Peter Gulia

It seems unlikely that Congress will appropriate money that would enable government agencies to detect that a plan exists and ought to have filed a final-year Form 5500 return.

Was the safe-harbor notice included in the summary plan description? If so, was that communication “provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible)”? While there is a period the Treasury’s rule deems reasonable, “whether a notice satisfies the timing requirement . . . is based on all of the relevant facts and circumstances.” 26 C.F.R. § 1.401(k)-3(d)(3)(i) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-3#p-1.401(k)-3(d)(3)(i). A plan’s administrator might want its lawyer’s advice about what is or isn’t a reasonable notice. Further, that a condition for a safe-harbor treatment was not met does not necessarily mean that a participant lacked an “effective opportunity” to make her § 401(k) election. A plan’s administrator might want its lawyer’s advice about what is or isn’t an effective opportunity. This is not advice to anyone.

Not every nonexempt prohibited transaction, even about participant contributions, results in a failure of § 401(a)(2)’s exclusive-benefit condition. In practical enforcement, the IRS might not pursue a tax disqualification unless the missing or late contributions were substantial, systemic, or recurring. The IRS looks for situations that suggest an employer lacks a real intent to obey the plan documents’ exclusive-benefit provision. * * * * * If an investment salesperson suggested her customer set up a retirement plan, the plan was not correctly established or was not correctly maintained, and losses or expenses result from a tax-compliance failure, does a plan sponsor ask the investment salesperson to pay or reimburse those expenses?

Bri, thanks. Your thinking is why I ask questions. It would have taken me a while to see the Internal Revenue Code § 4975 prohibited transaction. Because a § 4975 prohibited transaction does not by itself tax-disqualify a § 401(a) plan’s trust, one might consider also whether there is a § 401(a)(2) exclusive-benefit defect.

justanotheradmin, thank you for your further list about mistaken assumptions, unobserved rules, and other difficulties. I’m curious: If a plan covers no employee and is not ERISA-governed, does the Internal Revenue Code constrain how promptly a § 401(k) elective deferral must be paid into the plan’s trust? Or is it enough that a participant contribution is paid over before the employer files (or is required to file) the employer’s tax return for the year? (About an only-the-owner plan, I imagine the participant won’t sue her employer for failing promptly to pay over a participant contribution. So, I’m guessing tax law might be the constraint.)

Thanks. (With Bloomberg and many publishers, an article’s title and content vary with the subscription and edition one uses.) Do you think most users of these plans engage a TPA when one establishes the plan? Or do most engage a TPA only after a Form 5500 reporting failure? Or after some other failure the IRS detects?

Does the multiemployer employee-benefit fund own the building? Or does the multiemployer employee-benefit fund sublease a portion of its tenancy to the union? What steps did the employee-benefit trustees use to assure that the fund gets no less than fair-market rent (and, if a sublease, no less than the rent the fund owes its landlord)? What steps did the employee-benefit trustees use to assure that the union uses no more space than it pays for? What steps did the employee-benefit trustees use for fair dealing and fair terms for everything else about the lease or sublease? If either party relies on a prohibited-transaction exemption, what records did it make to show how the exemption’s conditions were met and are met? Have the fiduciaries kept all records the exemption requires? Has the union kept all records the exemption requires? Even if not relying on an exemption, have the fiduciaries kept records to prove obedient, loyal, prudent, and impartial conduct? This is not advice to anyone.

OrderOfOps, you might not have described enough about the plan’s provisions to get helpful responses. For example: Does the plan provide or omit an automatic-contribution regime? Does the employer rely on one or more safe-harbor constructs to meet coverage, nondiscrimination, and top-heavy conditions? Also, consider that at least one perhaps relevant standard is this: “Whether an employee has an effective opportunity [“to make (or change) a cash or deferred election at least once during each plan year”] is determined based on all the relevant facts and circumstances, including the adequacy of notice of the availability of the election, the period of time during which an election may be made, and any other conditions on elections. 26 C.F.R. § 1.401(k)-1(e)(2)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(e)(2)(ii). I’m unaware of a court decision that analyzes whether delivery of a summary plan description is or might be adequate notice of a participant’s opportunity to elect § 401(k) deferrals. This is not advice to anyone.

Bloomberg this morning features an article about micro retirement plans. Isabelle Lee, Wall Street Pushes Solo 401(k)s as More Americans Work for Themselves, Bloomberg (Jan. 23, 2026, 6:00 AM EST). We need not repeat an observation that there is no such thing as a Solo 401(k) plan. Rather, let’s recognize the sales label for what many businesspeople believe it describes: an individual-account (defined-contribution) retirement plan the plan sponsor and its owner expect to use for participation by only one worker, the owner. BenefitsLink neighbors, what are you seeing happen in this space: Do more users of these plans recognize that, to run a plan without trouble, one needs a TPA’s services? Are there many who try to be a do-it-yourselfer (until it fails)? Aside from a failure to file a Form 5500 return, which other errors are detected? Are CPAs and other tax preparers a useful alternative for filing Form 5500 returns? Or, not so much? Beyond a Form 5500 return, what are other failure points?

Before considering whether a breach is VFCP-correctable: Has each fiduciary who might consider a correction consider his or her lawyer’s advice about whether a transaction might, despite the conflicts of interests, be an exempt prohibited transaction? For example: Class Exemption From Prohibitions Respecting Certain Transactions in Which Multiemployer and Multiple Employer Plans Are Involved, 42 Federal Register 33918 (July 1, 1977). Class Exemptions From Prohibitions Respecting Certain Transactions in Which Multiemployer and Multiple Employer Plans Are Involved, 41 Federal Register 12740 (Mar. 26, 1976), corrected,41 Federal Register 16620 (Apr. 20, 1976). Even if an arrangement was and is an exempt prohibited transaction, have the current fiduciaries evaluation the arrangement was or is a breach of fiduciary responsibility? A prohibited-transaction exemption does not excuse any fiduciary from any responsibility (other than one’s duty not to cause or permit the plan to be involved in a nonexempt prohibited transaction). This is not advice to anyone. PTE 1977-10.pdf PTE 1976-1.pdf PTE 1976-1 correction.pdf

The parent, using an accounting firm, tests yearly each plan for coverage and nondiscrimination. Those tests consider every subsidiary’s plan’s or plans’ provisions, and collect information from every subsidiary and the whole § 414(b)-(c)-(m)-(n)-(o) employer. The employer has been doing that for decades. My client has never had a failure. And I suspect none of the other subsidiaries has ever had a failure. CuseFan, thank you for giving me another way of thinking about how much or how little tolerance there might be for an allocation condition—whether expressed, or indirectly used—not determined until after the plan year ends. My advice will mention possible interpretations. And I recognize that a provision about a nonelective contribution’s allocation can affect issues under (at least) sections 401(a)(4), 401(k), 401(m), 404, 410(b), and 415(c). Even with my limited scope, I’ll do what I can to warn my client about potential interactions. My client’s inside lawyers, its human-resources officer, and its chief administrative officer, would evaluate whether a proposal is worthwhile to present to my client’s chief executive, for him to evaluate whether to present the idea to the corporate parent. If a proposal is presented, the parent would evaluate it using at least its inside law department, and likely outside counsel too. I think a likely decision, whether at the subsidiary’s or the parent’s level, will be to change nothing and continue a mainstream last-day condition. I might tell my client to consider those probabilities, including chained probabilities, before spending more on even my preliminary analysis. But I won’t be surprised if the call is to analyze issues and predict whether a later opinion could get to a 51% probability that the provision, however expressed or implemented, doesn’t tax-disqualify the plan. I’ll provide candid analysis and information. The decision-making is beyond my work.

Bill Presson, thanks. My reasoning for disfavoring each-participant-is-an-allocation-group is unrelated to coverage or nondiscrimination tests. About this plan, I have no involvement with, and do not provide advice about, coverage and nondiscrimination testing—except the advice to check-in with the parent. (More than a few years ago, I advised my client not to change anything—even seemingly innocuous features—without its parent’s approval. And whenever they ask me anything about a point that even imaginably could touch coverage or nondiscrimination, I remind them about how one subsidiary’s plan provisions might others’.) Could the proposed idea work with as few as two allocation groups: those who met the February 15 allocation condition, and those who did not? (This is regarding just the one plan. The employer’s coverage and nondiscrimination tests would, I guess, consider contributions and all allocations under all plans of the § 414(b)-(c)-(m)-(n)-(o) employer.) And if using allocation groups is allowed, doesn’t that leave me with the same question about whether it’s proper to have an allocation formula (or define, even if indirectly, an allocation group) that turns on a fact that won’t occur until after the year closes?

StephenD, thank you for your kind words, and thank you for a related point to think about. This plan sponsor can’t let its plan design “wait and see” on what coverage and nondiscrimination tests reveal. The plan’s sponsor is only one of many subsidiaries of a common parent. Each subsidiary maintains its own distinct plan, and each has its own distinct contributions and allocations. Each plan has its own recordkeeper. All coverage and nondiscrimination tests for all plans are run independently of all recordkeepers.

Justanotheradmin, Bill Presson, CuseFan, and WCC, thank you. I’m grateful for the own-group suggestion. And thanks for the pointers to the earlier discussions. For the situation I’m thinking about, there are too many participants to use, in the employer’s circumstances, many allocation groups. I see the issues about when something counts for § 415(c) and for § 404. A profit-sharing “plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants[.]” 26 C.F.R. § 1.401-1(b)(1)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401-1#p-1.401-1(b)(1)(ii). But is there a rule or an IRS interpretation that the facts that drive the “definite predetermined formula” must be facts that happened within the plan year? My scope is only technical advice whether the proposed February 15 allocation condition would tax-disqualify the plan (or be contrary to an ERISA §§ 202-204 command about what a plan must provide). Others, including my client’s inside lawyers, its human-resources officer, and its chief administrative officer, would evaluate whether a proposal is worthwhile to present to my client’s executive, for him to evaluate whether to present the idea to the corporate parent. Again, thank you for helping me explore my own preliminary thinking.

I’m wondering whether a § 401(a)-qualified retirement plan may provide an allocation condition that, instead of looking to the last day of each plan year, instead uses a somewhat later date, a little after a year closes. For example, to share in a nonelective contribution declared for 2027 and allocated in relation to participants’ 2027 compensation, the participant would need to be employed on February 15, 2028. The idea is the client’s, not mine. Assumptions: The employer’s accounting and tax year is the calendar year. The plan’s plan year and limitation year are the calendar year. The plan uses no safe-harbor regime to meet any coverage, nondiscrimination, or top-heavy condition. The plan never has had difficulty meeting these conditions. Of those participants who might not share in a nonelective contribution (if one is declared for a year) because the allocation-condition is the next February 15 rather than the last day of the year, that effect cuts against highly-compensated participants. (For the business and workforces involved, the executives are mobile and the nonexecutive workers are rooted.) And for further reasons, the employer is not the least bit worried about nondiscrimination. The plan sponsor could change from using IRS-preapproved documents to an individually-designed plan. Questions: What qualified-plan rules, beyond nondiscrimination, are involved? What am I missing? Are there reasons beyond tax law why an employer should not do this? Thank you for helping me think about this.

If there is a doubt about whether an asset is a qualifying or nonqualifying plan asset, here’s another opportunity: A plan’s administrator might take protective steps as if the asset is nonqualifying. That includes paying for whatever extra fidelity-bond insurance would be needed. Acting as if the asset is nonqualifying might be less expensive than getting a lawyer’s advice that the asset is a qualifying plan asset. On a different point, a plan’s administrator, trustee, and every other fiduciary might take steps to satisfy all of them that “the indicia of ownership of [all] assets of [the] plan [are within] the jurisdiction of the district courts of the United States.” ERISA § 404(b), 29 U.S.C. § 1104(b). Asking whether the plan’s trustee or § 3(38) investment manager sufficiently analyzed whether the asset is a prudent investment might be a point you prefer not to mention. This is not advice to anyone.

Might it be as simple as EBSA’s software was not told to apply the holidays tolerance? Some plan administrators might incur an incremental DFVC expense because that expense might be less than an expense to explain that the report is not delinquent. Is $750 less expensive than one hour of a professional’s time? Or less expensive than a minimum fee for a new task? I’m curious: Does the DFVC require a user to state that the report is delinquent? Or may a user get DFVC protection without saying that the report is delinquent?

For the or each plan, evaluate whether the tax-exempt organization has a right to amend the plan, and under what conditions. (When I’ve represented an executive, her plan can be amended only on the proposing party’s written notice to the other and both parties’ written adoptions.) Here’s a potential opportunity: That a tax-exempt organization ceases operations might not mean that the organization must cease existence. If an organization’s soon-to-be former executive would find an acceleration unwelcome, she might persuade the organization’s governors to continue the organization’s existence as needed to pay her deferred compensation according to the unamended plan’s provisions. (Whether that’s feasible, or whether it would accomplish anything, might turn on the plan’s provisions. And the situation you’re thinking about might have facts or circumstances that make a continuation impractical or even impossible.) If a § 457(f) plan will have an early end, an executive will have compensation includible in her gross income for her first tax year in which there no longer is a substantial risk of forfeiture of her rights to the compensation. See 26 C.F.R. § 1.457-11(a)(1) https://www.ecfr.gov/current/title-26/part-1/section-1.457-11#p-1.457-11(a)(1). And if there might be deferred compensation beyond what § 409A rules classify as a short-term deferral, one might follow the § 409A rule’s norms for a plan’s termination. If there’s a risk that claims of other creditors might result in the organization not paying all deferred-compensation obligations, an executive might prefer the quickest end, no matter how harsh the tax consequences. Consider circumstances that might result in the organization’s governors having interests different than, or even opposed to, the soon-to-be former executives’ interests. This is not advice to anyone.

Among some practical ways to evaluate whether a business’s facts would meet conditions for a credit is to use Form 8881 and its Instructions. https://www.irs.gov/pub/irs-pdf/f8881.pdf; https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit Instead of waiting to prepare a tax return on the facts of a concluded tax year, some accounting firms can run a projection on a set of assumed facts.

Federal income tax law does not preclude a governmental § 457(b) plan from accepting a rollover contribution if: the distributed-from plan is a § 402(c)(8)(B) eligible retirement plan; the distribution is a § 402(c)(4) eligible rollover distribution; the governmental § 457(b) plan provides that the plan accepts rollover contributions; and the § 457(b) plan separately accounts for rollover contributions, including separately accounting for those not from another governmental § 457(b) plan. See 26 C.F.R. § 1.457-10(e) https://www.ecfr.gov/current/title-26/part-1/section-1.457-10#p-1.457-10(e). Beyond this, a governmental employer should get its lawyer’s advice about State and other local laws. This is not advice to anyone.

A few thoughts (none of which is advice): Before a plan’s sponsor or administrator considers whether ERISA title I’s anti-cutback command might negate a change, one might consider what benefit the plan provides. That might call for a thorough and careful reading of “the documents and instruments governing the plan”, which might include or exclude all, some, or none of an employer’s collective-bargaining agreements, and might involve surrounding labor-relations law. This might involve thorough interpretations using several modes of reasoning. One doubts a lawyer advised that ERISA title I’s anti-cutback command doesn’t apply; rather, the whole of the documents might have defined the benefit not to be cut back. (For example, a seeming accrual might be subject to what results under labor-relations law.) If some of “the documents and instruments governing the plan” are stated using IRS-preapproved documents, some plans’ administrators interpret documents considering the difficulties and ambiguities that might result the format’s constraints. Some consider scrivener’s error, mistake, or other reasons for reforming a document. An individual-account (defined-contribution) plan meant to fit Internal Revenue Code § 403(b) might bear some interpretations different than for other plans. A plan’s sponsor or administrator might consider which Treasury interpretations of Internal Revenue Code § 411 might (or might not) be relevant authority regarding part 2 of subtitle B of ERISA’s title I. Consider the 1978 Reorganization Plan. But recognize also that a court does not defer to, and might not be persuaded by, an interpretive rule or regulation. Although many nonlawyer consultants are knowledgeable about the Internal Revenue Code and ERISA’s title I, and are comfortable providing advice about those laws, fewer feel comfortable advising on situations that suggest a possible application or relevance of other law. All that observed, it’s smart to flag the issue.

And, beyond tax-law corrections, an eligible correction under Labor/EBSA’s Voluntary Fiduciary Correction Program (because the Treasury/IRS lacks authority regarding ERISA title I fiduciary breaches). Expenses for a correction should be the personal responsibility of the breaching fiduciaries.

If ERISA § 204(h) calls for a notice, the plan’s administrator provides the notice. ERISA § 104(h)(1). Some plans’ administrators engage a service provider’s help in delivering a notice. Whether ERISA § 204(h) calls for a notice turns on whether the plan is an “applicable pension plan”, including an individual-account plan “subject to the funding standards of [Internal Revenue Code §] 412[.]” ERISA § 104(h)(8)(B)(ii). Also, whether the plan amendment would “provide for a significant reduction in the rate of future benefit accrual[.]” ERISA § 104(h)(1). ERISA § 104(h)(2) calls for a § 204(h) notice to “be written in a manner calculated to be understood by the average plan participant and [to] provide sufficient information . . . to allow applicable individuals to understand the effect of the plan amendment.” A plan’s administrator might want its lawyer’s advice about whether a communication about other aspects of a plan’s discontinuance, final distribution, a distributee’s right to direct a rollover if the distribution is an eligible rollover distribution, and the plan’s termination might include enough information to meet ERISA § 204(h). (Some administrators hope to get everything done in one delivery, and even one writing.) ERISA § 204, unofficially compiled as 29 U.S.C. § 1054 https://www.govinfo.gov/content/pkg/USCODE-2023-title29/html/USCODE-2023-title29-chap18-subchapI-subtitleB-part2-sec1054.htm. This is not advice to anyone.

Consider also that only communications with one’s lawyer for the purpose of getting the lawyer’s legal advice can get that evidence-law privilege.

Whether the plan is governmental or ERISA-governed; which State laws might not be superseded, even if the plan is ERISA-governed, because the particular State law does not “relate” to the plan; which subjects are within or beyond collective discussion with one or more labor organizations; who, if anyone, has discretionary authority to interpret the employer’s obligation; which persons are required to obey a government lawyer’s advice; which persons are permitted to rely on a government lawyer’s advice; which persons might enjoy or lack sovereign, governmental, or public-officer immunity; which persons might be entitled to a defense at the government’s expense; which persons might be entitled to a defense at the plan trust’s expense; which actuarial standards might apply; which assumptions might apply; all these and more might affect how one or more of the persons involved might consider the error. And consider that each person involved might have interests that differ from others' interests.