Peter Gulia

The few situations I’ve heard about use a service provider to confirm to an employer its employee’s student-loan repayments. I have not seen a form, whether website app or paper, for a participant’s self-certification.

Does the plan provide a § 72(t)(2)(I) emergency personal expense distribution? If not, might the plan sponsor consider an in-operation amendment (to be included in a SECURE 2019 & 2022 restatement)? The standard for an “emergency personal expense” is wider than for a hardship. A participant may certify that the claimed distribution is “for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.” I.R.C. (26 U.S.C.) § 72(t)(2)(I)(iv). Although the $1,000 an emergency personal expense distribution might provide might meet only a portion of a tree-removal expense, $1,000 might be more useful than $0.

Chaz, might an element be missing from your simplified example? What is the fair-market value of the health coverage? Using your example, let’s put an illustrative amount on the value of the health coverage: Imagine $30,000. An employee who’s not offered an extra opt-out payment chooses health coverage, has $10,000 taken from her pay, and gets another $20,000 in value provided by the employer. (Assume this layer of choice is a proper § 125 plan, and does not discriminate.) Her Federal income tax wages is $90,000. (Her total compensation is $120,000.) The employee who is offered an extra opt-out chooses against health coverage, has $0 taken from her pay, and gets the $15,000 opt-out payment. If what I’ll describe as the “second” § 125 plan (the choice offered only to the one specified individual) discriminates, the offeree, if highly-compensated, is not relieved of constructive receipt of whatever she could have chosen. Looking to the greater-of, the $20,000 value of employer-provided health coverage counts in her gross income; it is $120,000, not $115,000. Might an employer’s or employee’s tax practitioner analyze it this way? If § 125 does not apply to the extra opt-out choice, must an employer recognize constructive receipt in its Form W-2 wage reporting?

Just as many BenefitsLink neighbors remind us to Read The Fabulous Document, if a question involves an annuity contract one might read Read The F*** Contract. Even if a contract is a group annuity contract, a contract might provide fewer or narrower rights than one imagines.

While an employer/administrator might prefer that a payroll service apply § 414(v)(7), not every customer has the purchasing power to get that service. Nor does every software licensee have a practical capability to get that software addition. Nothing compels an employer/administrator to furnish information to its recordkeeper. Rather, an employer/administrator gets an opportunity to identify the higher-wage participants. Some recordkeepers can deal with a potential mistaken deferral before it happens. With the plan’s administrator’s instruction, a recordkeeper applies the plan’s deemed Roth-contribution election. When the system shows a participant’s year-to-date before-tax deferrals have exhausted her without-catch-up deferral limit, the recordkeeper puts the next amount in the Roth subaccount (if the participant did not opt out from the deemed election). Also, many employers don’t initiate participant contribution amounts; an employer lets the recordkeeper tell the payroll manager the amount or amounts to take from a participant’s pay.

What does the recordkeeper’s service agreement provide? How, if at all, does the recordkeeper adjust its records if the contribution arrives much later than the expected pay date? How, if at all, does the recordkeeper adjust its records if the contribution never arrives? If the date a contribution is posted is sooner than the date the contribution purchases mutual fund shares or collective investment trust units, how would a participant check whether her account balance is correctly determined? If a contribution is invested before the trustee or custodian or its agent has money from the employer, is the service provider’s loan sufficiently documented to meet the prohibited-transaction exemption? Could the posted dates affect in which plan year a trustee or custodian reports and certifies a contribution amount? Could the posted dates affect in which limitation year the plan’s administrator assumes an amount is an annual addition? Did the plan’s administrator accept the recordkeeper’s service agreement without reading it?

Not every employer uses a contracted payroll service. Of those that do, many have not contracted for a service of applying § 414(v)(7) particularly, or even applying deferral limits generally. Not every payroll service offers a service for applying deferral limits. Even fewer offer a service for § 414(v)(7). Of employers that do payroll using software, often the software has nothing apply § 414(v)(7). And even when a payroll manager can, whether with a contracted service or software, apply deferral limits generally and § 414(v)(7) particularly, some employers and plan administrators prefer deliberately redundant services. For those and other business reasons, recordkeepers have built services for § 414(v)(7). Is there any big recordkeeper not using a Roth catch-up indicator?

To help customers apply § 414(v)(7)’s constraint that a higher-wage participant’s age-based catch-up deferral must be Roth contributions, recordkeepers are asking an employer to deliver—in January, following W-2 files—a computer file that shows, yes-or-no or on-or-off, whether a participant had in the preceding year Social Security wages more than $150,000. Everything I’ve heard so far suggests this is the mainstream method recordkeepers are doing. Is there any big recordkeeper not doing this?

I can imagine at least two ways the IRS might unravel the opt-out offer: If the opt-out offer is not expressed in a written plan, it can’t be a cafeteria plan. I.R.C. § 125(d)(1). If the opt-out offer is expressed in a written plan but offered only to one offeree who is highly-compensated, how would that plan “not discriminate in favor of highly compensated participants”? I.R.C. § 125(c). If the opt-out offer is no cafeteria plan at all or is a plan that discriminates, the highly-compensated offeree gets no § 125(a) exclusion for whatever results from having a choice between money wages and health coverage. The employer might want an IRS-recognized practitioner’s advice about reporting wages for Federal income tax and for Social Security and Medicare taxes. The individual might want advice to help her file an accurate tax return. For questions about professional conduct, one might look to a BenefitsLink discussion in which Chaz gave us an intriguing thought. https://benefitslink.com/boards/topic/73510-health-fsa-and-hsa-how-does-irs-know/#comment-344822 This is not advice to anyone.

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.

If a participant has more than one common-law employer, 26 C.F.R. § 1.414(v)–2(b)(4) (not yet codified) sets detailed rules about whether one need not or may aggregate Social Security wages from two or more employers. https://www.govinfo.gov/content/pkg/FR-2025-09-16/pdf/2025-17865.pdf at pages 44549-44550 [pdf pages 23-24].

Does the employee get incremental compensation because she opted out of health coverage? To the extent the employee has a choice between health coverage and an increment of money wages, isn’t that a choice that must be properly made under a § 125 plan? Else, the employee has constructive receipt of the more valuable benefit she could have chosen. If an incremental choice between an increment of money wages and health coverage is available to less than all health-eligible employees, does that incremental plan meet § 125 nondiscrimination? If an opt-out amount might be added to what would be the employee’s portion of the health insurance premium, does that cause the employer’s offer of health coverage to be not affordable for one or more Affordable Care Act purposes (and related income tax and excise tax consequences)? Does an opt-out offer violate HIPAA nondiscrimination? Does an opt-out offer violate Medicare secondary-payer provisions? Beyond those and other questions: Is the employer’s opt-out offer a breach of the group health insurance contract? Or does the offer make false the application for the group health insurance contract. What are the legal consequences of such a breach or false inducement? If a false statement to the insurer is not corrected, is that a Federal crime, a State crime, or both? This is not advice to anyone.

Or a letter from a certified public accountant who is eligible to practice before the IRS.

Are both amounts paid by the same common-law employer? Or does the business divide union and nonunion jobs between two or more companies?

If more than one interpretation could be a reasonable interpretation, consider writing an explanation of each plausible interpretation—and the advantages, disadvantages, and risks of each—so your client can make an informed decision about which interpretation it will use. Or, doing the work to research and write an explanation might help you refine your thinking, with one interpretation becoming clearer or stronger, and another interpretation seeming weaker.

“This is exactly the reverse of what Congress was trying to accomplish.” But how do we know that what Congress sought to accomplish is something different than what the enacted text provides? Among many challenges in interpreting recent years’ tax legislation is that there often is no committee report that describes the text Congress enacted.

For more than a few church employers, neglecting or miscounting a § 107 parsonage allowance is an error. Might the minister too have believed her specified deferral percentage would apply only to her pay other than the parsonage allowance? If so, might the parties reform their salary-reduction agreement or the participant’s elective-deferral instruction to provide what the minister would have requested had both the employer and the minister known that the plan’s definition of compensation includes a parsonage allowance? Had the minister known, she might have elected a lower percentage of the higher compensation. If so, might both parties ratify what happened as a reasonable approximation of what such a reformed agreement provided? Consider that the minister’s acceptance of pay, and of wage reports, with no objection might support a ratification. This is not advice to anyone.

You’re likely right that, for a church plan with 700 participating employers, it seems unlikely the convening plan sponsor (or the plan trustees or the plan administrator, if either has a power or other authority) would amend the plan because one or a few of the 700 misapplied an otherwise satisfactory definition of compensation. About what correction to pursue, other BenefitsLink neighbors know much more than I know about how to point you to a fitting or defensible correction. Just curious, which element of compensation did a participating employer neglect to count in its measure of compensation on which to apply a deferral percentage?

And Groom Law Group's article today cites BenefitsLink.

Thanks. I read yesterday’s prepublication release of a not-yet-published IRS Notice describing interpretations and implementations the Treasury might intend to propose. Among many points, I saw that Q&A about cafeteria plans. The response treats an employer’s § 128 contribution (even if made by the employee’s wage reduction) as something “not includible in the gross income of the employee by reason of an express provision of this chapter.” That’s the § 125(f)(1) definition of a qualified benefit. Yet, the IRS’s description of an interpretation the Treasury might intend to propose hints at a distinction between (1) a Trump account under which the § 128-contributing employer’s employee is the account’s beneficiary and (2) a Trump account under which the employee’s “dependent” is the account’s beneficiary. Whether situation 2 always or ever is an absence of deferred compensation § 125(d)(2)(A) precludes seems doubtful. But those questions might not matter if a Treasury or IRS interpretation favors taxpayers. In the early 1980s’ development of cafeteria plans, an important part of the reasoning was seeking to reduce perceptions that some employees get more compensation than similarly situated other employees because of differences in which benefits a worker needs, wants, or even can use. This is not advice to anyone.

In Connor's originating post's first sentence, there is an ambiguity about whether "401(k) clients" refers to plan sponsors, participants, or something else. Connor, you mention that the service provider sent you something that it plans to send (but maybe has not sent to its ultimate audience). Does that service provider invite your comment? Does it ask you to do something, or be mindful of something, before the communication gets to its audience?

Could the plan or the employer be harmed because of a delay in the PBGC's findings?

So, the documents governing the plan set provisions for determining the beneficiary. Including what to do when there is no claim. And perhaps providing for the insurer to do it. --------- The plan sponsor might be reluctant to amend the plan for at least two reasons: The insurance contract might provide that plan provisions accepted by the insurer is a condition to the insurer’s obligation. A custom provision might call the employer/administrator to do work that otherwise the insurer is willing to do if the insurer has no obligation beyond following its own procedure. The plan sponsor might prefer that the insurer do the work of applying its procedure for difficult claims. If, however, the plan sponsor considers a plan amendment, the plan sponsor and each plan fiduciary might want each’s lawyer’s advice about whether a new provision ought to apply to a claim that arose before the amendment is made, and, if it applies, how it applies. Further, what would the written plan describe as the set of facts that result in a beneficiary being deemed to have predeceased the participant or otherwise treated as not a beneficiary? How might a reader of the summary plan description perceive that description? This is not advice to anyone.

Even if an interpleader otherwise would be something an employee-benefit plan’s administrator might consider (and evaluate according to one’s fiduciary duties, including not incurring an imprudent expense if it would be paid or reimbursed from plan assets), an interpleader might not fit the Federal statute—28 U.S.C. § 1335. Among many possible reasons: There might not be competing claims, whether now or even potentially. (For example, if the participant named no contingent beneficiary and the default beneficiary under the plan’s governing documents—for example, the participant’s estate—is administered by the same person as the not-yet-located primary beneficiary.) If no one has submitted a claim for the death benefit and the documents governing the plan do not compel an immediate payment or delivery, there might not be competing claims. Absent competing claims, there might be no controversy until a plan provision compels an immediate payment or delivery. If none of the competing claimants resides in the United States, there might be no U.S. district that is a proper venue for a § 1335 interpleader. See 28 U.S.C. § 1397. There might not be “[t]wo or more adverse claimants, of diverse citizenship as defined in [28 U.S.C. § 1332](a) or (d) [who] are claiming or may claim to be entitled to [the death benefit][.]” 28 U.S.C. § 1335(a)(1). The required diversity of citizenship might not exist if none of the competing claimants is a citizen or resident of any U.S. State or territory. If the facts a complaint alleges do not show adversity of claims to the judge’s satisfaction, a court might dismiss the interpleader for not fitting the statute or not stating a controversy under the U.S. Constitution’s Article III. Despite 28 U.S.C. § 2361’s provision for nationwide service of process, the plan’s administrator, trustee, or other stakeholder might be unable to serve process on one or more of the potential claimants. (rocknrolls2’s originating post says the plan fiduciaries have not located the primary beneficiary.) An ERISA § 502(a)(1)(B) claim “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan” won’t work because only “a participant or beneficiary” may bring such a claim. An action for a declaratory judgment might be inapt because there might be no Article III controversy. If no claim is submitted, more likely a fiduciary might hold the death benefit until applicable law treats the right to that benefit as abandoned property. This is not advice to anyone.

BG5150, I see a responsibility as you do. If someone recommended a safe-harbor provision, that person ought to have provided information to explain not only the reasons supporting the recommendation but also the conditions and consequences of the provision and the advantages and disadvantages of using the provision. Further, some might say an explanation ought to be no less clear, conspicuous, or understandable than the recommendation was. And here’s a point for many service providers to consider: If a person not licensed to practice law provides tax or other legal advice, the standard of care is no less than what a professionally behaving lawyer would have done. This is not advice to anyone.