Peter Gulia

Many academics and some lawyers preserve websites using https://perma.cc/, operated by Harvard College.

Might a bank’s loan (perhaps supported by a mortgage or second mortgage on the house) be more efficient than drawing on retirement savings?

If no bank or trust company is available to serve and the employer is reluctant to leave a broker-dealer that requires a trustee, the employer sets up a rabbi trust and finds an individual (or a few) willing to accept the trusteeship. And those involved hope no trouble happens. Further, austin3515 to protect oneself might decline to provide tax advice. Or, might explain the tax risks.

If the employer gets recordkeeping from one of the big providers, ask the recordkeeper whether its captive or affiliated trust company (or the unaffiliated trust company the recordkeeper usually arranges for customers’ § 401(a)-(k) plans’ trusts) is available to serve as a rabbi trustee. If that service is available, don’t be surprised if the trustee’s fee is more than for a funded plan’s otherwise similar trust. A rabbi trustee budgets for its expenses in responding to, and sometime incurring litigation expenses regarding, other creditors’ claims, including claims asserting that the trustee ought to have stopped payments to deferred compensation participants and beneficiaries and instead preserved the rabbi trust’s assets for all creditors. If not appointing a bank or trust company, an employer evaluating whether to use a rabbi trust for the employer’s assets might consider whether such a set-aside does much to protect participants and beneficiaries (or the organization). An individual trustee might have too much information about the deferred compensation obligor’s financial condition, possibly triggering conditions under which the trustee must act to preserve the interests of all creditors. And if the chief purpose of a rabbi trust is to protect deferred compensation obligees from the obligor’s dishonest refusal (while the obligor is solvent) to pay an entitled claim, how likely is it that the organization’s executive will act differently because she is a rabbi trustee than she would act if she were only the organization’s executive? If an individual asked to serve as a rabbi trustee is an executive of the obligor or has a friendship with some of the people who might have a claim to deferred compensation, one might carefully consider whether conflicting interests could put her in an untenable, or at least unwelcome, situation. For an unfunded deferred compensation plan, investments (if any) remain the employer’s property. If so, might it be simpler, in some circumstances, for the employer to hold its property without a set-aside?

Whether it’s an investigation or an inquiry, a service provider ordinarily cooperates, including furnishing records, to the extent that doing so does not breach one’s service agreement. An interviewee should avoid unnecessarily saying anything that could suggest the service provider ever did, or had any power to do, anything discretionary. Although EBSA also presents information requests and before-enforcement demands to plan fiduciaries, EBSA often turns to service providers. The reasons are many, including: EBSA can’t find a fiduciary. A fiduciary does not respond, and EBSA lacks resources to compel a response. A fiduciary asserts that she is not, and never was, a fiduciary, and EBSA prefers not to spend resources fighting the denying fiduciary. A fiduciary did not keep records. A fiduciary no longer has access to records. A fiduciary’s records were discarded. (This often happens with a failing business.) EBSA seeks a distinct source of information because EBSA suspects a target fiduciary’s information is false.

About an employment-based retirement plan, a reader of the plan’s governing documents might discern whether the plan provides a surviving spouse 100% of a death benefit or, if the plan provides a qualified preretirement survivor annuity, whether the participant may limit the QPSA to a 50% QPSA. If a surviving spouse’s benefit is only a 50% QPSA, a beneficiary designation might be effective for the other half of the death benefit. A participant might want information to consider choices about whether and how to seek one’s spouse’s consent.

In responding to EBSA inquiries, a recordkeeper or third-party administrator wants to be clear, yet tactful. If, after a good explanation, an examiner persists (inaptly), consider: “I’d really prefer not to need to call your supervisor, but . . . .” But don’t do that if you guess the supervisor might be behind the repeated inquiry. If other efforts fail, lawyer-up. Clients of lawyers I referred have told me that EBSA’s conduct got much better after a lawyer was on the scene. Sometimes, a lawyer’s mere mention that she represents the TPA ended all inquiries. While not budging from reminding an inquirer about what a nonfiduciary service provider must not do, it sometimes helps to show a little empathy. A tiny handful of EBSA people are fighting a vast scourge of thefts and abandonments. This is not advice to anyone.

An unfunded deferred compensation plan is a contract. Some obligors facing a situation like the one waid10 describes might decide that the obligee is unlikely to pursue enforcement of his right to be paid $0.02 plus interest. Absent an obligee’s release, some obligors meet one’s obligations, even when an expense to do so seems disproportionate to the value of the obligee’s right. Which reputation does this employer prefer? (A processing charge on an individual’s account is inapt unless the deferred-compensation contract provides the charge, or at least granted the obligor a power to decide the charge.) As Paul I suggests, the obligor might simply ask the obligee whether he wants the two or three cents, or releases the obligor from its obligation. The obligee might be gracious.

A plan a nongovernmental employer or its employee intends as a § 457(b) eligible deferred compensation plan is a contract between the employer and an employee. If an employee received a payment more than the plan provided, the employer should pursue its legal and equitable rights to get a return of the mistakenly paid amount. If an employer does not pursue its rights to a return of a mistaken payment, that calls into question whether the parties intend or intended the plan’s provisions to meet § 457(b)(6) and to be an unfunded plan for part 2, 3, and 4 of subtitle B of title I of ERISA. Whether a payee was entitled to some payment following her severance from employment (if there was one) turns on the plan’s provisions. As BenefitsLink neighbors say, Read The Fabulous Document, to discern the contract rights and obligations, and conditions about them. Under the facts you describe, it seems unlikely that the plan provided a before-severance payment of deferred compensation attributable to the reemployment (if there was one). For the amount the payee returns to the employer, the employer should want its lawyer’s advice about its legal and equitable rights to interest or investment gain on the mistakenly paid amount. This is not advice to anyone.

Consider using a plan-termination amendment (which usually is needed for other reasons) to specify how the forfeitures account is used. Using forfeitures to meet plan-administration expenses might help a plan pay service providers—recordkeeper, third-party administrator, trustee, custodian, lawyer, independent qualified public accountant. (Else, would participants’ accounts be charged?) In my experience, the forfeitures balance often is much less than what is owing to service providers.

What youngbenefitslawyer seeks is the § 414(v)(7) amount for 2025 wages that set whether 2026’s age-based catch-up deferrals must be Roth contributions. We presume that adjustment won’t be IRS-announced until next October’s or early November’s notice. (Some BenefitsLink mavens form estimates.) A retirement plan I advise communicates the plan’s § 414(v)(7) provision to employees with a yearly salary more than $120,000. The idea is to allow some room for changes that might put an employee’s § 3121(a) wages over the applicable § 414(v)(7) amount.

Internal Revenue Code of 1986 § 414(v)(7)(E) provides: In the case of a year beginning after December 31, 2024, the Secretary shall adjust annually the $145,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under [§] 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2023, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000. http://uscode.house.gov/view.xhtml?req=(title:26 section:414 edition:prelim) OR (granuleid:USC-prelim-title26-section414)&f=treesort&edition=prelim&num=0&jumpTo=true

Consider also that an employer’s payment on a participant’s obligation might be the employee’s compensation for one or more tax purposes, and within the meaning of one or more of the retirement plan’s defined terms for compensation.

Internal Revenue Code § 401(k) does not preclude a plan from providing a hardship distribution grossed-up for reasonably anticipated income taxes, even if the distributee instructs zero withholding.

In many aspects of life, logic does not always persuade. Consider that highly-compensated employees often includes people who decide, directly or practically, whether to retain an employee-benefits service provider. Here’s a Brian Gilmore webpage that explains the measure, and suggests what to do. https://www.newfront.com/blog/the-dependent-care-fsa-average-benefits-test

The Labor department’s Employee Benefits Security Administration released a temporary nonenforcement policy. https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/guidance/field-assistance-bulletins/2025-01.pdf That nonrule instruction to government employees does not change the law. But many people guess that a fiduciary’s turnover of no more than $1,000, in the circumstances and under the conditions the FAB recognizes, is unlikely to attract a participant’s, beneficiary’s, or alternate payee’s lawsuit. For situations in which: an involuntary distribution was not rollover-eligible, is not collected, has been tax-reported, the facts meet the relevant State law’s definition of abandonment, and the plan’s fiduciary has decided not to keep an account for the distributee, I wonder whether some fiduciaries might consider a turnover to abandoned-property administration, evaluating whether it might be less harmful than what else the fiduciary might do.

A few questions the US retirement plan’s administrator might consider: For a worker from Korea, is she an employee of the same corporation that maintains the plan, or is she an employee of something else and detailed to the US operation? If the worker from Korea is employed by a something else, is it a part of the same § 414(b)-(c)-(m)-(n)-(o) employer as the organization that maintains the US plan? Regarding the US, is the worker from Korea a resident or a nonresident? (That a worker lives in the US now does not by itself mean she is a resident.) Is the worker’s compensation earned income from sources within the United States? (That a worker is paid in US$ does not necessarily mean the pay is from a US source.) How does the parent corporation classify the worker from Korea? Is there an income tax treaty that affects anything about this situation? This is not advice to anyone.

Has anyone seen a recordkeeper, investment adviser, or other service provider offer an incentive for a participant to choose deferrals?

Lois Baker, thank you for your careful attention and the information. For those BenefitsLink readers who sometimes work with health plans: With the executive agency’s interpretations changing across the Obama, Trump I, Biden, and Trump II administrations, it might be simpler for health plans’ advisers to read courts’ interpretations of the 2010 Act of Congress.

Bill Presson gives you a helpful description of Internal Revenue Code § 410(b)(6)(C)(ii)’s transition period with your stated assumption that “the change in members of a group” happened in 2023 and an embedded assumption that all plans’ years are calendar years. If a purchase closed on January 1, 2024 (rather than, for example, on December 31, 2023), that might result in a different § 410(b)(6)(C)(ii) transition period. Lawyers and accountants in deal teams sometimes consider accounting, banking, insurance, securities, employee-benefits, tax, and other consequences that might follow from exactly when a transaction closes. A deal some businesspeople think of as a December deal might have a transfer of ownership timed for January 1. A practitioner might check the details.

For a service provider, offering an arrangement can be proper if some plans could benefit from the arrangement.

I had clients ask about providing an incentive. When they understood the employer had to pay for it, the conversation ended.

Your query describes several facts about the service provider’s offer, but little about the retirement plan’s facts and circumstances. (That might be sensible in not revealing, even hypothetically, the plan’s information.) The facts and circumstances matter for the responsible plan fiduciary’s independent evaluations of (at least): whether previous decisions about the service arrangements were loyal, prudent, and impartial; whether accepting what the service provider proposes would result in a loyal, prudent, and impartial allocation of plan-administration expenses; whether the promotion helps or harms participants to whom the promotion is directed; whether the promotion helps or harms participants who don’t (or can’t) make a rollover contribution. Beyond thinking about those and other fiduciary questions, one might consider also whether accepting the service provider’s offer could (or might not) result in an allocation of expenses “in which . . . expenses . . . are allocated to accounts under the plan discriminates in favor of HCEs or former HCEs.” 26 C.F.R. § 1.401(a)(4)-1(c)(8) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(4)-1#p-1.401(a)(4)-1(c)(8) If the fiduciary approves a revised service arrangement, a fiduciary might update plan communications, including 404a-5 disclosures, so they accurately and completely describe the service arrangements and expense allocations. This is not advice to anyone.

Should the claim form require or permit a claimant to specify one’s preference (within what the plan allows) about which subaccounts to draw from in which order? And if the form does not require a claimant to specify one’s preference, should the form state a default order that applies if the claimant does not specify the claimant’s preference?

Section 401(k)(4)(A) allows providing a “de minimis financial incentive (not paid for with plan assets)” for a participant’s choice to elect deferrals. BenefitsLink neighbors, have you seen anyone do this? What was the incentive? Who paid for the incentive—the employer? Or a service provider? Did the incentive result in the behavior the payer wanted? Did the payer find it received good value for the payer’s money?