Peter Gulia

Susan L., your query does not mention whether the plan is a defined-benefit plan or an individual-account (defined-contribution) plan, nor whether the plan seeks to tax-qualify under Internal Revenue Code § 401(a), § 403(b), § 415(m), § 457(b), or something else. One or more of those and other classifications might matter to discern whether a plan provides a distribution before a participant has severed from employment and before the participant attained a specified age.

I’m not aware of Treasury or IRS having published an answer to this question. And I don’t know whether this question has even been suggested to the IRS. Not every ambiguity in tax law gets a timely publication of the Treasury’s or IRS’s interpretation. Sometimes, an employer or plan administrator must form one’s own interpretation about what tax law requires or permits. An employer might want evidence that it in good faith made a reasoned interpretation of the statute. To do so, one might want its lawyer’s or certified public accountant’s written advice. austin3515, I don’t disagree with your reading of the statute; rather, I have not formed my reading. (I have no client with a cash-or-deferred arrangement not established before December 29, 2022. And it’s unlikely I ever will have a client subject to I.R.C. § 414A.) BenefitsLink neighbors, here’s a way to gather information one could use to advise one’s client: Of those recordkeepers active in providing services to small plans, have they built their services to support automatic-contribution arrangements assuming there must be a sweep to bring in those who became eligible before 2025? Does a recordkeeper allow its customer to specify that its automatic-contribution arrangement applies only to those who become eligible after 2024? While I don’t suggest a practitioner rely on a recordkeeper’s interpretations or business practices, sometimes a plan sponsor’s or plan administrator’s decision-making might be influenced by knowing what services are or are not available from one’s recordkeeper.

That a plan existed before the first day of the reported-on year yet begins the year with assets valued at $0 might not attract unwelcome attention. If you want a practical sense about whether a BoY plan assets of $0 would attract a filing-error message or an edit check, enter the plan’s information and see what message (if any) your software turns out. Consider also that if a one-participant plan never had enough assets that a Form 5500 report was otherwise required (and all years before the final year went unreported), the plan might not be much of an examination target to which the IRS would devote scarce resources.

I have several times had clients use a recordkeeper’s software routine of the kind FishOn describes. It works from each investment alternative’s share or unit price on the should-have date and on the correction date. I’ve never seen even a moment of difficulty with such a routine.

Here’s the Labor department’s rule: “When an extension of time in which to file an annual report has been granted by the Internal Revenue Service, such furnishing shall take place within 2 months after the close of the period for which the extension was granted.” 29 C.F.R. § 2520.104b-10(c)(2) https://www.ecfr.gov/current/title-29/part-2520/section-2520.104b-10#p-2520.104b-10(c)(2). A reader of the Form 5500 Instructions might interpret them to suggest an employer/administrator may (and perhaps should) check an extension box if either the plan’s administrator or the employer business organization filed for the extension, even if the employer/administrator has no need to rely on an extension for the Form 5500 report. BenefitsLink mavens, what do you think about a situation in which the employer corporation obtained an extension for its Federal income tax return but that fact is not shown on the Form 5500 report?

Considering Tom’s observation about who gets stuck with the work when an employer fails to pay over contributions promptly, here’s what I wonder: Does a recordkeeper or third-party administrator treat its work on correcting late contributions as an included service within the regular fee? Or does one charge, distinctly, a time-based fee, or a fixed fee quoted for the task, for one’s work on these corrections? (I don’t ask the amount of any fee. To protect the Bakers’ hosting of this website, we should avoid discussions of price information. We ask only whether there is a distinct fee.)

Listen to what austin3515 says about how your software might react to a report that would be logically internally inconsistent. Eighteen or as few as 15 business days remain before October 15. (Federal, State, NYSE, and religions’ days vary.) Most CPA firms with a capacity for employee-benefit plan audits long ago stopped accepting engagements for 2023 audits. But with a relationship plea and a rush fee, a plan’s administrator still might engage an independent qualified public accountant. About what Form 5500 report (if any) a TPA might prepare (or decline to assemble), a few suggestions: 1. Read, carefully, your service agreement to know your rights, obligations, and conditions. 2. Even if it is the plan’s administrator that must sign the report, don’t assist a false or misleading statement. 3. Be careful with anything your client might alter or misuse, especially if it has your name associated with it. 4. CYA—Cover Your Assets. This is not advice to anyone.

From context, I guess an employer has (or someone seeks that an employer provide) a wage-deduction convenience for buying, voluntary-only, insurance under an arrangement that those involved imagine does not establish or maintain an employee-benefit plan. Whether a lowered premium for life insurance (other than under the voluntary-only arrangement) is “consideration” that might result in not meeting 29 C.F.R. § 2510.3-1(j)(4)’s condition for a nonplan might turn on exactly who enjoys the lowered expense for the other life insurance. 29 C.F.R. § 2510.3-1(j)(4) asks whether the employer or the labor union gets consideration. See https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-1#p-2510.3-1(j)(4). Under the life insurance plan, does the employer pay all or some of the cost of that benefit? Or is the life insurance plan’s benefit employee-pay-all? Further, each of the employer, an insurer, an insurance intermediary, and perhaps others involved might want its lawyer’s advice about whether following the Labor department’s rule is enough for an arrangement to be a nonplan. A Federal court might interpret ERISA § 3(1) [29 U.S.C. § 1002(1)] differently than the Labor department did in 1975. A Federal court no longer defers to an executive agency’s interpretations, even those made in a rule. This is not advice to anyone.

I had not imagined that a document would provide a plan ends because the plan sponsor is bankrupt. Bri, that a plan has and always had only one participant does not necessarily mean that the plan sponsor is a human or her sole proprietorship. Many small business owner-operators, even of a one-human business, use a corporation, limited-liability company, or other form of business organization. And many keep such an organization in legal existence and good standing for many years after the owner-operator retires.

Lou S., as you understand the IRS's view, is it enough that the plan's sponsor is a corporation, limited-liability company, registered partnership, or other business organization in good standing with a State's government official, even if the organization happens to have no income for several years? (My question is not rhetorical or presuming either answer; rather, I seek to learn about the IRS's thinking from those who have experience I lack.)

There can be reasons for a participant in an employment-based retirement plan to prefer it over an Individual Retirement Account. Among them, opportunities for guarding a retirement asset from some kinds of creditors’ claims might be better with an employment-based plan (even if not ERISA-governed) than an IRA. This might be so not only under bankruptcy law, but also under other laws. As CuseFan suggests, there is no shortcut; one must get into the details of those laws and how they might apply to facts and circumstances the individual plans against. The individual might want not only legal advice but also practical advice across her whole team of advisers, including lawyers (for each topic), certified public accountant, physician, actuary, financial planner, investment adviser, and TPApril. This is not advice to anyone.

That rule—26 C.F.R. § 1.414(c)-5—refers to an 80% overlap in the governing bodies of exempt organizations, which the rule describes as “an organization that is exempt from tax under [Internal Revenue Code] section 501(a)[.]” https://www.ecfr.gov/current/title-26/section-1.414(c)-5. Although a public-school district is not subject to Federal income tax, that results from law other than I.R.C. § 501(a). Further, even if one were to interpret I.R.C. § 414 to treat a public-school district and a foundation as one employer, that might not necessarily answer questions about whether a governmental plan may cover the foundation’s employees without losing ERISA’s governmental-plan exemption.

If your client needs to sort out whether the foundation and the school district might be treated as one employer for the purposes Internal Revenue Code § 414 refers to regarding § 403(b) or § 457(b), or whether the foundation’s employees might participate in a non-ERISA governmental plan with the related school district (even if the foundation is not a part of the same employer as the school district), it could engage Carol Calhoun, a leading national expert on those issues and a lead author of Governmental Plans Answer Book. https://www.venable.com/professionals/c/carol-v-calhoun?accordion=credentials

Work we did on September 11, 2001 and soon after in managing some consequences from that day’s deaths, injuries, casualties, and other harms remains a deep reminder about what matters in every aspect of our lives and faiths.

If the § 402(g) limit becomes $24,000 and the § 414(v)(2)(B)(i) limit becomes $8,000, the elective-deferral limit for an early 60s participant would be $36,000 ($24,000 + ($8,000 x 150%)).

Has anyone done a projection or estimate for 2025’s inflation-adjusted elective-deferral limit? And for the two (50-, 60-63) age-based catch-up limits?

The challenge is for the plan’s administrator to discern whether what a computer recorded as a Roth “designation” [26 C.F.R. § 1.401(k)-1(f)(1)(i)] was in fact the participant’s designation. Just to pick a few examples, some administrators might be persuaded by evidence that the record was not the participant’s designation because: the participant was hospitalized and unconscious; the participant was mentally incapacitated; or an unauthorized impostor used the participant’s identity credentials when the computer received the ostensible designation. Some administrators might consider undoing a record if one is persuaded it resulted from a mistake of fact—that is, the participant sincerely believed, and reasonably believed, that what the computer recorded as a Roth designation really was a non-Roth designation. Yet, an administrator might be reluctant to ground an undo on a particular individual’s misreading of the plan’s (online) form or instruction for which mark makes a Roth or non-Roth designation unless the administrator prudently finds that many reasonable readers would similarly misread the form or instruction. A challenge is getting evidence that supports the administrator’s obedience, prudence, and impartiality in finding that what the computer recorded as a designation was not the participant’s designation. To honor the plan’s provision based on tax law’s condition that a designation is irrevocable, a fiduciary would look for facts to distinguish a falsity or real mistake from a participant merely changing one’s mind. Consider a fiduciary’s duties to make and keep records of its discretionary decision-making. This is not advice to anyone.

Since 1978, the Treasury department has tried to form interpretations for § 125 to approximate, loosely, the notion that an insurance contract would not permit an insured to avoid paying one’s premium for an already bound coverage period. One might read 26 C.F.R. § 1.125-4(d)(1)(ii) as allowing an employee to change one’s election because of a QMCSO to the extent of the child’s coverage but not for the employee’s coverage (unless there is some other event for which an employee may change the employee’s coverage). The rule’s interpretations might not all be logically consistent, but one can read § 1.125-4(d)(1)(ii) as the Treasury’s attempt to honor how Treasury interprets Internal Revenue Code § 125 with insurance-like concepts. That’s why my middle paragraph in my preceding post imagines Treasury’s view that the employee ought not to be permitted to escape his premium obligation merely because he chooses to forego coverage.

We recognize that youngbenefitslawyer asks about an election change from employee+child to no health coverage for either, but I share your doubt about whether the rule’s interpretation allows that much change. Further, one wonders how the employee gets health coverage. If he no longer has a spouse, he might no longer have coverage with the former spouse’s employer. And if he’s old enough to have a child, he might no longer be eligible for coverage with his parent. (I recognize that these are not all the possible situations.) But the potential situation I imagined might not be too fanciful. Domestic-relations courts try to see to it that a child gets health coverage somehow. So, a court order that rescinds a command to an employee might be the same as, or essentially contemporaneous with, an order that commands the child’s other parent to provide health coverage.

Brian Gilmore, thank you sharing your thinking. Could subparagraph (ii) support a participant’s election change from employee+child to employee-only if: a court order rescinding the order that had commanded the participant to cover the child also commands the child’s other parent to cover the child; and the child is covered under the other parent’s health plan?

In 2025, a particular participant’s limit on elective deferrals might involve four (or more) variations, turning with the participant’s age (0-49, 50-59, 60-63, 64-). Some employers might try, in payroll, to impose a during-the-year cutoff on § 401(k), § 403(b), or § 457(b) elective deferrals. But some employers might lack software or other ways to impose such a cutoff reliably. For some, imposing an unnuanced cutoff could deprive a 60-63 participant or even participants older than 49 of what might be a legitimate elective deferral. How important is it to apply a cutoff during a year? Or is it good enough that each January an employer checks the recently closed year’s sum of amounts paid over for elective deferrals to find each individual with an excess and instruct a corrective distribution? In which situations would an excess deferral not be corrected by a corrective distribution or by W-2 reporting?

And for an employer that runs its payroll internally without using ADP, Paychex, or a similar provider but using commercially developed software, what deferral-limit rules (if any) do those developers put in their software?

If your question is about what a particular health plan or cafeteria plan provides, you might read the plan’s governing documents and consider what ought to be the administrator’s interpretation of them. If your question is about whether a § 125 cafeteria plan, could, for the circumstances you describe, allow an election change, you would consider Internal Revenue Code § 125 and the Treasury department’s rules interpreting § 125. 26 C.F.R. § 1.125-4(d) explains some interpretations about election changes a § 125 plan might allow regarding a qualified medical child support order. Among them, it might matter why the QMCSO was rescinded and whether other coverage for the child is provided. https://www.ecfr.gov/current/title-26/part-1/section-1.125-4#p-1.125-4(d) This is not advice to anyone.

I was suggesting some inquiry only because you had suggested that some plan sponsors might prefer not to provide the 60-63 extension, if given that choice. A plan-documents publisher need not now risk saying something the IRS might disapprove because a publisher need not, and usually does not, express to the documents’ users a conclusion on a point like this until the IRS’s review ends. At the current stage—when a plan-documents provider hasn’t yet finished what it decides to submit for the IRS’s review, no one need state a conclusion on the point of law. Rather, a plan-documents provider could consider your idea that at least some plan sponsors might welcome a choice, and could tell you whether they’re willing to ask the IRS to allow the choice in an adoption agreement. That answer might be no, but one can’t get what you don’t ask for. If this point matters to you, now would be the time to ask. Relatively soon, the plan-documents providers will submit their applications for IRS approval. That review process filters not only questions about the IRS’s interpretations of law but also about what the IRS wants to allow or preclude in IRS-preapproved documents. For some questions, it’s impossible or impractical to delay a decision until the IRS has expressed the IRS’s thinking. Come next January (or whenever the extended submission date is), an applicant for the IRS’s approval of a plan-documents set must decide what to submit. An applicant must finish those business decisions with as much or as little information about the IRS’s views as one knows before the submission date. One gets the IRS’s response during the review. We recognize service providers tend to cautious expressions about law. When I was inside counsel for a recordkeeper, our business executives knew our decisions would affect tens or hundreds of thousands of plans with millions of participants and billions in plan assets. And the lawyers knew we were indirectly setting courses for many plans, most of which would get no tax or legal advice. But those responsibilities didn’t stop us from considering a question of law or a business decision, considering it internally before anything might be expressed to customers or even to our customer-service people. I don’t know about Relius, but other plan-documents designers have been and still are considering suggestions from third-party administrators and other intermediaries about which plan-design choices they want for their clients. austin3515’s query might not get as much attention as Empower’s query gets, but a smart plan-documents designer might listen to a thoughtful question. About a plan-design point like this, a recordkeeper, payroll-service provider, plan-documents publisher, or other service provider often prefers to avoid even suggesting a choice. Many of them might wish that intelligent practitioners like you would just go away. Yet, how much a plan-design choice matters and whether you want to ask for a chance to facilitate it is your business decision. (Looking at a path-of-least-resistance mainstream, one might find that seeking a plan-design choice isn’t worthwhile.) I recognize much of what I describe is about managing uncertainty. But that inheres in tax and other laws about retirement plans, especially tax law’s remedial-amendment regime and its delays in what “the” plan document provides, purportedly retroactively. As practitioners, guiding a client through uncertainty can be an important part of what we do. If it were easy, a client might not need us.

austin3515, your plan-documents provider should give you a candid answer about what it intends to submit as the forms on which it seeks IRS approval. The recent cash-or-deferred arrangement LRMs, at its page 6, includes this: “. . . . Plan language and adoption agreement elections [plural] can [not must] include this secondary catch-up limit [the 60-63 extension] for those periods [after 2024].” https://www.irs.gov/pub/irs-tege/coda-lrm0124-redlined.pdf. (The whole paragraph is posted above.) This suggests the IRS is open at least to consider an adoption-agreement form that lets a user specify an age-based catch-up without the 60-63 extension, a plan-design choice you suggested in another BenefitsLink discussion. To your businesslike question about what your plan-documents provider will design and could submit, a we’re-waiting-on-the-IRS response shouldn’t be enough.