Peter Gulia

The statute’s provision with the heading “no tax on tips” is not an exclusion from income; it’s a deduction. Internal Revenue Code of 1986 § 224, added by Act § 70201 [attached]. Likewise, “qualified overtime compensation” is not an exclusion from income; it’s a deduction. Internal Revenue Code of 1986 § 226, added by Act § 70202 [attached]. A retirement plan might be unlikely to exclude from whatever otherwise would be within the plan’s measure of compensation, for whichever purpose, an amount the plan’s administrator and a participating employer might not know without obtaining information from the participant. Also, the Internal Revenue Service has sometimes interpreted 26 C.F.R. § 1.401(k)-1(a)(3)(iii)(A) and earlier interpretations to preclude a § 401(k) elective deferral from an amount “available” to the participant without handling through the employer—for example, a tip a diner paid, in currency, directly to the waiter. This is not advice to anyone. Internal Revenue Code 224.pdf Internal Revenue Code 226.pdf

If an employer prefers that an employee not read what benefits a plan provides for other classes of employees: The Labor department has interpreted ERISA §§ 102 & 104 to allow different summary plan descriptions for different classes of employees. 29 C.F.R. § 2520.102-4 https://www.ecfr.gov/current/title-29/section-2520.102-4.

The Treasury department’s interpretive rule does not specify how to determine when a plan “exists”. I imagine many of us might often suggest interpretations that not only follow reading the statute’s and the interpretive rule’s texts but also follow an assumed purpose of not allowing the employer’s new plan’s participants to make elective deferrals until 12 months after the last of the final distributions from the terminated plan. 26 C.F.R. § 1.401(k)-1(d)(4)(i) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(4)(i). But if a decision-maker or adviser is considering possible interpretations and evaluating risks about when the next retirement plan “exists”, consider this: The consequence from an “alternative defined-contribution plan” that “exists” too soon falls on the terminated plan. It’s the terminated plan that will have provided a distribution without waiting for severance-from-employment, age 59½, or some other distribution-allowing condition because the plan’s administrator believed that the distribution was a § 401(k)(10) termination distribution. So, it’s the terminated plan that would have had a provision that resulted in ostensible elective deferrals that might not have tax-qualified as a § 401(k) cash-or-deferred arrangement (and further might have tax-disqualified the terminated plan). This is not advice to anyone.

Whatever would become required or permitted about coverage and nondiscrimination measures: Could the employer’s goal be met by providing one plan with as many benefit structures as are need for all the allocation differences?

The plan’s administrator, with its accountant’s and lawyer’s advice, might consider these possible interpretations: If the plan’s Form 5500 reports have been and remain on the cash-receipts-and-disbursements basis of accounting, an amount paid in on December 30, 2024 is a receipt in 2024. If the plan’s Form 5500 reports have been and remain on the accrual method of accounting: The Instructions tell a filer not to include a contribution designated for a year before the reported-on year. But the Instructions do not say to exclude a contribution designated for a year after the reported-on year. If the plan’s trust received in 2024 an amount the employer declared as a 2025 contribution, might this be a prepaid expense? This is not advice to anyone.

When I began in 1984, sales charges—whether front-end or back-end (or a combination of them)—were the norm, and a no-load share or contract was unusual. It was almost unknown for any participant-directed retirement plan.

Internal Revenue Code § 414A(b)(3)(A) does not command an initial default elective-deferral percentage of 10%; rather, it permits the initial percentage to be as high as 10%. This is not advice to anyone.

Consider also that some plan sponsors seek to meet § 414A’s tax-qualification condition (if it applies) by setting both the initial and the ending default elective-deferral percentage at 10%. I.R.C. (26 U.S.C.) § 414A(b)(3)(A) http://uscode.house.gov/view.xhtml?req=(title:26%20section:414A%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true This is not advice to anyone.

Paul I and CuseFan, thank you. Are there still retirement plans that select investments with contingent deferred sales charges? Why would an ERISA-governed plan’s fiduciary select such an investment?

This question is about investments used for individual-account (defined-contribution) retirement plans. Leaving aside stable-value accounts and trusts, employer securities, and investments treated as nonqualifying assets for whether a plan’s financial statements need an independent audit: Are there investments that impose a delay or other restriction on a redemption or withdrawal? Or impose an exit charge?

Thank you for your kind words. The plan’s administrator might imagine it or he has reported as required, but that would not be so if one or more of the reported year-end values for the untraded shares is incorrect and not at least a good-faith estimate. As your discussion-opening post puts it: “There is no way to really know how much [an untraded share is] worth until it does actually sell.” If the plan’s administrator reported the untraded shares’ estimated value without support from an independent appraisal or other respectable valuation method, and one that measured the value as at each reporting date, the administrator might not have sufficiently reported. It might not be a prudent, or even good-faith, estimate to assume that an asset’s value is unchanged from a year’s end to the next year’s end. That might be especially so for an early-stage business. If a year-end value is off, assumptions about the proportions of different kinds of investments might be mistaken. And one or more disclosures about concentration risks might be incorrect. That the plan’s fiduciary does not expect an ERISA § 404(c) defense heightens the fiduciary’s responsibility regarding § 404(a)(1)(B) prudence and § 404(a)(1)(C) diversification.

Even if there might be no breach grounded on a prohibited transaction, the fiduciaries might want its and his lawyer’s advice about whether there might be a diversification or other prudence breach. ERISA § 404(a)(1)(C): “[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and— . . . by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so[.]” http://uscode.house.gov/view.xhtml?req=(title:29%20section:1104%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1104)&f=treesort&edition=prelim&num=0&jumpTo=true Also, a fiduciary or a participant might want one’s lawyer’s advice about ERISA’s statute-of-repose- and statute-of-limitations periods. ERISA § 413: “No action may be commenced under this title with respect to a fiduciary’s breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of— (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation; except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.” http://uscode.house.gov/view.xhtml?req=(title:29%20section:1113%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1113)&f=treesort&edition=prelim&num=0&jumpTo=true Did the 2019-2023 financial statements disclose the investment concentration? A service provider might want its lawyer’s advice about how to manage the service provider’s work (if any) so no one could plausibly assert that the service provider was involved in a fiduciary’s concealment (including by falsely reporting a value in a Form 5500 report) of a fiduciary’s breach. An independent qualified public accountant might want its lawyer’s advice about how best to protect the CPAs’ work on the 2019, 2020, 2021, 2022, and 2023 financial-statements reports, and about whether the firm must or should decline an engagement to audit the plan’s 2024 financial statements. Anyone might consider probabilities about whether a claim might be pursued. Even if the nine participants who are not the fiduciary, the fiduciary’s spouse, and the fiduciary’s child discern a breach and how it harmed them, their stakes might be too small to attract EBSA enforcement.

Some employers still have some employees hired long enough ago that United States public law generally did not require an employee to check a person’s eligibility to work in the U.S. And an organization might never have made an I-9 record if the worker never was hired as an employee (for example, because she was a partner or other self-employed individual). Consider too that if an I-9 record was made and had been kept, it might have been destroyed under a records-retention plan. See, for example, 8 C.F.R. § 274a.2 https://www.ecfr.gov/current/title-8/section-274a.2. This is not advice to anyone.

For questions about a transfer or rollover from an individual-account retirement plan to purchase service credit under a governmental defined-benefit pension plan, including how to tax-report such a transfer or rollover, the expert is Carol Calhoun. https://www.venable.com/professionals/c/carol-v-calhoun

What MoJo says: An examinee has no duty to furnish records the examinee does not have. And no inference should follow from an absence of a record the examinee was not required to keep. Likewise, no inference should follow from an absence of a record properly destroyed under a proper records-retention plan. Turning on the text of the information document request or the examiner’s less formal question, some incautious responses might be inapt if the employer/administrator has copies of workers’ identity documents. In those circumstances, the examinee might want its lawyer’s advice about how, exactly, to respond. This is not advice to anyone.

Empower’s offer aims at plan sponsors. A near-term aim is to get plan sponsors looking at Empower’s insurance company separate accounts. These enable retirement plans to get access to investment management one otherwise might have obtained through an SEC-registered mutual fund. A subaccount’s fee might be more than the fee Empower pays its subadviser, but less than a plan would pay for the least expensive shares of the same-strategy mutual fund. Another aim is setting up a sticking point for a plan not to change service providers. For example, if a request-for-proposals shows a competitor recordkeeper is a contender but not unquestionably better than the incumbent, a plan sponsor might think twice about moving if the competitor doesn’t offer a similar no-expense fund for an important US large-cap-blend slot. A mega plan has plenty of ways to get low-expense investment management. But for some other plans, even a one-basis-point difference might be meaningful. It also matters how closely a fund can follow its index.

Beyond Dougsbpc’s query about practical difficulties, what do BenefitsLink mavens think about a possibly related question: Even if not during 2023, was the third worker a partner when (in 2024 or 2025) the employer/administrator signed the Form 5500-EZ? Some might interpret the Form 5500-EZ Instructions to measure in the present tense the fact condition that a plan “covers” no employee. Others might interpret that the Instructions look for whether the plan covered no employee as at any time in the reported-on year. Or maybe as at the last day of the reported-on year. Many might find these Form 5500-EZ Instructions ambiguous.

With almost 100 views and yet no response, one suspects this is a weakness in the publisher’s software. Belgarath, does this weakness happen also with a provision’s effective date that’s earlier than the general restatement date? And is the weakness only in the software for § 403(b) documents, or also for § 401(a)-(k) documents?

A plan’s group annuity contract states, for each insurance company separate account, a “distribution threshold”. If the contractholder’s withdrawal is more than the specified percentage of the separate account’s assets, the insurer need not pay money and has a right to deliver portfolio securities. For many retirement plans, that provision likely is inconsequential, at least regarding a widely held separate account. For a mega plan, it can be a mild friction—but one such a plan’s fiduciary can manage by winding out of the investment over time, or by causing the next service provider to absorb the delivered portfolio securities.

Thanks. Yes, Empower’s zero expense offer would be a fit only for a retirement plan that, with other factors, already has Empower as its recordkeeper and prudently considers it likely that the plan will continue with Empower.

On April 30, Empower announced the Empower S&P 500 Index Separate Account, a zero-expense fund to track the S&P 500® index. It’s available to a retirement plan (but not a § 403(b) plan) that’s an Empower Workplace recordkeeping customer. If a plan is a target of this offer and has an S&P 500 index fund in the plan’s investment alternatives, is there any reason a plan would not want this zero-expense fund?

khn, about the plan you describe: In the past, did the plan’s administrator ever deny a rollover contribution because the worker had not yet met an eligibility condition? In the past, did the plan’s administrator ever allow a rollover contribution of a worker who had not yet met the eligibility condition? Do the administrator’s decisions in the past suggest anything about what provision the plan’s sponsor might have truly intended? Is there any evidence—beyond the plan document itself—that shows the plan sponsor intended the plan not to accept a new employee’s rollover, but to allow a rollover contribution for only those who had completed three months of service? Is there any evidence showing whether the people who acted for the plan’s sponsor read, or didn’t read, the document before the plan sponsor adopted it? Following what the evidence turns up, might the plan’s sponsor reform or amend the document? Would reforming or amending the document harm any participant?

My experiences are that a recordkeeper’s online regime to apply for a participant loan includes delivery of a document that’s labeled a loan agreement and promissory note. That document is delivered online, with a paper print available if the individual asks for it. That document gets an electronic signature in the recordkeeper’s system. Further, the document states that the payee’s deposit or negotiation of a check, or acceptance of an electronic funds transfer, is assent to the loan agreement and promissory note. I express no view about whether that might or might not be a promissory note that would make more efficient a civil action to collect on a loan.

Without agreeing or disagreeing with any views or suggestions expressed above: Assuming as hypothetical facts those described above: The plan’s administrator might consider, with its employee-benefits lawyer’s advice and employment lawyer’s advice: Consider whether what the individual describes as a participant loan might not be a participant loan. Consider whether one or more of the individual’s acts might be a Federal crime, such as 18 U.S.C. § 664 (theft from plan), § 1027 (false statement to an ERISA-governed plan), § 1621 (perjury). Consider that money the individual received might be proceeds from one or more Federal crimes. Consider what legal and equitable remedies might be available to the plan. Consider what remedies might be unavailable to the individual because he comes with unclean hands. Consider also the measured paths Paul I and QDROphile suggest. Those might be simpler or easier. This is not advice to anyone.

Let’s ask some related questions. Of individual-account retirement plans that provide participant-directed investment and provide participant loans, with a loan affecting only the plan account of the borrower, and considering whether there likely will be an effort, beyond wage deductions and adjustments in the individual’s account, to collect on a loan: When deciding whether and how to collect is in a plan fiduciary’s discretion, how many plans’ fiduciaries put in an extra effort to collect on a participant loan? When deciding whether and how to collect is a subject of a participant’s power and responsibility of investment direction, how many participants direct a plan’s trustee, administrator, or other fiduciary put in an extra effort to collect on a loan the participant doesn’t want to repay? How often does it happen that having, beyond a legally enforceable agreement to repay, a distinct document in the form and style of a promissory note gets an efficiency in collecting on a participant loan? Could a plan’s administrator loyally and prudently decide not to incur a plan-administration expense to make and keep promissory notes because the expense might be more than the incremental value the plan would obtain from having the notes?