Peter Gulia

If an amount withheld for a payment toward Federal income tax is not paid to the US Treasury the same day as or promptly after the amount is segregated from the distributee’s individual account, which account under the plan’s trust gets the float value of the amount not yet paid over?

About your question 2: Internal Revenue Code § 414A(c)(2)(A)(i)’s exception from the tax-qualification condition to provide a cash-or-deferred arrangement as an eligible automatic contribution arrangement looks not to when the plan was established, but rather to when the “qualified cash or deferred arrangement” was established. http://uscode.house.gov/view.xhtml?req=(title:26 section:414A edition:prelim) OR (granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true

Along with justanotheradmin’s guidance: Recognize that there might be differences between the employer’s reorganization bankruptcy and the employer’s liquidation bankruptcy. Also, some points of bankruptcy law, trust law, and other nonbankruptcy law apply differently regarding a charitable organization’s insolvency, especially if there are trusts dedicated to particular purposes.

That might turn on how much of the plan’s in-operation provisions are not yet expressed in “the” plan document. A plan-termination amendment might omit stating an optional provision the plan sponsor didn’t adopt in administering the plan. And even some required changes might not need an amendment to the extent that the document you’re amending expresses a provision by reference to the Internal Revenue Code. If the plan you’re amending was stated using IRS-preapproved documents, those documents’ publisher or licensee might furnish a suggested form of plan-termination amendment. While a practitioner wouldn’t rely on that, it’s another source of information to consider. Further, other BenefitsLink neighbors can give you practical suggestions about how to use IRS lists and the plan sponsor/administrator’s records of what was done “in operation” to discern provisions to be stated in a plan-termination amendment. This is not advice to anyone.

Of recently enacted early-out distributions limited to an amount (for example, $1,000, $5,000, $10,000, or $22,000), am I right in recalling that an eligible distribution to a victim of domestic abuse is inflation-adjusted (to $10,300) for 2025 but others are not yet adjusted? And is there any early-out distribution limited by a Code-specified amount but with no inflation adjustment?

Step One is Read The Fabulous Documents, perhaps including a written loan procedure if it is a document governing the plan. If a complete and fair reading of the plan’s governing documents results in an ambiguity about what the plan permits or restricts, the administrator might use its discretionary power to interpret the plan. If interpretation is called for, consider, with other points, that a plan’s governing documents might not have one all-encompassing defined term for “participant”. Some documents recognize that a person might be a “participant” regarding some kinds of allocations but not for other kinds. For example, if a plan’s provisions make a person eligible for a rollover-in subaccount, an administrator might interpret whether such a person is a participant for that subaccount. Consider also that some recordkeepers, TPAs, and other service providers get agreements that allow the service provider to rely on the service recipient’s instructions about what the plan provides, often stored as a computer database, even if the service provider knows those instructions are contrary to the plan’s governing documents. This is not advice to anyone.

While this is beyond TH 401k’s question: An interest in a retirement plan or its trust might be a security, and—absent an exemption, or a no-action letter—an issuer, offeror, or distributor of such a security (which might include a plan’s sponsor, administrator, trustee, or investment manager, and might include a participating employer) might need or want the security to be registered under the Securities Act of 1933, the Investment Company Act of 1940, and other Federal and State securities laws. Some exemptions might be available regarding a single-employer plan, but might not be available regarding a multiple-employer plan (including a pooled-employer plan). Securities Act of 1933 § 3(a)(2), 15 U.S.C. § 77c(a)(2) http://uscode.house.gov/view.xhtml?req=(title:15 section:77c edition:prelim) OR (granuleid:USC-prelim-title15-section77c)&f=treesort&edition=prelim&num=0&jumpTo=true Investment Company Act of 1940 § 3(c)(11), 15 U.S.C. § 80a-3(c)(11) http://uscode.house.gov/view.xhtml?req=(title:15 section:80a-3 edition:prelim) OR (granuleid:USC-prelim-title15-section80a-3)&f=treesort&edition=prelim&num=0&jumpTo=true To sort out what is or isn’t a security and is or isn’t an exempt-from-registration security, get a securities lawyer’s advice.

If more than a few people know about the notice failure, an employer/administrator should lawyer-up. And if anyone might assert that a recordkeeper, TPA, or other service provider did something (or failed to do something) in a way that helped the employer/administrator’s breach, a service provider too might lawyer-up (with a lawyer who’s conflict-free regarding the employer/administrator). Even if an assertion is baseless, defending against an assertion can be $$$, often unrecoverable. A fiduciary might, at least until it considers its lawyer’s advice, be careful not to concede or admit liability or responsibility. Among other reasons, a too-early concession can defeat one of the conditions of a prohibited-transaction exemption for settlements and releases. A situation like this might call for quick work: one might seek to quiet participants so no one thinks of a telephone call to the Employee Benefits Security Administration. Once EBSA has even an inquiry file open, it’s more likely that unwelcome things can happen. This is not advice to anyone.

But might company A and company B be under common control or otherwise comprise one employer under Internal Revenue Code § 414(b)-(c)-(m)-(n)-(o)?

The potential consequences of failing to furnish an ERISA § 101(i) blackout notice (if it was required) might include fiduciary responsibility for an individual account’s losses that result from the directing individual’s lack of notice, and a civil penalty. (There can be other consequences, but those might be beyond your query and this discussion.) Fiduciary liability. Failing to furnish a required blackout notice is a breach of the plan administrator’s fiduciary duties. ERISA § 404(a)(1). A fiduciary is liable to make good losses that result from the fiduciary’s breach. ERISA §§ 409, 502. Although it might be difficult to prove causation, some lawyers believe a directing individual could assert she would have made different investment directions had the individual received the proper notice. Civil penalty. If a plan’s administrator fails to furnish a required blackout notice, the Labor department may impose a civil penalty. In 2024, the maximum penalty is $169 per affected participant, beneficiary, or alternate payee multiplied by the number of days that the administrator failed to furnish the notice. ERISA §502(c)(7); 29 C.F.R. §§ 2560.502c-7, 2575.3; Dep’t of Labor, Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2024, 89 Fed. Reg. 1810, 1819 (Jan. 11, 2024). If more than one person is responsible for a failure to furnish a blackout notice, all responsible persons are jointly and severally liable for the penalties on that failure. 29 C.F.R. § 2560.502c-7(j). There is no Internal Revenue Service correction procedure; ERISA § 101(i) is an ERISA title I command. A failure to deliver an ERISA § 101(i) notice is not a breach with a routine correction under EBSA’s Voluntary Fiduciary Correction program. The Labor department might not assert a civil penalty if EBSA doesn’t know that the plan’s administrator failed to deliver the notice. Restoring a loss caused by a lack of a blackout notice, especially if the affected individual otherwise seems likely to complain, might help lessen both exposures. An administrator would want its lawyer’s advice, including about whether to condition restoration on the individual’s release of claims against the plan’s administrator. There can be a range of strategies about this. If the plan’s administrator has ERISA fiduciary liability insurance or other insurance that might respond to a claim, the administrator should get its lawyer’s advice, including advice about the insured’s obligation to give the insurer notice of a claim or of even an occurrence that could lead to a claim. Insurance contracts differ about these obligations and opportunities. And again, there can be a range of strategies. Santo Gold might want to present information without giving legal advice. This is not advice to anyone.

A nonfiduciary service provider’s contract with its service recipient ought to provide (at least) nonliability, indemnity, and defense, including advances for reasonably incurred attorneys’ fees and other expenses, against a third person’s claims if the service provider followed the plan administrator’s or other fiduciary’s procedures and other instructions. Also, a service provider might want each responsible plan fiduciary and each directing fiduciary to maintain ERISA fiduciary liability insurance. (I recognize this might be a business challenge about some kinds of plans and service recipients.) This is not advice to anyone.

Here’s the text G8Rs refers to: “Subsection [414A](a) shall not apply to any qualified cash or deferred arrangement, or any annuity contract purchased under a plan, while the employer maintaining such plan (and any predecessor employer) has been in existence for less than 3 years.” Internal Revenue Code of 1986 (26 U.S.C.) § 414A(c)(4)(A) http://uscode.house.gov/view.xhtml?req=(title:26 section:414A edition:prelim) OR (granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true

Beyond your question: If the employer that is the obligor on the unfunded deferred compensation engaged the rabbi/grantor trust’s trustee or another service provider to pay and tax-report the deferred-wage payments, an EIN (distinct from the EIN the employer uses to pay regular wages) might be wanted for tax-reporting and withholding.

For the statute that allows a retirement plan’s administrator to rely on a participant’s written statement: Internal Revenue Code of 1986 (26 U.S.C.) § 401(k)(14)(C): “In determining whether a distribution is upon the hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is— (i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and (ii) not in excess of the amount required to satisfy such financial need, and [iii] that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification, and for procedures for addressing cases of employee misrepresentation.” http://uscode.house.gov/view.xhtml?req=(title:26 section:401 edition:prelim) OR (granuleid:USC-prelim-title26-section401)&f=treesort&edition=prelim&num=0&jumpTo=true

If an individual owns the entire interest in her unincorporated trade or business and is its only employee, an elective deferral under a retroactively established plan is treated as having been made before the end of the plan’s first plan year if the proprietor makes her elective-deferral election before the time for filing her Federal income tax return (without any extension) for her tax year that ends after or with the end of the plan’s first plan year. This tolerance can apply only to the plan’s FIRST plan year. Internal Revenue Code of 1986 (26 U.S.C.) § 401(b)(2) http://uscode.house.gov/view.xhtml?req=(title:26 section:401 edition:prelim) OR (granuleid:USC-prelim-title26-section401)&f=treesort&edition=prelim&num=0&jumpTo=true. This is not advice to anyone.

Consider also whether the TPA has or lacks ERISA § 412 fidelity-bond insurance or ERISA fiduciary-liability insurance (or both). If a TPA has either kind of insurance, consider whether the TPA’s procedures follow, or at least are not contrary to, what the TPA and anyone acting for it said in the application for the insurance. A false or misleading statement can result in lacking insurance coverage. Likewise, follow anything represented to the TPA’s errors-and-omissions insurer. If a TPA prefers to be a nonfiduciary, one might write its service agreement to avoid anything that could involve discretion, instead doing only what the plan’s administrator specified and engaged, and doing it with clear on-off rules with no discretion. If a situation calls for judgment or discretion, a nonfiduciary TPA might put the matter to the plan’s administrator. This is not advice to anyone.

Thank you for the information. I confess my experience isn’t recent because it’s rare to see a group health plan use a group health insurance contract. The last time I saw a group health insurance contract it had plan eligibility and participation conditions AND provisions designed to restrain the employer from doing anything that would help an employee use any health coverage other than the employer’s group contract. It was obvious that the underwriting wanted to balance the stuck-with bad risks by keeping as many good risks as the insurer could prevent from going elsewhere.

Brian Gilmore, do you concur that an incentive for an opt-out could be against an insurer’s underwriting conditions?

If the group health plan uses a group health insurance contract, consider whether offering the opt-out incentive is a breach of the group contract holder’s obligations under the contract, or is a failure of a condition of the insurer’s obligation to provide the insurance. This is not advice to anyone.

Does anything now in the plan’s governing documents restrict the way the plan’s administrator decides a claim for a hardship distribution?

In my experience, software for payroll and retirement-services systems to apply § 402(g) and § 414(v) limits and opportunities is coded assuming every individual’s tax year is the December 31 year (and not attempting to ask whether an individual has a different tax year). Yet, it can be useful to have some way to allow a variation for the rare situation in which an individual has a noncalendar tax year.

Here’s IRS Publication 538 with some explanations about Accounting Periods. https://www.irs.gov/pub/irs-pdf/p538.pdf Example: Although Jack is a W-2 employee with no business interests, he follows his wife’s taxable year so he can fit their joint income tax returns. Jill owns a farm and its businesses. Based on when Jill’s businesses harvest and sell the crops, the businesses and Jill end their accounting years as at October 31. Example: Mary is an employee of a charity, and participates in its § 403(b) plan. Yet, almost all of the income that supports Mary’s life comes from a trust her great-grandfather created. That trust’s accounting year ends with February 28 or 29. Mary chooses to align her taxable year with that of the trust that is her primary source of income. Example: Charlie is the chief executive of a business that ends its accounting year with June 30, issues its financial statements by late July, and pays Charlie’s bonus in early August. Charlie established August 31 as the end of her tax-accounting year.

The § 402(g) elective-deferral limit, and the § 414(v) age-based catch-ups relate to the INDIVIDUAL’s tax year, which can be a year other than the calendar year. Under Federal income tax law, a taxpayer computes one’s taxable income “on the basis of the taxpayer’s taxable year.” I.R.C. § 441(a). Ordinarily, a taxable year is a yearly accounting period. I.R.C. § 441(b). Most (but not all) people use a calendar year. See I.R.C. § 441(c). A “calendar year” is “a period of 12 months ending on December 31.” I.R.C. § 441(d). Further, the Internal Revenue Code’s general definitions include “taxable year” and “fiscal year”: “The term ‘taxable year’ means the calendar year, or the fiscal year [defined in the next paragraph] ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. ‘Taxable year’ means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.” I.R.C. § 7701(a)(23). “The term ‘fiscal year’ means an accounting period of 12 months ending on the last day of any month other than December.” I.R.C. § 7701(a)(24). For § 402(g), “the elective deferrals of any individual for any taxable year shall be included in such individual’s gross income to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount.” I.R.C. § 402(g)(1)(A). For an age-based catch-up deferral amount that might be permitted because the participant is age 50 or older, the Internal Revenue Code defines an “eligible participant” as “a participant in a plan who would attain age 50 by the end of the taxable year[.]” I.R.C. § 414(v)(5)(A). A Treasury rule confirms this: “An employee is a catch-up eligible participant for a taxable year if [t]he employee’s 50th or higher birthday would occur before the end of the employee’s taxable year.” 26 C.F.R. § 1.414(v)-1(g)(3)(ii). For a greater age-based catch-up deferral amount that might be permitted because the participant is age 60, 61, 62, or 63, the Internal Revenue Code refers to “an eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year[.]”I.R.C. § 414(v)(2)(B)(i). While unusual, I’ve seen situations in which an individual’s taxable year is not the calendar year. This is not advice to anyone.

Does anything in this health plan’s governing documents make an otherwise eligible employee not covered because she is a minor or has not attained a specified age? BenefitsLink neighbors often say, Read The Fabulous Document. Because ERISA § 404(a)(1)(D) calls a fiduciary to administer an employee-benefit plan according to the plan’s governing documents, RTFD can be a useful work method for a group health plan too, perhaps even more so than for a retirement plan. This is not advice to anyone.

Consider that it might not matter much whether the Biden administration’s or the Trump I (or Trump II) administration’s investment-advice fiduciary rule is (or isn’t) in effect because, following the Supreme Court’s Loper Bright Enterprises opinion, a Federal court decides the court’s interpretation of ERISA § 3(21)(A)(ii) or Internal Revenue Code § 4975(e)(3)(B) without deference to an executive agency’s interpretation.