Peter Gulia

As the plan’s administrator evaluates risks and opportunities, it might consider: which directions the plan’s directed trustee would accept or refuse; which instructions the plan trustee’s custodian would accept or refuse; which instructions the plan trustee’s or custodian’s paying agent would accept or refuse; which services the plan administrator’s recordkeeper would provide or decline. This is not advice to anyone.

For tax years that begin on or after January 1, 2027, SECURE 2022 replaces the saver’s credit with the saver’s match. An eligible individual claims this “match” in her Federal income tax return. The US Treasury pays this as a contribution to the eligible individual’s applicable retirement savings vehicle, which the individual specifies (in her tax return, we guess). A plan that receives this Treasury contribution may be a § 401(k) plan, a § 403(b) plan, a governmental § 457(b) plan, or an IRA. For any of those, the Treasury’s contribution must be credited only to a non-Roth account. A US Treasury contribution is made to a retirement plan only if the plan will accept these contributions, and segregate a separate subaccount for, appropriately credit, and tax-report regarding these Treasury contributions. The US Treasury’s contribution is treated as the participant’s elective-deferral or individual’s IRA contribution, not as a matching or nonelective contribution. But the Treasury’s contribution is not available for a hardship or unforeseeable-emergency distribution. Internal Revenue Code (26 U.S.C.) § 6433, 31 U.S.C. § 1324(b)(2). For an employment-based plan: Is there any big recordkeeper that might be unwilling to provide services to receive and distinctly recordkeep these contributions? Or will all of them fall in?

The plan’s administrator might want its lawyer’s advice about whether the plan might be willing to make a direct payment to the participant’s surviving spouse if the duly appointed and properly serving personal representative of the decedent’s estate signs and delivers a written release that the plan’s payment to the surviving spouse is a satisfaction of the plan’s and all plan fiduciaries’ obligations with promises to defend, exonerate, and indemnify all plan fiduciaries and service providers against any other claim. (No matter how strong the release, satisfaction, and indemnities, that way still takes on risks. For example, bypassing the decedent’s estate risks at least some risk regarding the decedent’s creditors. But the plan’s administrator, with its lawyer’s advice, might decide the risks are worthwhile in the circumstances.) The plan’s administrator might want its lawyer’s advice about whether it makes legal and practical sense (or doesn’t) to pay nothing until there is a proper claim submitted by the proper distributee. (That way, too, bears risks.) To evaluate the strengths and weaknesses of imaginable risks and opportunities, the plan’s administrator might prefer its lawyer’s careful and thorough reading of the documents governing the plan. Among several points, the administrator might want its lawyer’s advice about whether a court would defer to the administrator’s incorrect but plausible interpretation about what the plan provides. If a lawyering expense would be paid from or reimbursed by the plan’s assets (whether allocated among all individuals’ accounts or only to the participant/distributee’s account), the administrator might have a responsibility to incur no more than a prudent expense. Yet, a plan’s administrator might design claims procedures and responses to challenging claims that can be applied efficiently and with reasoned logical consistency and uniformity. Consider a fiduciary’s duty of impartiality. This is not advice to anyone.

I assume your question is about an employer that made what it says was a mistaken contribution. For a multiemployer plan, the plan sponsor is, typically, the plan trust’s joint board of trustees. ERISA § 3(16)(B)(iii), 29 U.S.C. § 1002(16)(B)(iii). Likewise, a multiemployer plan’s administrator is, typically, the joint board of trustees. ERISA § 3(16)(A)(ii), 29 U.S.C. § 1002(16)(A)(ii). Here’s the statute’s text: “(ii) if such contribution or payment is made by an employer to a multiemployer plan by a mistake of fact or law (. . .), paragraph (1) [noninurement and exclusive purpose] shall not prohibit the return of such contribution or payment to the employer within 6 months after the plan administrator determines that the contribution was made by such a mistake.” ERISA § 403(c)(2)(A)(ii), 29 U.S.C. § 1103(c)(2)(A)(ii) (emphasis added), https://www.govinfo.gov/content/pkg/USCODE-2023-title29/html/USCODE-2023-title29-chap18-subchapI-subtitleB-part4-sec1103.htm. Consider that a multiemployer plan’s joint board of trustees might not determine that what an employer asserts was an ERISA § 403(c)(2)(A)(ii) mistake of fact or law was such a mistake. Further, a joint board might find that, even if there was such a mistake, the employer is for other reasons not entitled to a return of all or some of the mistaken contributions. Yet, courts have sometimes atextually interpreted or applied the statute. See, for example: Teamsters Local 639-Employers Health Trust v. Cassidy Trucking, Inc., 646 F.2d 865, 2 Empl. Benefits Cas. (BL) 1217 (4th Cir. Apr. 22, 1981) (analyzing legislative history and common law about what is a mistake of fact for ERISA § 403(c), and what remedy applies) (treating as not obviously wrong the trial court’s finding that the employer’s belief that a contract existed could be a mistake of fact) (ignoring that a multiemployer plan’s administrator determines whether a contribution is mistaken) (ignoring the period for a return of a mistaken contribution to a multiemployer plan) (that the statute permits a return of a contribution made under a mistake of fact does not by itself mean the payer is entitled to restitution). Ethridge v. Masonry Contractors, Inc., 536 F. Supp. 365, 368 (N.D. Ga. Mar. 25, 1982) (interpreting ERISA § 403(c)(2)(A)(ii) to permit a return of an overpayment without the plan’s administrator’s determination that the contribution was made by mistake of law or fact, or impliedly countermanding, with a de novo rather than deferential review, the administrator’s finding) (interpreting the six-month limit to apply from an employer’s discovery of the mistake, rather than from when the contribution was made or when the plan’s administrator determined the contribution was made under a mistake of law or fact). This is not advice to anyone.

Brian Gilmore, so we might learn a little more from your generous teaching: If an employer has some choices about corrections and tax-information reporting, is there a duty of consistency? Must an employer treat all similarly situated participants the same way?

ERISA § 404(a)(1)(D)’s “insofar” phrase calls a plan’s administrator (and other fiduciaries) to ignore a document provision that’s inconsistent with an ERISA title I command. Instead, one administers the plan as though it provides what ERISA’s title I commands. ERISA § 202 begins with “No pension plan may require . . . .” ERISA § 203 begins with “Each pension plan shall provide . . . .” For a plan governed by part 2 of subtitle B of title I of ERISA, for minimum participation or nonforfeitability an administrator would determine a break in service as no more restrictive than ERISA § 203(b)(3)(A) permits—that is, a year “during which the participant has not completed more than 500 hours of service.” This is not advice to anyone.

Is the plan a governmental plan? A church plan that has not elected to be ERISA-governed? A plan that covers no employee? Or an ERISA-governed plan?

Your story sets up a reminder: An employer evaluating a pooled-employer plan or other multiple-employer plan might read carefully (or engage its lawyer to read) all documents governing the plan and its trust, and related arrangements, to evaluate a participating employer’s information rights and exit rights (or lack of exits). Even if some might interpret ERISA’s title I to set up some implied information rights for a participating employer, an employer that uses a PEP or other MEP might find it impractical to enforce those implied rights. Further, asserting those rights could harm an employer’s personal interest in avoiding liability for its own fiduciary breaches. This is not advice to anyone.

Beyond Artie M’s suggested cautions: Under the Treasury department’s rule, the exception from the safe-harbor regime’s full-year condition is “[t]he plan termination is in connection with a transaction described in [Internal Revenue Code §] 410(b)(6)(C)[.]” 26 C.F.R. § 1.401(k)-3(e)(4)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-3#p-1.401(k)-3(e)(4)(ii). Ending the target’s plan sooner than the § 410(b)(6)(C) transaction requires might call into question whether the termination is sufficiently “in connection with” that transaction. In my experience, it’s typical for employee-benefit plans’ changes to be conditioned on the closing, and aligned in time with the business transactions’ effective time. This is not advice to anyone.

As always, much turns on the plan’s definition of benefit compensation. Does the plan’s definition include the employer’s payment for health insurance? If so, is compensation $116,293.22 [$99,999.90 + $16,293.32]? The difference between the $20,150 § 401(k) non-Roth elective deferral and a $16,293.32 income recognition for the employer’s payment for health insurance seems to be the $3,856.68 difference between box 3&5 wages [$99,999.90] and box 1 Federal income tax wages [$96,143.22].

khn, assuming your description of the deal agreement, your client might not know what set or series of retirement plan transactions would satisfy the business deal until there is communication involving (at least) the seller and the buyer, perhaps each plan’s administrator (if either plan’s administrator is distinct from, respectively, the seller or the buyer), and maybe each’s lawyers and accountants. For example, a spin-off, even if otherwise a nice idea, might be a nonstarter if the acquirer’s plan won’t accept it. If the deal teams didn’t communicate about these points more fully and sooner, that’s disappointing. Deal work often happens that way. Even if it’s now only days until a closing, your client might want to surface some remaining retirement plan questions.

With Revenue Procedure 2026-4, the user fee for a Voluntary Compliance Program submission after January 29 is $4,000. See page 245 https://www.irs.gov/pub/irs-irbs/irb26-01.pdf. How much does the IRS user-fee amount (not the practitioner’s or service provider’s fee) affect your client’s evaluation of whether to do a VCP submission?

About the workers of the soon-to-be former participating employer, which organization will be their employer after the transaction date?

Whether § 414(v)(7) restricts age-based catch-up deferrals to Roth contributions turns on the participant’s Social Security wages for the preceding year. Nothing in Internal Revenue Code § 414(v)(7)(A) aggregates another person’s wages with the participant’s wages, even if other tax law might do so. https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartB-sec414.htm

And Denise Appleby has tireless experience in helping people get the most that can be gotten from the recordkeepers, insurers, and custodians.

How about the amount that the State’s law counts as income? Or the amount that results from following the State’s law, regulations, guidance, or withholding instructions? Either of those might differ from either of the amounts you describe. And could vary for each State’s law. Under (at least) Alabama’s, New Jersey’s, and Pennsylvania’s law, withholding might vary regarding the portion of a distribution that (if not excluded as old-age retirement income) is treated as a return of previously taxed income. Under Pennsylvania’s law, old-age retirement income is excluded from income. Under New York’s law, some kinds of retirement income might be excluded from income, up to a limited amount. This is not advice to anyone. If my response is a winner, please send my cookie to the Bakers.

A firm’s mix of capital-interest partners, income partners, retired partners, counsel, senior associates, beginner associates, and assistants might affect: which workers seem likely to desire an opportunity to make employee (after-tax) contributions; how student debt affects a worker’s capacity to make contributions; how the expenses of QMACs are spread—for example: to capital-interest partners only? or to an income partner to the extent, wholly or partly, an associate or assistant in her income-measured practice gets a QMAC?; how much or how little leverage affects partners’ capital and profits interests; how the firm’s obligations to retired partners affects the firm’s financial capabilities; how a retirement plan’s design and features affects workers’ perceptions about the firm.

Now that service providers use electronic-signature regimes, have plan sponsors invented new explanations about why a signature was not received before year-turn?

What amount is the law firm’s line between the lower 80% and the top-paid 20%. Might the lower 80% include many or some with seven-figure compensation? Might the lower 80% include many more with compensation between $360,000 and $1 million? What is the firm’s mix of capital-interest partners, income partners, counsel, senior associates, beginner associates, and assistants?

Might everyone with a tie to R, A, or A’s broker-dealer or investment-adviser firm have recused and an experienced fiduciary independent of R, A, and the platform have decided, with no influence from anyone, to continue A’s services and approve the compensation arrangement? See 29 C.F.R. § 2550.408b-2(e)(2) https://www.ecfr.gov/current/title-29/part-2550/section-2550.408b-2#p-2550.408b-2(e)(2). Had the independent fiduciary confirmed that A’s broker-dealer or investment-adviser firm received full and fair disclosure of all of A’s outside business activities, including A’s indirect stake in R and that R’s retirement plan is a customer or client? Had the independent fiduciary confirmed that A’s broker-dealer or investment-adviser firm approved all dealings? Had the independent fiduciary confirmed that the platform received full and fair disclosure of A’s indirect stake in R, recognizing that R’s retirement plan is the platform’s service recipient and a source of A’s indirect compensation? Had the independent fiduciary confirmed that the platform approved all dealings? Have the plan’s administrator, its third-party administrator or other Form 5500 preparer, and the administrator’s independent qualified public accountant resolved how the Form 5500 report and the plan’s financial statements will report the transactions, including, even if exempt, related-party transactions? Does every fiduciary, including those who recused, have an absence of knowledge that the independent fiduciary breached its responsibility? This is not advice to anyone.

mjbais1489, thank you for your helpful observations. I see how they could be worries with many employers. For the particular employer I’m thinking about, the only worker who submits information to the payroll service provider or to the retirement plan’s recordkeeper is the same human-resources worker who manages the retirement plan’s design and administration. And she is adept at catching both service providers’ errors. I’d explain that the time of the human-resources worker in correcting the service providers’ errors might be a meaningful burden. For the particular workforce, uses of an after-tax contribution, even restricted to nonhighly-compensated employees, would not be few. For this plan, eligibility begins when the employment begins. Participation for elective deferrals hovers between 99 and 100%, even for new hires. There is no meeting to explain the retirement plan. The plan has no adviser. (I advise the plan sponsor on nonfiduciary points, and advise the sponsor/administrator by writing the SPD.) austin3515, your point is something I’d usually advise, but is not a worry for the workforce that caused me to think about whether it could be feasible to allow employee contributions. But John Feldt’s note ends my thinking about reconsidering a plan-design choice made many years ago. Even one unnecessary weak number in the ACP test could attract terrible trouble.

Is there another reason why a plan’s sponsor might prefer not to allow nonhighly-compensated employees to make an employee (after-tax) contribution?

If a plan provides that only nonhighly-compensated employees may make an employee (after-tax) contribution, does that meet coverage and nondiscrimination conditions? (Of the employer I’m thinking about, many nonhighly-compensated employees have modified adjusted gross income, or even one’s compensation alone, that precludes the individual from Roth IRA contributions.) Am I right that qualified-plan conditions don’t restrain discrimination against highly-compensated employees? If my guess is right, is there another reason (beyond § 401(a)(17)’s constraint and § 415(c) limits) why a plan’s sponsor might prefer not to allow employee contributions?

It’s not necessarily Internal Revenue Code § 403(b) that sets up unusual provisions; sometimes, it’s a TIAA, CREF, or other contract that sets up provisions many other insurance, investment, or service providers don’t typically use. Or an interaction between an employer’s plan and one or more TIAA-CREF contracts. Don’t rely on the summary plan description; there are many reasons an SPD might not accurately describe the plan. Don’t rely on what TIAA’s service people say about beneficiary defaults; there are many ways they might be mistaken (usually, innocently). But circumstances might it make it impractical for you to read the plan and contracts. If a beneficiary is the participant’s estate, some providers might help an estate’s personal representative arrange to treat that estate’s ultimate taker as if she were the plan’s beneficiary or at least a distributee. To do so, the plan’s administrator, each insurer or custodian, the recordkeeper, the paying agent, and other service providers get releases, satisfactions, and indemnities. To arrange this requires that the personal representative’s advocate have a practical ability to get the attention of the service providers’ lawyer who has enough legal knowledge, time and willingness to listen, and discretionary authority to commit the service providers, and to ask for the plan’s administrator’s approval (or make the service providers’ risk decision to proceed without the administrator’s approval). Also, the indemnitees might want their indemnities from people with enough money and other property to pay at least the indemnitees’ defense expenses. Do you have an in with TIAA? Is the difference between a rollover and receiving money from the decedent’s estate enough to support an effort? This is not advice to anyone.

My note above mistakenly suggests one might undo a before-the-month provision. I apologize; § 457(b)(4)(B) continues the before-the-month provision for a plan of a nongovernmental employer. About minimum-distribution provisions, all or some changes might be unnecessary to the extent that the written plan states a provision by reference to Internal Revenue Code sections. If that doesn’t obviate a need to consider a plan amendment about a required beginning date’s applicable age, whoever drafts a plan’s amendment or restatement might ask an employer whether it prefers to allow a delay up to age 73/75 or to compel a distribution based on some earlier age (for example, age 70½, or even the first day of “the calendar year in which the participant attains age 70½” [I.R.C. § 457(d)(1)(A)(i)]) or an earlier occurrence (for example, severance from employment). Likewise, a plan sponsor might prefer to restrict a distribution to a period shorter than ten years. Internal Revenue Code § 457(b)(5) refers to § 457(d)(2), which refers to § 401(a)(9). Accord 26 C.F.R. § 1.457-6(d) https://www.ecfr.gov/current/title-26/part-1/section-1.457-6#p-1.457-6(d). I see nothing there that precludes delaying a required beginning date until what follows from “[t]he calendar year in which the employee retires from employment with the employer maintaining the plan.” 26 C.F.R. § 1.401(a)(9)-2(b)(1)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(1)(ii).