Peter Gulia

So, the recordkeepers that do this can limit the percentage of each deferral or other contribution directed to a to-be-limited designated investment alternative, but don’t limit an account balance? That’s helpful information, thank you.

If an employer doesn’t volunteer to pay plan-administration expenses, expenses necessarily are borne by participants (and beneficiaries and alternate payees). The question is how to allocate expenses among individual accounts. I can see how someone who keep one’s addresses tidy and up-to-date might feel she should not be charged for expenses made necessary by others who did not maintain one’s addresses.

Does any recordkeeper offer (assuming the customer plan has enough purchasing power) services to support the professors' "Retirement Guardrails" idea? For example, imagine a plan's sponsor/administrator specifies that a mutual fund investing in securities about gold or precious metals is a designated investment alternative but only for no more than 5% of a participant's account. Has any recordkeeper developed the systems to apply that "guardrail" constraint?

ESOP Guy, your information aids my thinking; thank you. I advise plans, typically with tens of thousands of participants, for which a plan’s administrator does almost no work beyond instructing and overseeing the recordkeeper’s services. Because a recordkeeper wants no discretion, everything has to be specified as rules-based procedures, often so a computer-system record can apply the procedure, or at least signal beginning the procedure.

If you want to look for courts’ decisions that might help support or attack an interpretation, consider: Mark W. Dundee, Qualified Domestic Relations Answer Book https://law-store.wolterskluwer.com/s/product/qualified-domestic-relations-order-qdro-answer-bk-pen-3-mo-subvitallaw-3r/01t0f00000J3FByAAN?srsltid=AfmBOoqOrI9sEYDQdNBQKGeaMsNfmf1vqBytfIqS2U9Ir2r27Y6QV2bE. There are not many appeals opinions. A Federal district court’s opinion is not a binding precedent anywhere, not even in the same district or even with the same judge. E.g., Camreta v. Greene, 563 U.S. 692, 709 n. 7 (2011) (“A decision of a federal district court judge is not binding precedent in either a different judicial district, the same judicial district, or even upon the same judge in a different case.”, quoting Moore’s Federal Practice § 134.02[1][d] (3d ed. 2011). See also Bryan A. Garner et al., The Law of Judicial Precedent § 3 (Horizontal Precedents) at page 40 (2016) (collecting citations and quotations).

Pam Shoup, yesterday’s notice of proposed rulemaking does not answer, at least not clearly, your question. https://www.govinfo.gov/content/pkg/FR-2026-02-25/pdf/2026-03723.pdf ERISA’s § 105(a)(2)(E) is susceptible to several possible interpretations. That might be specially so at least until the rules and other guidance Congress directs in SECURE 2022 § 338 are published, effective, and applicable. About looking to an employer for an individual’s postal address if the individual still is the employer’s employee, many employers have records that are no more complete and no more accurate than the retirement plan’s recorkeeper’s records. Some employers’ records might be more outdated, and some might have false records. ESOP Guy, for a plan that has no small-balance cash-out and has an involuntary distribution only to the extent of a § 401(a)(9)-required distribution, what do you think about a plan-administration regime that doesn’t begin its extra efforts to refresh a no-longer-employed participant’s postal address until three years before one’s applicable age—thus, for someone born in 1960 or later, don’t search until the participant reaches age 72?

If you are an attorney or lawyer for the would-be alternate payee, consider evaluating (and then advising your client) on some possibilities and probabilities about whether getting discovery so a domestic-relations order would state a percentage might be less expensive and more effective than trying to persuade the plan’s administrator to approve an order that states a time-rule formula. You might consider this even if you have no doubt that the plan’s administrator is wrong. I won’t speculate about what ERISA § 206(d)(3)(C) means, what a Federal court might say it means, or what might persuade a Federal court to not defer to a plan administrator’s interpretation. Rather, my practical point is that challenging the plan’s administrator could be an uphill fight. And even if a plaintiff wins an ERISA litigation, that does not assure an award of attorneys’ fees. Under ERISA § 502(g)(1), a court may, not must, award attorneys’ fees. And it’s in the court’s discretion. A Federal judge might wonder why a plaintiff pursued litigation when a little discovery could have accomplished what the alternate payee needed, without bothering the Federal court’s attention. (I have met judges who would think that way.) This is not advice to anyone.

CuseFan, thank you for helping me think about this. The offer is to ERISA-governed and non-ERISA plans. To plans with or without a cash-out. The $30-a-year fee ends when the individual is found. The brochure does not spell out the details of how that is determined. Perhaps many in a to-be-located class will be found in a first year’s searches. The steps for trying to find an individual are more than records searches and written communications. It can include, if needed, telephone calls to the individual’s spouse, children, other relatives, and named beneficiaries, whether primary or contingent. You’re right that a responsible plan fiduciary would consider the particular fee in a context of the whole of all direct fees and indirect compensation. Yet, adding an incremental service a plan’s current service agreement does not provide might be worth some compensation (or might not). A fiduciary must consider what’s reasonable in light of all the facts and surrounding circumstances. And different plans might have different answers to those questions. The recordkeeper’s offer is a new launch. In my work for my client, I’m not yet evaluating the service. If my client dislikes charging someone for a service she didn’t request, it might be wasteful to look into the service.

blguest, are you certain the plan is an ERISA-governed plan? Might the plan be a governmental plan? If a governmental plan recognizes a domestic-relations order, the plan might require conditions much tighter than ERISA § 206(d)(3) sets. And there can be applicable law beyond the thing that to pension practitioners looks like “the” plan document. Even if an ERISA-governed plan must recognize, or a non-ERISA plan provides that the plan recognizes, not only an order that specifies “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee” but also an order that specifies “the manner in which such amount or percentage is to be determined”, a plan’s administrator might insist that an order “clearly specifies” that “manner”. ERISA § 206(d)(3)(C). Further, consider that a Federal court might defer to an administrator’s exercise of discretion about what “clearly specifies” means, unless one’s interpretation of law or finding of facts is too obviously capricious. For a governmental plan, State law often prescribes in which court and with what special notices and procedures one may sue a governmental actor. And a plan’s administration might be entitled to an attorney general’s or other government-engaged lawyer’s defense with no expense borne by a decision-making official or officer. This is not advice to anyone.

Bill Presson, thank you for aiding my thinking. About the plan that started my thinking about this recordkeeper service and its charge on a to-be-located participant’s account: From an employer’s perspective, a plan provision imposing a small-balance involuntary distribution would not be less expensive than any expense for a locator service if an employer pays no plan-administration expense. From a participant’s perspective: An involuntary distribution and default rollover could result in an IRA with similar yearly account charges and higher-expense investments. (Imagine a big employment-based plan has enough purchasing power to get investment funds with lower expenses than a nonwealthy individual’s IRA could get.) A mail-hold might not be put on an individual’s account until all addresses—email, smartphone, and postal—have suffered bounce-backs. That means such a participant likely would not receive a notice that her failure to specify what she prefers for her involuntary distribution results in an IRA she won’t know how to communicate with. (And a participant likely will have forgotten the summary plan description that described the plan’s provisions for an involuntary distribution and default rollover. 29 C.F.R. § 2550.404a-2(c)(4) https://www.ecfr.gov/current/title-29/part-2550/section-2550.404a-2#p-2550.404a-2(c)(4).) Even if imposing a small-balance involuntary distribution might lessen the number of people subject to a locator service, there would remain many with bigger accounts. A participant might no longer receive quarter-yearly notices of her electronic opportunity to retrieve account statements and other information. A participant might no longer receive paper statements. But a participant still has electronic access to the plan’s website the recordkeeper maintains, and electronic access to her account. And likely has telephone access. Some participants don’t need or want reminders. But paying for the recordkeeper’s locator service presumes the class of participants wants reminders. I see a view that some neglectful participants might welcome being told that one should furnish at least one functional address so the plan has a way to communicate to the participant. And I recognize that meeting that purpose involves acting on a class and so burdens some people who don’t want any reminder (or at least might welcome paying for it). Yet, questions about whether a fiduciary ought to incur an expense and who ought to bear the expense don’t always have one tidy answer about what course of action is “solely in the interest of the participants and beneficiaries . . . for the exclusive purpose of[] providing benefits to participants and their beneficiaries [while] defraying [no more than] reasonable expenses of administering the plan[.]” BenefitsLink neighbors, more observations about this?

Yup. I was imagining ombskid might want some explanation about why it would not make sense to depart from what ombskid describes as the customary way, including identifying a beneficial owner. And, seeing the follow-up about an "intermediary", might want an explanation that it could be improper to pay a "corp." other than the licensed bank or trust company that would serve as an IRA's trustee or custodian.

I was too hasty in setting up my question about whether a plan sponsor might amend a plan to increase a benefit. A retroactive amendment doesn’t work for a matching contribution. Internal Revenue Code of 1986 (26 U.S.C.) § 401(b)(3) provides (3) Retroactive plan amendments that increase benefit accruals If— (A) an employer amends a stock bonus, pension, profit-sharing, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions (as defined in subsection (m)(4)(A))), (B) such amendment would not otherwise cause the plan to fail to meet any of the requirements of this subchapter, and (C) such amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof) which includes the date described in subparagraph (A), the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective. CuseFan, if a situation like what Tom describes were about a nonelective contribution, would a § 401(b)(3) amendment (assuming coverage, nondiscrimination, and other conditions for § 401(a) treatment are met) work? Or are there other reasons for a no-go or slow-go?

If the plan sponsor amends, with retroactive effect, the plan to legitimate what was paid out, would that distribution be an eligible rollover distribution? And if so, might the payment into an IRA have been a satisfactory rollover? If so, doesn't that mean no too-early tax no matter the distributee's age?

A recordkeeper offers a new service it designed to help a retirement plan find a participant classified as one likely to be “missing” or unresponsive. In form, the plan’s administrator or other responsible plan fiduciary sets the factors on who is treated as an individual this service applies to. But in practical reality, the plan’s fiduciary does this by adopting the criteria the recordkeeper wants the administrator to instruct. For example, one of those classes is that a participant’s account is more than $200 and has a mail hold. Another is that a distributee did not deposit or negotiate a payment more than $75. From what I’ve read, there is no age condition such as the individual’s applicable age for a § 401(a)(9)-required distribution; Social Security early, normal, or late retirement age; or the plan’s normal or early retirement age. If a plan’s responsible plan fiduciary authorizes the service, the recordkeeper uses a series of steps meant to find the individual, find a good address, and communicate with the individual with a hope of persuading the individual to attend to her account (or accept a payment if a distribution was provided). The fee is $30 a year while the individual is not yet satisfactorily located. The fee is charged against each individual’s account. (Assume that the recordkeeper does not offer another way, or that the employer is unwilling or unable to pay a plan-administration expense.) The recordkeeper requires the plan’s administrator to confirm that this fee is sufficiently disclosed, whether in a rule 404a-5 disclosure or another communication. My worry is that a participant might feel unfairly burdened by a few years’ or even one year’s $30 charge when the individual feels the service is one she did not request, and that the service did not benefit her. How should I think about this? Do you think this $30-a-year charge is fair to a to-be-located participant? If an individual is not yet nearing an involuntary distribution (whether a cash-out, or a § 401(a)(9)-required distribution), should a plan’s fiduciary unburden such a participant from the $30-a-year charge by omitting the individual from the to-be-located class? Should a plan’s fiduciary consider probabilities of success or failure? If an individual’s undistributed account is $300 and the fiduciary believes the probability of causing the individual to add a functional postal or email address to her account is no more than 10%, should a fiduciary not apply the locator service? (Assume the plan has people with small balances because the plan does not provide a $7,000 cash-out.)

To David Rigby’s questions about what might lurk in the deal documents, someone might consider adding, for each might-be provision: Is the supposed provision merely a wishful statement? If a provision is somebody’s obligation, exactly which person, whether artificial or human, is obligated? Is the obligation consistent with, or contrary to, applicable law? Or relevant law? Even if not contrary to law, is the obligation legally enforceable? By which person? A? B? Some other person, whether artificial or human? This is not advice to anyone. And Santo Gold might wonder: Does my company have a current service agreement with A? Does my company have a current service agreement with B? Does my company desire to revise either service agreement, or both?

If making a payment payable to a payee other than the retirement plan’s participant, beneficiary, or alternate payee (presumably because the distributee requested a direct rollover), the plan’s administrator, trustee, custodian, and payer (among them) have some responsibility to check that the payee not only is the one the distributee instructed but also is a banking, insurance, or securities institution Internal Revenue Code § 408 recognizes as an IRA custodian. Else, the plan might not get a satisfaction or discharge of the plan’s obligation to pay the plan’s benefit. This is not advice to anyone.

If the custodian of the non-Roth IRA received an amount presented as a rollover-in contribution in circumstances in which the custodian did not know, and would not suspect, that the payment was not the employment-based retirement plan’s distribution, that custodian might not have erred. If the amount the employment-based retirement plan paid was not an eligible rollover distribution and so was not the source of the non-Roth IRA’s rollover-in contribution, the individual might want one’s lawyer’s advice about whether an IRA, and which of them, might have an excess contribution and, if so, what income and excise tax consequences might result from that excess. After considering that advice, the individual might want one’s lawyer’s advice about the probability or improbability of the IRS detecting tax-return positions that there was and is no excess. If the individual, the employment-based retirement plan’s administrator (if other than the individual), or a service provider can cut past a usual customer-service worker to someone who not only can recognize what happened but also can decide what the custodian is willing to do, there might be a fleeting and limited opportunity to persuade everyone on a complete undo, including correcting or adjusting all 2025 tax-information reporting. (In my experience, getting a custodian’s attention might turn on its desire to earn or maintain good will with the requester or presenter; even with a listening audience, even clear merits might not be enough to get a custodian’s favorable response; and a presenter’s ability to teach the custodian how to implement an undo often is a deciding factor in the persuasion.) If there is no unraveling from the IRAs, the individual might want one’s lawyer’s advice about whether the plan administrator’s failure to apply the plan’s provisions tax-disqualifies the employment-based retirement plan; if so, whether the defect can be corrected; and, if not corrected, how likely or unlikely it is that the IRS would detect the defect. This is not advice to anyone. ejohnke, how confident are you that the individual was not entitled to a distribution from the employment-based retirement plan?

An Individual Retirement Account’s trustee or custodian is a bank, trust company, or Treasury-approved nonbank custodian, typically a securities broker-dealer. An Individual Retirement Annuity’s insurer must be an insurance company. If neither the check nor any accompanying instructions names the individual, won’t the payee financial-services business decline to accept the payment?

If the employer has enough money: Might the plan’s sponsor amend, with retroactive effect, the plan so all participants get for 2025 the same higher matching contribution—what had been provided only for nonhighly-compensated employees? BenefitsLink mavens, would this be feasible or infeasible?

The person that ought to have been responsible to pay, or reimburse payment of, a penalty—whether an ERISA title I penalty, or a tax law penalty—restores to the plan the money the plan was not responsible to pay, with interest or another measure of the time or investment value of the money. And, if the person that ought to have been responsible obtained a gain by having the use of what in conscience was the plan’s money, the person disgorges not only the money had but also its gain and pays it over to the plan. The “interest” portion of the plan’s recovery is the greater of the time or investment value of the money or the other person’s gain by having the use of what in conscience was the plan’s money. Equitable remedies run to the plan that was deprived of what in conscience was the plan’s money, other property, and rights. Restoration or disgorgement does not come from the plan. These remedies come from the person that had the money that ought to have been in the plan, and go to the plan to be made whole. This is not advice to anyone.

I say nothing about how, or even whether, some concept of a predecessor employer might affect a situation of a kind Old Reliable describes. Rather, I note only: Congress did not enact a definition of predecessor employer for Internal Revenue Code § 414A(c)(4)(A). The Treasury department has not yet interpreted what “predecessor employer” means for I.R.C. § 414A(c)(4)(A). I’m aware of other law that sets or interprets a concept of predecessor employer for other purposes or conditions. I don’t say anything about how those other uses might affect or influence any interpretation of I.R.C. § 414A(c)(4)(A). A plan’s sponsor or administrator might get its lawyer’s (or other IRS-recognized practitioner’s) advice and consider the range of possible and plausible interpretations.

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense. While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan. https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties. I don’t know what might obtain tax law relief. This is not advice to anyone.

Under the Treasury’s proposed interpretation, an Internal Revenue Code § 414A(c)(4)(A) new-business exception is available “if, as of the beginning of the plan year, the employer maintaining the plan (aggregated with any predecessor employer) has been in existence for less than 3 years.” Proposed Treas. Reg. § 1.414A–1 A(d)(4)(i) (emphasis added). The Treasury’s notice of proposed rulemaking states: “Comments specifically are requested on whether guidance is needed to define the term ‘predecessor employer’ as used in section 414A(c)(4)(A) of the Code[.]” Internal Revenue Code § 414A(c)(4)(A) does not state or refer to a definition of predecessor employer. https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartB-sec414A.htm The proposed rule includes some interpretations about plan mergers. The proposed rule includes some interpretations about business mergers, and about other transactions that result in a different § 414(b)-(c)-(m) employer. But § 414A is not in any of § 414(b)-(c)-(m)’s lists of Internal Revenue Code provisions for which a § 414(b)-(c)-(m) definition of the employer applies. The Treasury proposes that a final rule (if published and effective) applies “to plan years that begin more than 6 months after” notice of the final rule is published. “For earlier plan years, a plan [is] treated as having complied with section 414A if the plan complies with a reasonable, good faith interpretation of [Internal Revenue Code] section 414A.” Observe too that a final rule the Treasury might make would be an interpretive rule, not a legislative rule Congress directed. A Federal court might be persuaded by, but does not defer to, the Treasury’s interpretation. At least for 2026, a plan’s sponsor or administrator might get its lawyer’s advice and consider the range of possible and plausible interpretations. More than one interpretation could be a substantial-authority interpretation. And even if one seeks the higher more-likely-than-not standard, more than one interpretation might meet that standard. This is not advice to anyone.

I don’t suggest a settlement agreement, when there is one, always is incorporated into a divorce decree or other court order. I’ve seen many domestic-relations orders that did not do that. And my observations are from all 50+ States. (Whether an incorporation-by-reference is a good or a bad thing for a domestic-relations litigant is beyond my scope.) While each plan sponsor, plan administrator, or service provider might have a range of purposes, needs, and interests, I have often suggested a retirement plan’s administrator ought to prefer, and, to the extent applicable law permits, require, a domestic-relations court’s order the administrator can apply with no need to look at—and a preference to avoid seeing—a settlement agreement, a divorce decree, or any writing beyond the single-purpose order a claimant seeks to get recognized as a QDRO. (It might have been better for the Office of Personnel Management to have considered a similar clarity and efficiency when making its part 838 rule.) Your client has a helpful view. I wish you luck in persuading someone at OPM to think.

In my view (which is not advice to anyone), a fiduciary ought not to direct paying or reimbursing from plan assets such a penalty if a fiduciary, a service provider, or an employer is responsible for the act or failure to act that results in the penalty. That’s so even if a penalty was administratively addressed to the plan. If an employer paid a penalty but another person was at fault, the employer might get its lawyer’s advice about rights and remedies regarding the other person.