Peter Gulia

CAFA, is your question about health coverage that is insured or "self-insured" (that is, not provided by a health insurance contract)? Also, what method (if any) beyond a participant's statement would the employer/administrator use to discern whether a participant's spouse has an availability of coverage (other than Medicare) elsewhere?

To help the seller evaluate possibilities and probabilities of outcomes about a demand, an arbitration, or a court proceeding seeking a return of what the seller might assert was a mistaken contribution, the seller might want its lawyer’s evaluation. An important issue could be whether the seller’s ostensible belief or mistaken assumption was a mistake of fact. What fact was not known to the seller and would not have become known had the seller used reasonable diligence? Including (at least) reading all documents of the organization and of the transactions? If the seller might ground a claim on the receiving plan’s § 15.02(b), might such a claim be inchoate until the seller has filed an income tax return that claims a deduction for the contribution and the IRS has somehow “disallowed” the deduction? Or, might the receiving plan’s fiduciary be persuaded by a reasoning that the seller’s knowing that it must not file a tax return that would claim a deduction the taxpayer knows it is not entitled to is tantamount to the IRS’s disallowance. If, when the contribution was made, the seller was the or an employer regarding the participants (and their beneficiaries) who are the subject of the contribution, how confident are you that the contribution is not deductible? What consequences result from relevant acts having transpired in 2023? Although $250,000 might matter to the seller, might professionals’ fees and other expenses outweigh the probability-discounted recovery? This is not advice to anyone.

Recognizing the practical limits of language, there can be differences between a businessperson’s consumer-facing or intermediary-facing sales label and terms or expressions a practitioner might use. And even law-defined or technical terms can have aspects of imprecision, misdescription, or confusion. I remember wincing when lawyers used “profit-sharing” to describe a nonelective contribution of a charitable organization that by law cannot have a profit to share with anyone. Even if that usage might have followed relevant tax law, I wouldn’t use it with my client’s customers because it would only confuse them. Perhaps especially if the employer provided a contribution for a period in which the organization had negative income. Or imagine a retirement plan in which no employee is a participant and hundreds of partners are participants. According to the executive agencies’ Form 5500 instructions, that is a one-participant plan. For the arrangement many people call a “self-directed brokerage account”, why do we say self-directed? When a plan that provides participant-directed investment limits a directing participant’s, beneficiary’s, or alternate payee’s investment alternatives to designated investment alternatives is that not self-directed by the individual? And if what we mean is an antonym or other-than of a plan’s designated investment alternatives, should we call it a Nondesignated Investment Alternatives Account? BenefitsLink neighbors could go on with many illustrations about how difficult it is to invent a short phrase that perfectly describes what fits a concept, rule, or arrangement.

By quoting (and hyperlinking to) a paragraph from a Treasury rule, I don’t suggest it as support for or against any interpretation. Rather, I suggest only that an interpreter (perhaps one like the webinar speaker WCC described) might consider it in forming one’s interpretation. That said, few interpreters are ready to pursue an interpretation contrary to Treasury’s explanation in the rules’ preamble.

The employer and the plan’s administrator (whether these are the same person or distinct persons) might—after considering each’s lawyer’s, certified public accountant’s, or enrolled agent’s advice—consider whether to check the facts of what happened, including what deferral election the participant properly made, made invalidly, or made not at all. Might the “off-cycle” not have been compensation from which an actual and proper deferral could be made? Do the documents governing the plan grant the administrator authority to refuse a participant contribution because it would exceed a deferral limit? Does a salary-reduction agreement or other form state that the employer will or may interpret a deferral election as limited to the lesser of the amount specified or the largest amount that would not exceed an applicable deferral limit? Even if not expressly stated in any writing, might the plan administrator’s interpretation of that kind be a prudent interpretation of the documents governing the plan? To the extent a participant contribution was not sent to the plan’s trust and was not a proper deferral, might the employer make its Form W-2 wage report follow that truth? Is there time to find the law, plan provisions, and facts with time for the employer to do its wage report by next Monday? This is not advice to anyone.

Beyond Internal Revenue Code § 105(h), one might consider whether what each plan provides or omits, or what each combination of the § 414(b)-(c)-(m)-(n)-(o) employer’s plans provide or omit, discriminates by race, color, religion, sex, national origin, or another applicable civil-rights factor. An employee-benefits lawyer might want to coordinate with one’s firm’s labor and employment practice.

Consider: Plans limiting pre-tax catch-up contributions for employees not subject to section 414(v)(7). The rules of [26 C.F.R. § 1.414(v)-2(b)(3)(i)] also apply to a plan that includes a qualified Roth contribution program and, in accordance with an optional plan term providing for aggregation of wages under [26 C.F.R.] § 1.414(v)-2(b)(4)(ii), (b)(4)(iii), or (b)(4)(iv)(A), does not permit pre-tax catch-up contributions for one or more employees who are not subject to section 414(v)(7). 26 C.F.R. § 1.414(v)-2(b)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.414(v)-2#p-1.414(v)-2(b)(3)(ii).

Before IRAs’ custodial-account agreements next are amended (by December 31, 2027), those accounts will have been operated for about eight years with at least some in-operation provisions different than the ostensible written provisions. How does an individual learn which provisions are real, and which are displaced by Internal Revenue Code and other law changes? Remember, many, perhaps most, of an IRA’s tax-sensitive provisions call for an individual to administer her account. Often, a custodian is protected in following the account holder’s instructions. Why does the IRS not allow an agreement to state provisions by referring to the Internal Revenue Code?

Many practitioners are overly generous. A fee should include not only the work but also something for availability. Whether that’s through an explicit fee for availability or, when there is work, a task-based fee or a time-based fee priced with a margin for availability might turn on one’s profession’s rules.

For your questions, is your assumption an ERISA-governed "self-funded" health plan that provides benefits without using a health insurance contract?

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.