TPA, hence, my possible takeover and I have already pointed out that the current document does not address any of the requirements for the bancshares nor does it allow for in-service distributions of said bancshares.   I have also reviewed many of the other discussions out here on benefitslink before posting this discussion. 

These bancshares were a relic from years past before they established an ESOP.   Prior to the ESOP, the 401k plan offered a match that allowed employer securities to be purchased through those matching dollars.    I have concerns that the exchange of bancshares currently are being acquired by participants that have only ever had employee deferrals and no matching dollars (i.e. security law issues as noted in other benefitslink posts).   Thoughts on this?

The employer wants to find a way to get the bancshares out of the 401k plan but currently isn't in a position to raise the capital necessary to buy out all the shares in the 401k plan.  Assuming we address the document issue that does not allow for in-service distributions of these bancshares or more specifically matching contributions, the employer asked the following question:   "If they offer a free (no service fees) lifetime SD IRA to all employees (active or term vested) to roll their bancshares out of the 401k plan, if majority of the employees took them up on that offer, they could probably raise the capital to buy out the remaining (if any).  Is that a possible solution?"     This would only impact about 40 of the roughly 100 participants in the plan.  My first concern is the incentive to rollout the bancshares, does the incentive being offered by the bank for the free SD IRA become a benefits, right and feature they would need to offer to all employees of the 401k plan?      

FYI:  using chatgpt to search benefitslink.com on a specific topic is extremely helpful - highly recommend it.  

The Treasury department’s notice of proposed rulemaking about qualified tips is scheduled to be published Monday, September 22. The prepublication text is available at https://public-inspection.federalregister.gov/2025-18278.pdf.

For my law practice, this is only an academic curiosity.

Does anything in this proposed rule change how a retirement plan’s administrator counts an employee’s compensation?

For 2026, Internal Revenue Code § 414(v)(7) burdens only a participant who:

had, from the employer that maintains the plan, 2025 Social Security wages (not counting self-employment income as a partner or member) more than $150,000 [$145,000 inflation-adjusted]; and

is (or by the end of 2026 will be) 50 or older; and

might need an age-based catch-up to support her deferrals.

For your typical client plan, how many people is this?