Peter Gulia

The shareholder might want his lawyer’s, accountant’s, and actuary’s collaborative advice about whether it makes sense for the shareholder to loan money to the corporation, or contribute new capital to the corporation. If either transaction makes sense, the corporation then might have money to pay a contribution to the pension plan. This is not advice to anyone.

If the court’s order names as the garnishee the § 403(b)(7) account’s custodian, isn’t it that trust company that might want its lawyer’s advice about whether and how to respond? And if the order does not name the plan or its administrator, might the plan’s administrator want its lawyer’s advice about whether it must or should do something, or need not (and perhaps should not) do anything?

If the accountant is a member of the American Institute of Certified Public Accountants or is a licensee of a State that adopts the AICPA professional-conduct rules and standards as the State’s rules: “[A] member [or a licensee] should not advise a taxpayer to take a tax position unless the [CPA] has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits, if challenged.” The standard is not about whether the IRS would fail to detect the pushy position. Rather, the standard looks toward the merits (and pretends the decision-maker would find facts and law fairly and justly). If a shareholder-employee is 49 or older and has two decades’ (or more) business or professional experience, how likely could she defend that the fair-market value of her personal services was only $150,000? This is not advice to anyone.

Are you certain about the exact fund—whether SEC-registered mutual funds or a trust company’s collective investment trust, and of the exact class of shares or units? Vanguard states November 13, 2000 for VFIAX’s inception. Consider that the plan’s investment alternative for at least some, and maybe much or all, of 1997-2003 might have been another fund or class of shares. That a retirement plan’s statement for a period after 2003 shows a holding in VFIAX does not mean the plan had the same investment in earlier periods. Given that the participant and the might-be alternate payee might agree on ways to approximate hypothetical returns, values, and amounts, might they tolerate another simplification? Instead of looking for any Vanguard fund’s returns, get the S&P 500 Index numbers, and assume the retirement plan’s investment alternative’s returns were, yearly, five basis points lower. There are other ways to collect or use real information. But the expense might be disproportionate to whatever value your client might obtain by using a more careful estimate. This is not advice to anyone.

It is sad that New Jersey’s legislature in 1984 changed the law to provide an exclusion for elective deferrals made under a profit-seeking employer’s plan but not for those made by employees of a charity, a public school, or another governmental employer.

An asymmetry in New Jersey’s income tax treatment of § 401(k) and other kinds of deferrals has persisted since 1984. https://benefitslink.com/boards/topic/80992-403b-deferral-in-new-jersey/#comment-355909 Many people are aware of New Jersey’s law. Past efforts to persuade the legislature to change the law have failed.

Texas’ lawsuit continues. Two judges of a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit reasoned the Quorum Clause does not require physical presence. Texas v. Bondi, 149 F.4th 529 (5th Cir. Aug. 15, 2025). That panel opinion would have vacated the district court’s injunction. But a majority of the Fifth Circuit’s active judges voted for the court to rehear the case en banc—that is, by all the circuit judges. That order vacates the panel’s opinion. Texas v. Bondi, No. 24-10386 [doc. 220-1] (5th Cir. filed Jan. 14, 2026), https://www.ca5.uscourts.gov/docs/default-source/cm-ecf/24-10386.pdf?sfvrsn=af70ce2d_1. The oral argument is scheduled for May 12, 2026. I express no view about whether the district judge’s opinion, the appeals panel’s opinion, or something else is a correct interpretation of the U.S. Constitution and other applicable law. If the U.S. Court of Appeals for the Fifth Circuit decides that the Consolidated Appropriations Act, 2023 is a valid Act of Congress, a plan sponsor or participant whose complaint would be heard in a court elsewhere than Louisiana, Mississippi, and Texas still could argue that SECURE 2022 is not law. If the Fifth Circuit decides that the CAA-2023 is not law, the court might order the United States government not to enforce the Pregnant Workers Fairness Act division against the State of Texas. But Texas’ complaint does not ask for any relief about SECURE 2022. Whatever reasoning might result would be a precedent only for the Fifth Circuit, affecting courts for the nine districts of Louisiana, Mississippi, and Texas. The Fifth Circuit’s opinion would be no more than persuasive authority for other appeals courts and their districts. Those who like SECURE 2022’s many permissive provisions might have little to fear. Neither the Labor department nor the Treasury department and its Internal Revenue Service 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 government. Texas v. Bondi, No. 24-10386 [doc. 238-1] (5th Cir. filed Feb. 13, 2026) (en banc brief for appellants). But a plan sponsor that dislikes a provision ERISA would mandate or a provision the Internal Revenue Code would set as a condition to a desired tax treatment might challenge enforcement, asserting that SECURE 2022 is not law. Or a participant, beneficiary, alternate payee, or other individual harmed by an exemption that would be provided only if SECURE 2022 is law might assert it is not law. 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 court an IRS decision to tax-disqualify a plan, a Chief Counsel lawyer might, before responding in writing to a request, consider advising the Internal Revenue Service 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. I don’t (yet) have a client that failed to include long-term part-time employees or lacks an automatic-contribution arrangement Internal Revenue Code § 414A might require. But if exploiting uncertainty about law might help a client get a tactical or negotiating advantage, I’d at least mention the opportunity and invite my client’s thinking about it.

If the plan provides such a deemed need: “A distribution is deemed to be made on account of an immediate and heavy financial need of the employee if the distribution is for— Expenses for the repair of damage to the employee’s principal residence that would qualify for the casualty deduction under [Internal Revenue Code] section 165 (determined without regard to section 165(h)(5) and whether the loss exceeds 10% of adjusted gross income)[.]” 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(6) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(6). Next, a plan’s administrator might evaluate whether the claimed distribution “is not in excess of the amount required to satisfy the financial need (including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution).” 26 C.F.R. § 1.401(k)-1(d)(3)(iii)(A) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(iii)(A). Also, the plan’s administrator might consider whether the plan “provide[s] that, before a hardship distribution may be made, an employee must obtain all nontaxable loans (determined at the time a loan is made) available under the plan and all other plans maintained by the employer.” 26 C.F.R. § 1.401(k)-1(d)(3)(iii)(C) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(iii)(C). If the plan does not impose a condition of taking a participant loan first, an administrator might consider approving an amount that follows an uninsured loss (for example, a $1,000 retention or deductible) and a gross-up for income taxes, including, if applicable and not excepted, each extra income tax on a too-early distribution. This is not advice to anyone.

I have no access to IRS gossip that might help answer RayRay’s question. About the retroactive-amendment cycles, consider the effects of waiting until 2026 to make plan amendments that reach back to 2019. A trade-off for not expecting a plan’s sponsor to document a change promptly after it has been put into effect is dealing with a work compression when a documenting cycle arrives. I recognize a TPA often works with processes one had little or no practical ability to decide or even influence. Could a further delay of either SECURE Act’s or cycle 4’s retroactive-amendment cycle lead to other problems?

Almost always, a recordkeeper’s service agreement excludes tax or other legal advice. Further, there often is a warning that no one may rely on the recordkeeper’s explanation even of mere information about tax or other law. You’re smart to pursue your own research.

Paul I, thank you for adding information to aid my thinking. BenefitsLink neighbors, here’s a follow-up question: The saver’s-match changes apply to tax years that begin on or after January 1, 2027. An eligible individual would not specify her choice of her applicable retirement savings vehicle to receive the US Treasury’s saver’s-match contribution until, in early 2028, she files her 2027 income tax return. Imagine plan-document amendments and restatements done in 2026 (and through 2027) have no adoption-agreement item, no other check-a-box item, and nothing else in a service provider’s plan-documents regime to specify whether the plan accepts or refuses a saver’s-match contribution. Imagine the base plan too is silent about whether the plan accepts or refuses a saver’s-match contribution. (Maybe the plan sponsor’s choice, retroactive to 2028, becomes documented in 203n.) Imagine the most recent (in early 2028) summary plan description or summary of material modifications is generated from the plan documents. So, imagine the SPD or SMM communicates nothing about whether the plan accepts or refuses a saver’s-match contribution. How would a participant, seeking in early 2028 to complete her 2027 Form 1040 or a Schedule of it, know whether her employer’s retirement plan would accept a saver’s-match contribution? Do my guesses bear mistaken assumptions? What service methods might recordkeepers build? (For a plan with tens of thousands of participants, including many who might be § 6433’s eligible individuals, telling an inquirer to “ask human resources” is an unwelcome service.)

For the 2022-enacted “saver’s match”, Internal Revenue Code § 6433 provides the Treasury pays the credit “as a contribution” to the eligible individual’s applicable retirement savings vehicle. Whether (i) an eligible retirement plan or (ii) an Individual Retirement Account or Individual Retirement Annuity, a plan or an IRA is not an applicable retirement savings vehicle unless it “accepts contributions made under this section[.]” I.R.C. (26 U.S.C.) § 6433(e)(2)(C) https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap65-subchapB-sec6433.htm. Could a plan sponsor design a plan not to accept a § 6433 contribution? If so, what factors might influence a plan sponsor’s decision-making about whether to allow or refuse saver’s-match contributions? A § 6433 contribution gets some treatments and restrictions that could be different from those of other elective-deferral amounts. Does this affect anyone’s analysis and decision-making? Accepting saver’s-match contributions likely requires yet more separate subaccounting. Does that affect decision-making? Imagine a plan easily would meet all coverage and nondiscrimination conditions without accepting § 6433 contributions. Might that affect decision-making? What else should an employer—or a service provider—think about?

As mentioned above: “If the administrator finds the worker is ineligible, the plan’s sponsor might consider whether applying the plan as written might result in a failure of a tax-qualification condition, including those about coverage and nondiscrimination. If so, and if the plan’s sponsor prefers a tax-qualified plan, the plan’s sponsor might consider a retroactive amendment to increase coverage.”

Before considering other steps, the plan’s administrator (even if that is the same person as the plan’s sponsor) might, with its lawyer’s advice, consider whether the worker was or is eligible for the retirement plan. That a worker is, or is treated as, an employee under one or more public laws, even a Federal law, does not—at least not by itself—mean the worker is an eligible employee, or even an employee, within the meaning of a retirement plan’s definitions and provisions. Consider also that if ERISA’s title I governs the plan, ERISA supersedes and preempts the legal effect of a State agency’s finding that a worker is or is not an employee. Or, if a plan is not ERISA-governed, the plan might be governed by the internal laws of a State other than the State that made a finding about who is or is not an employee. Or, the plan’s provisions might make a State agency’s finding—even if the same State’s law governs the plan—unimportant or even irrelevant. Many retirement plans’ governing documents include a definition or provision that a worker is not an employee for the retirement plan unless the service recipient classifies the worker as an employee. That can be so even if the service recipient’s classification of a worker as not an employee is contrary to all public laws. (Some lawyers started writing plans this way beginning in 1974; others began soon after reading Vizcaino v. Microsoft Corp., 120 F.3d 1006, 21 Empl. Benefits Cas. (BL) 1273 (9th Cir. July 24, 1997) (After finding that a class of workers Microsoft had treated as nonemployees had been employees, the appeals court remanded to the trial court the question of what benefit ought to have been provided under a non-ERISA plan, and remanded to the plan’s administrator questions about what benefit, if any, ought to have been provided under an ERISA-governed plan.). RTFD—Read The Fabulous Document. If the administrator finds the worker is ineligible, the plan’s sponsor might consider whether applying the plan as written might result in a failure of a tax-qualification condition, including those about coverage and nondiscrimination. If so, and if the plan’s sponsor prefers a tax-qualified plan, the plan’s sponsor might consider a retroactive amendment to increase coverage. Further, if a change results in a plan its administrator had reported as not governed by ERISA’s title I having existed as ERISA-governed for a period before 2026, the administrator might consider what Form 5500 reports to amend or make. If it becomes needed or helpful to record the worker’s employment commencement date, might that be the first day the worker first performed an hour of service as an employee (even if that date is before the worker became, or could have become, eligible)? Might that date be even earlier than 2023? This is not advice to anyone.

If an individual gets § 403(b) distributions while she remains subject to New Jersey’s income tax, there is some recovery for previously taxed amounts. But if an individual becomes a domiciliary or resident of another State and subject to its income tax, the other State may tax § 403(b) distributions, and need not provide any relief regarding amounts previously taxed by sister States. See 4 U.S.C. § 114 https://www.govinfo.gov/content/pkg/USCODE-2024-title4/pdf/USCODE-2024-title4-chap4-sec114.pdf. New Jersey is not alone in setting up a “double-taxation” risk for someone who retires elsewhere. A participant contribution—whether § 401(k), § 403(b), § 457(b), or something else—is not any exclusion from compensation for Pennsylvania’s income tax (and Philadelphia’s wage tax).