Peter Gulia

Beyond Paul I’s caution about whether there was a direct-filing entity investment any time in the reported-on year, consider also: Some people (less detail-oriented than FishOn) use the lingo “mutual fund” without distinguishing between SEC-registered shares of a company or trust registered with the SEC under the Investment Company Act of 1940 and an investment fund of some other kind, including a bank’s or trust company’s collective investment trust fund or another arrangement that might be a direct-filing entity. A plan’s administrator should distinguish, for each investment fund, exactly which kind of fund the plan invests in. Not all reports show the classifications.

I read Internal Revenue Code § 402(c)(8)(B)(v) as including in the defined term eligible retirement plan a § 457(b) plan only if the § 457(b) plan “is maintained by an eligible employer described in section 457(e)(1)(A)[.]” Likewise, Internal Revenue Code § 457(e)(16)(A) provides an exclusion from gross income for a rollover of an eligible rollover distribution only “[i]n the case of an eligible deferred compensation plan established and maintained by an employer described in [§ 457](e)(1)(A)[.]” I don’t see that a school, even if not a qualified church-controlled organization, “still listed as a church[-]related entity in the master list of [Roman] [C]atholic organizations” would be “a State, political subdivision of a State, [or] an[] agency or instrumentality of a State or political subdivision of a State[.]” I.R.C. § 457(e)(1)(A). If a nongovernmental § 457(b) plan is not an § 402(c)(8)(B) eligible retirement plan, how would such a plan be a payer of an eligible rollover distribution? See also IRS, Automatic Rollover, Notice 2005–5, 2005-3 I.R.B. 337, 338 Q&A-6 (Jan. 18, 2005) (“[A] governmental eligible deferred compensation plan described in [§ 457](e)(1)(A) must meet requirements similar to the requirements of § 401(a)(31). . . . . The automatic[-]rollover requirements of § 401(a)(31)(B) do not apply to non-governmental § 457(b) plans.”). Some nongovernmental § 457(b) plans allow a transfer of a deferred compensation obligation from a § 457(e)(1)(B) obligor to another § 457(e)(1)(B) obligor that accepts the obligation. This is not advice to anyone.

I’ve never seen a defined-benefit pension plan participant’s ERISA claim grounded on the participant having received a greater benefit than the plan provided. The Internal Revenue Service might be reluctant to assert a plan is tax-disqualified for a failure to follow the written plan when a Pension Benefit Guaranty Corporation employee requested the deviation (even if it was a deviation, and not an ERISA command). This is not advice to anyone.

To follow this case about whether Congress enacted an appropriations act that includes SECURE 2022: The appeal’s docket number 24-10386 is unchanged; the case’s caption is Texas v. Blanche. The United States Court of Appeals for the Fifth Circuit heard an oral argument on May 12, 2026. The Justice department continued to defend that the House of Representatives’ action on December 23, 2022 was not contrary to the Constitution’s Quorum clause. No precedent is in effect anywhere.

In my view, a plan’s sponsor should not require, or even permit, a plan’s administrator to decide whether an individual’s circumstances fit a deemed immediate and heavy financial need. Instead, a plan should provide § 401(k)(14)’s self-certifying claim as the way a participant gets a hardship distribution.

Even if you’re confident that the documents governing the plan state no provision that could tax-disqualify the plan (and do not omit a provision needed for the plan to tax-qualify): Consider that an IRS opinion letter on preapproved documents warns that it provides no assurance about ERISA’s title I. If the plan is ERISA-governed, the plan’s administrator might consider whether its reading of the plan comports with all commands of ERISA’s part 2 of subtitle B of title I (ERISA §§ 201-211). Treasury rules to interpret similar provisions of the Internal Revenue Code might be persuasive authority to support interpretations of some (not all) provisions of ERISA’s part 2. But, strictly speaking, there is no reliance on IRS-preapproved documents. This is not advice to anyone.

In 26 C.F.R. § 1.401(k)-1, none of the four uses of the phrase “principal residence”, including the one that sets up a deemed immediate and heavy financial need, refers to a definition. 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(2). If a plan’s administrator does not rely on a participant’s § 401(k)(14) self-certifying claim, the administrator may use its discretionary authority to interpret the plan to discern the meaning of a principal residence. Further, an interpretation about excluding from income a gain from one’s sale of her principal residence includes this: “Whether property is used by the taxpayer as the taxpayer’s residence depends upon all the facts and circumstances. A property used by the taxpayer as the taxpayer’s residence may include a houseboat [or] a house trailer[.]” 26 C.F.R. § 1.121-1(b)(1) https://www.ecfr.gov/current/title-26/part-1/section-1.121-1#p-1.121-1(b)(1). Whether a trailer is someone’s primary residence or another residence is a distinct question. This is not advice to anyone.

For a § 457(b) plan to provide an I.R.C. § 402(c)(4) “eligible rollover distribution”, wouldn’t the plan need to be a governmental employer’s § 457(b) plan? Internal Revenue Code (26 U.S.C.) § 402(c)(8)(B)(v) https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapD-partI-subpartA-sec402.htm.

Thank you for catching my word-processing error. Yes, a participant's 2026 Social Security wages from the employer drives whether one is § 414(v)(7)-affected for 2027.

rocknrolls2, the comments suggest that the pension plan’s fiduciaries might have acted incorrectly by commencing the participant’s annuity based on less than the benefit the plan then provided (if no ERISA § 206(d)(3)(H)(i) segregation then was in effect because the plan’s administrator had not received a DRO, or a segregation had ended). How the plan’s administrator mops up the mess calls for some lawyering. This is not advice to anyone.

Jakyasar’s illustration suggests the shareholder-employee’s compensation was $0 for 2025, the measure for whether a participant is § 414(v)(7)-affected for 2026. For 2026, the corporation might not have decided yet how much compensation to pay this shareholder-employee. If a participant’s 2025 Social Security wages from the employer was $0 (and so no more than $150,000), the participant’s 2026 age-based catch-up deferrals elections may be non-Roth. Likewise, if 2026 Social Security wages is no more than $155,000 (est.) for 2026, the participant’s 2026 age-based catch-up deferrals elections may be non-Roth.

From the facts described above, it looks like a delay in beginning payments to the might-become alternate payee does not result from the plan administrator’s breach of its responsibility to administer the plan. Unlike an individual-account (defined-contribution) plan that provides no assurance of the amount of a benefit, a defined-benefit plan promises a specified benefit. A participant (including alternate payees when one or more shares in the participant’s benefit) is entitled to no more than the benefit promised, applying the documents governing the plan. The plan’s administrator might want its lawyer’s advice about whether the court order now submitted is a DRO and, if it is a DRO, whether it is a QDRO. Prudence might suggest getting that advice from a lawyer who is independent of anyone involved in previous advice or decision-making. Further, the plan’s administrator might, in some circumstances, want two distinct lawyers—one to advise the administrator about how to administer the plan now; another for advice about the administrator’s past conduct. Under a doctrine some label the “fiduciary exception”, communications about how a fiduciary administers the plan will lack a useful evidence-law privilege for lawyer-client communications. But confidential communications to advise the administrator personally about how one defends against claims grounded on the fiduciary’s past conduct might get the lawyer-client communications privilege. And even if the administrator wants no evidence-law privilege, it might be imprudent for a fiduciary to rely on advice from a lawyer who faces conflicting, or even potentially conflicting, interests. Does the court order specify that its alternate payee gets interest on what would have been her payments had a QDRO been approved before the annuity starting date? If not, why would the pension plan’s administrator provide something beyond what the relevant court order calls for? Does the plan provide interest or another time-value-of-money adjustment on a missed payment? If not, wouldn’t a DRO that specifies interest be not a QDRO because it attempts to specify a benefit the plan does not provide? In what other ways might the court order be consistent with, or contrary to, the construct that a QDRO cannot specify a benefit not otherwise provided under the plan? Consider, a QDRO specifies an alternate payee’s portion as an amount or as a percentage of the participant’s benefit. ERISA § 206(d)(3)(C)(ii). Consider, ERISA § 206(d)(3)(H)(i) segregates amounts only during a period that begins when the plan’s administrator has received a DRO and ends when the administrator decides whether the DRO is (or is not) a QDRO. And § 206(d)(3)(H)(ii) provides interest on an alternate payee’s portion only to the extent of the amounts segregated during that period. Congress specified a situation for which interest is provided. Does that mean interest is not provided for other situations? At least not if the plan doesn’t provide it? ERISA § 206 (29 U.S.C. § 1056), https://www.govinfo.gov/content/pkg/USCODE-2024-title29/html/USCODE-2024-title29-chap18-subchapI-subtitleB-part2-sec1056.htm. This is not advice to anyone.

To determine whether a participant is § 414(v)(7)-affected, a retirement plan’s administrator looks to the employer’s Form W-2 wage report of the participant’s wages in the preceding year. 26 C.F.R. § 1.414(v)-2(c)(3)(ii), https://www.ecfr.gov/current/title-26/part-1/section-1.414(v)-2#p-1.414(v)-2(c)(3)(ii). I suspect no one yet has thought much about what retirement plan adjustments might become needed if an IRS examination asserts that a shareholder-employee did not pay herself reasonable compensation. What if a settlement or a proceeding results in redetermining the shareholder-employee’s wages for one or more back years? Could that make a participant § 414(v)(7)-affected for some years? Must or should a retirement plan’s administrator adjust the individual’s account between non-Roth and Roth deferrals? BenefitsLink neighbors, do we concur on these points: ? A nonfiduciary service provider ought not to be responsible for relying on information the plan’s administrator (typically, closely aligned with the employer) furnished or instructed. ? A plan’s administrator ought not to be responsible for relying on the employer’s Form W-2 wage reports unless the administrator knows the employer’s report is false.

Artie M, your experience shows why it matters that a plan’s fiduciary, with its lawyer’s advice, decides how strict or friendly to set hardship standards and fact-finding. Now, a plan’s sponsor or administrator may set § 401(k)(14)’s self-certifying claim as the plan’s claims procedure. https://benefitslink.com/boards/topic/81251-which-recordkeepers-have-implemented-self-certifying-hardship-claims/#comment-356756

In 2007, the Treasury department elevated the restorative-payment construct from nonrule guidance to a Treasury rule. And (adopting my comment) widened the circumstances in which the construct applies. 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C). There need not be an actual or even threatened liability; it’s enough that there is a “reasonable risk of liability”. Also, the restoration may be paid or provided by a person other than the fiduciary that arguably breached its responsibility. Allocating a return of investment-advisory fees to the account or accounts the fees had been charged against should meet the rule’s condition that “participants who are similarly situated are treated similarly with respect to the [restorative] payments.” This is not advice to anyone.

Thank you for your thought-provoking pointer to some opportunities. Among them, a plan sponsor’s settlor plan provision might leave the plan’s administrator no or little discretion. That might help defeat a claim of a kind fmsinc alludes to—a spouse’s or former spouse’s claim that the plan’s administrator exercised a discretion in a way that made it too easy for a participant to get an approval of a false claim. Whatever might be a fiduciary’s responsibility, it applies only to the extent of the fiduciary’s discretionary choices. And ERISA § 404(a)(1)(D) calls a fiduciary to obey the plan’s governing documents. This is not advice to anyone.

A retirement plan’s fiduciary typically negotiates a service provider’s compensation in the aggregate, not regarding any particular participant, beneficiary, or alternate payee. To the extent that a plan’s governing documents do not specify an allocation of plan-administration expenses, a retirement plan’s fiduciary allocates a plan’s expenses among accounts considering, widely, all the plan’s people or classes of them, but not a particular individual circumstance. A distribution-processing fee could in some circumstances be an element of a service provider’s reasonable compensation. And charging a distribution-processing fee against the individual accounts of distributees could in some circumstances be an aspect of prudent ways to allocate expenses among a plan’s participants, beneficiaries, and alternate payees. An allocation of distribution-processing fees that does not omit involuntary distributions is used with many plans. I’m unaware of any court opinion that considers the point. EBSA’s bulletin does not state, at least not expressly, that charging a distribution-processing fee is improper. Or that charging it without regard to the amount of the distributee’s account balance or distribution is improper. And the bulletin includes this example or illustration: “Benefit Distributions. Some plans provide for the imposition of benefit-distribution charges on the participant to whom the distribution is being made. These charges may be assessed for benefit distributions paid on a periodic basis ({for example}, monthly check-writing expenses). ERISA does not specifically preclude the allocation of reasonable expenses attendant to the distribution of benefits to the account of the participant or beneficiary seeking the distribution.” Department of Labor Employee Benefits Security Administration, Allocation of Expenses in a Defined Contribution Plan, Field Assistance Bulletin 2003-3 (May 19, 2003), https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2003-03. (I express no view about whether the bulletin is a sound interpretation of the statute or any law.) It might seem awkward to charge a fee to process a distribution that results in no money payable to the distributee. For a participant with a $200 balance, is it meaningfully less awkward to charge a $100 fee that results in a net distribution of $100 and, perhaps, after withholding toward Federal and State income taxes, a net payment of about $75? Even if the involuntary distribution is as much as $7,000, is it fair to charge someone who had not asked for a distribution? Or might a fiduciary’s duty of impartiality call in some circumstances for not letting some distributees escape a charge imposed on others? In a typical arrangement, a responsible plan fiduciary decides whether fees are reasonable, and decides how to charge fees among individuals’ accounts. The fiduciary is responsible for its exercises of discretion.

A plan fiduciary might be reluctant to send money back to the investment-advisory firm because that firm might change its mind about the adjustment it provided. For that or another reason, a plan fiduciary might prefer getting the money from the plan-sponsor company. The company might add to the mistakenly deposited amount an amount that follows a good-faith estimate of interest or the time value of money for the use of the money that did not belong to the company. If the company and the plan fiduciaries are agreed on a correction, they might do one write-up to document the correction. If there is a nonexempt prohibited transaction, a disqualified person, never the plan, owes the excise tax. So, the company might decide whether it files or omits an excise tax return. This is not advice to anyone.

Thank you! When the plan’s sponsor/administrator has specified self-certifying: Does a recordkeeper process the hardship claims without bothering the plan’s administrator? Is an approve-or-deny decision as binary as the form (whether electronic or paper) is good-order completed and signed, or isn’t?

Which recordkeepers have implemented self-certifying hardship claims? Which have not? What’s the deal with: Ascensus? ADP? Paychex? Empower? Voya? John Hancock? Principal? Fidelity? Vanguard? TIAA? Others? If there is a choice, does a recordkeeper suggest a default norm? If so, is the default self-certifying, review by the recordkeeper, or review by the plan’s administrator.

Artie M.’s explanation that an expense already paid might no longer be an immediate need likely is a mainstream interpretation of a plan’s provision that follows the Treasury’s rule. But some deciders of hardship claims are not so strict. Some reason an employee might have paid a recognized expense without foreseeing how it would affect the employee’s ability to meet other expenses. A financial controller thinks about which expense to pay in what order, including considering expenses to be paid from particular budgets. Many working people don’t think that way, and some administrators reason they shouldn’t be expected to. An ordinary person might pay an emergency expense using money that normally would go to recurring expenses, letting some go past due while waiting for an insurance recovery or a hardship reimbursement. I’ve seen claims procedures under which an expense already paid is recognized for a hardship if it was paid in a recent few months. Some of those procedures were designed by lawyers who knew one’s client’s procedure is certain to be examined by the Internal Revenue Service. A fiduciary designing a claims procedure might balance a need to be reasonably confident that decisions on hardship claims do not tax-disqualify the plan with being reasonably responsive to participants’ claims for a hardship that meets the plan’s provision. A fiduciary that otherwise would lack expertise should want its lawyer’s advice. This is not advice to anyone.

If a plan sponsor wants its plan to provide that a hardship is determined by relying on the claimant’s certification (to the extent I.R.C. § 401(k)(14) or § 403(b)(7)(D) permits): Must or should that provision be stated in the plan documents? Or is it enough that the plan’s administrator’s claims procedure, distinct from the plan documents, states the self-certification regime? Also, even if a procedure would be enough, is there any disadvantage to putting the provision in the plan documents’ adoption agreement? I welcome all BenefitsLink neighbors’ views.

If the participant not only owns it but also lives in it as his principal residence: If the plan provides this hardship need, the participant might consider: “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).

Is the grandmother's residence also the participant's principal residence?

What amount does the participant seek? What expense does the participant claim as his (perhaps including his grandmother's) hardship need? A conservatorship by itself might not make the incapacitated person the conservator's dependent. If the plan provides the Treasury regulations' deemed hardship needs, some of them might apply regarding the participant's primary beneficiary's expenses. This is not advice to anyone.