Peter Gulia

For when tax law’s catch-up maximum was the same for all those 50 and older, it doesn’t surprise me that designers of IRS-preapproved documents made an adoption-agreement form simpler and shorter by omitting a line to specify a limit less than tax law’s maximum. But about whether to afford a choice to omit the 60-63 catch-up range while providing a 50-and-older catch-up, we won’t know a plan-document publisher’s business decision until we see the next cycle’s forms.

The extra tolerance Internal Revenue Code § 414(v) provides starts with § 414(v)(2)(A): “A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than . . . .” Even without the 60-63 extra range, some might read § 414(v) to allow a plan to provide some “additional elective deferrals” while limiting them to an amount less than the maximum amount § 414(v) permits a plan to allow. The recent cash-or-deferred arrangement LRMs, at its page 6, includes this: (Note to reviewer: For taxable years beginning after December 31, 2024, Section 109 of the SECURE 2.0 Act of 2022 increases the catch-up limit to the greater of $10,000 or 150 percent of the age 50 catch-up limit in effect for the year for individuals who will attain ages 60, 61, 62 and 63 during the tax year. After 2024, the $10,000 limit is adjusted by the Secretary of the Treasury for cost-of-living increases. Plan language and adoption agreement elections can include this secondary catch-up limit for those periods. https://www.irs.gov/pub/irs-tege/coda-lrm0124-redlined.pdf (emphasis added).

Legislating in the 1960s and early 1970s for what became ERISA involved many political compromises. Among them is allowing an employer, or people dependent on the employer, to serve as its plan’s named fiduciary. (I sometimes call that ERISA’s fatal flaw.) About situations in which not paying over a contribution is intentional, often a wrongdoer who decided not to pay over a contribution is the plan’s trustee or contribution-collection fiduciary, or can dominate the person so appointed. Other times, the contribution-collection fiduciary is the employer business organization.

If a § 403(b) plan has contributions beyond voluntary wage-reduction contributions (and rollover contributions), there are three categories: governmental, church, and neither. That a charitable organization, if not itself a government agency or instrumentality, gets government grants does not by itself make the organization’s § 403(b) plan a governmental plan. This is not advice to anyone.

RatherBeGolfing, thank you for telling us about ASC’s reading. If a plan sponsor prefers to provide an age-based catch-up only for the age 50 limit without the 60-63 extended limit, may one so limit the catch-up if the plan sponsor documents those provisions by the end of the remedial-amendment period? (I don’t advocate this, but do seek to learn those contours of the remedial-amendment regime. And whether it’s practically feasible.)

Here’s EBSA’s webpage with many “No Surprises Act” resources: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/no-surprises-act. If in the webpage you search the word “model”, you’ll see two hyperlinks—one to a model notice, and the next one to some agency guidance about a notice. After you delete instructions about how to use the model, the text is about one page. This is not advice to anyone.

Your description about how some might interpret a current plan document—especially if it sets a provision by referring to relevant Internal Revenue Code sections, rather than by a narrative text that describes only what the law was when the document was written—makes sense. But for many, it might matter less what the documents state today, and more what the documents provide when a user next adopts a remedial amendment or restatement. Current administration For those who wait to amend “the” plan document and administer a plan assuming tax law’s remedial-amendment tolerance, during the remedial-amendment period one might administer a retirement plan according to the later-written plan that tax law treats as having retroactive effect. During a remedial-amendment period, this would leave uncertain which optional provisions a plan’s sponsor adopts or omits (and so which provisions the plan’s administrator ought to administer). Many service providers resolve some of those uncertainties by asking a customer to instruct which provision—on or off, yes or no—the service provider is instructed to follow in performing its services. Many of those requests for a service instruction communicate a norm or default choice the service provider may presume absent a specific (and proper) instruction otherwise. About the 60-63 catchup, a likely default is that the extra range is on until the customer tells its service provider to take it off. Some recordkeepers might not offer a choice: that is, a service for an age-based catch-up is grounded on all or none. Some communications are ambiguous. At least one big recordkeeper says: “If a plan currently permits age-50 catch-up contributions, there is no additional plan election required. [XYZ] will automatically apply the [60-63] increased contributions effective 1/1/25 to those plans.” While this says one need not deliver an instruction if the plan sponsor likes 60-63 catch-up, it does not say whether the recordkeeper would accept a customer’s instruction to allow an age-based catch-up only up to the limits for a 50-year-old without the extra range for 60-63. How much choice will the upcoming cycle’s plan-document forms allow? From lawyers who are designers and writers of IRS-preapproved documents, I’ve heard that they and the business executives they answer to struggle with how much choice to put in the forms. Some want to afford every choice tax law permits (unless the IRS’s review would preclude a choice tax law permits). Others, to make the documents shorter or a little less tedious in asking for a user’s choices, seek to restrain choices they believe few users want. austin3515, consider making known to plan-document designers (at least the publisher your clients use) your observation about why some employers might prefer to omit the 60-63 catch-up range.

For a retirement plan that provides participant-directed investment, an administrator provides information to meet ERISA’s disclosure requirements. This includes comparing a fund’s or other investment alternative’s past performance to “an appropriate broad-based securities market index[.]” For example, many fiduciaries compare a fund one finds to have the investment goals and strategies of a US small-capitalization value fund to the Russell 2000 Value Index or the CRSP US Small Cap Value Index. In SECURE 2022 § 318, Congress directs the Labor department to publish a rule to let a plan’s administrator use for “a designated investment alternative that contains a mix of asset classes” a benchmark that is a blend of broad-based securities market indices, proportioned to follow the target-date, asset-allocation, or balanced fund’s investments in asset classes. Considering the Office of Information and Regulatory Affairs’ most recent Unified Agenda of Regulatory and Deregulatory Actions, it seems unlikely the Labor department will complete, or even propose, a rulemaking by Congress’s December 2024 due date. For plan administrators that rely on a recordkeeper or third-party administrator to assemble rule 404a-5 disclosures comparing an investment alternative’s past performance to an index’s past performance, what have the service providers been doing? Have some followed what Congress permits, setting up a custom benchmark built from applying each underlying asset class’s index in the portions the target-date fund declares as its target allocations? If not, what benchmark does a 404a-5 disclosure use for a target-date fund? (I’m aware some investment funds use custom benchmarks for securities law disclosures; I’m seeking what retirement plans do in ERISA 404a-5 disclosures to participants.)

It is odd that which choice results from an absence of the worker’s communication turns on whether the noncommunication is during or after the notice period. Congress could have allowed a plan to provide an implied assent to an elective deferral even before a worker has received the automatic-contribution notice if the notice explains a participant’s right to get a permissible withdrawal and is given with enough time before the end of the period for a permissible withdrawal. That could allow making the implied-assent choice the same for during the notice period and after the notice period ends. But Congress might have overlooked that idea in the few days of December 2022 in which they legislated SECURE 2022. And some wonder whether Congress thoughtfully considered the public policy effects of imposing an eligible automatic-contribution arrangement as a tax-qualification condition for new § 401(k) or § 403(b) arrangements, so burdening startup and emerging businesses but not many established businesses.

For this “special trustee” position, does a small-business employer name the employer corporation, company, or partnership itself, or does one name a human or officeholder?

Thanks, all. Here’s a follow-up question: In February 2008, EBSA released Field Assistance Bulletin 2008-01, which describes an interpretation that there must be some fiduciary who has responsibility to collect contributions owing to the plan. And that a trustee, even if a directed trustee, has that responsibility unless a document (which might be a trust agreement, but could be something else) specifies the other fiduciary who has that responsibility. Following this, some designers of IRS-preapproved documents added an adoption-agreement item or administrative-specifications item to name the fiduciary who has the responsibility to collect contributions. Of these, some present a set of checkbox choices and a fill-in line; some, just a fill-in line. Whom does a small-business employer specify? If an “institutional” trustee is unwilling to be named as the contribution-collection fiduciary, whom does a small-business employer specify?

Think about what each Form 990 or Form 5500 will show. Think about what an independent qualified public accountant, if any, might find. KEC79, if you’re a service provider anywhere near this VEBA’s situation, lawyer-up to Cover Your Assets. There might be ways for an employer’s blunder to become a service provider’s liability exposure. A service provider might evaluate whether doing something now could help improve opportunities for avoiding or dismissing a claim. This is not advice to anyone.

Belgarath, thanks. If all trustees (whether one, two, three, or more) are associated with the employer, how likely is it that any trustee will call attention to the employer’s failure to pay into the plan’s trust participant contributions withheld from wages? How likely or unlikely is it that an investment adviser would know that participant contributions withheld from wages were not paid into the plan’s trust? (I can use that information when I turn to the semester’s lesson about cofiduciary responsibility.)

If an employer “as part of the exit process” might “highlight the potential benefits of exchange coverage”, think carefully about how to make the explanations—of both exchange coverage and continuation coverage—accurate, complete, balanced, and fair. Prepare for a later day when the employer, which likely is its group health plan’s administrator or other fiduciary, would respond to a plaintiff’s assertion that the fiduciary had obedience, loyalty, prudence, and impartiality duties to communicate in the participant’s (the could-be continuee’s) interest. This is not advice to anyone.

What seems incongruous? The notice Internal Revenue Code § 414(w)(4) calls for is about how someone makes or is deemed to have made one’s cash-or-deferred election. What you describe goes like this: A worker, from one’s employment commencement date, is eligible to elect. A worker always may elect between cash and a deferral. During the notice period, a worker may elect, impliedly, cash or may elect, affirmatively, a deferral. After the notice period, a worker may elect, impliedly, a deferral, or may elect, affirmatively, cash. A worker’s right to elect between cash and a deferral is constant during and after the notice period. To the extent of differences in whether and when an automatic-contribution arrangement applies, an employer can’t avoid at least some incongruity about which choice results from a worker’s communication or an absence of the worker’s communication. But Congress set that course.

Bri, thanks; just what I was looking for. For those plans, if a fiduciary breached one’s responsibility—for example, by failing to cause participant contributions withheld from wages to be paid into the plan’s trust, is there any fiduciary available who would call to attention the breach?

Gina Alsdorf, thank you. And BenefitsLink neighbors, I apologize for not saying: my query is focused on small-business employers with small plans.

guestdelta, along with others’ pointers, consider these to ask your lawyer about: Read the IRA agreement. Many of these include provisions about beneficiary designations, primary and contingent beneficiaries, and default beneficiaries. Don’t assume Florida law governs. Many IRA agreements include a choice-of-law provision. That choice often is the State a bank, trust company, insurance company, or broker-dealer prefers, or the State some investment funds’ manager or adviser prefers. Some frequent choices are California, Delaware, Massachusetts, and New York. JPMorgan Chase might prefer New York law. Don’t assume, without reading, that any State’s simultaneous-death statute for decedents’ estates applies. Consider that a State’s statute might not apply to determine the beneficiary under an IRA agreement, a contract right. Consider that an IRA agreement might state its provision about simultaneous deaths and the orders of deaths. Consider that a simultaneous-death provision might apply only between or among beneficiaries, and might not apply an order of deaths regarding the originating IRA holder’s death. As MoJo notes, a simultaneous-death time need not be limited to minutes, hours, or days. It might be months. Up to six months is not unusual. See, for example, I.R.C. (26 U.S.C.) § 2056(b)(3). Consider that a simultaneous-death provision might be irrelevant because the IRA agreement might provide who is a contingent beneficiary and who is a default beneficiary without using any such concept about the order of deaths. For these and other points, remember a beneficial interest in an IRA is about contract rights. If the default beneficiary is the personal representative of a decedent’s estate, ask your lawyer about whether one might persuade JPMorgan Chase to pay the applicable decedent’s estate’s takers instead of the personal representative, on satisfactions, releases, and indemnities all around. Yes, there are some IRS rulings and other nonprecedential guidance your lawyer could read to suggest potential courses of action for a situation in which there is only a default beneficiary. This is not advice to anyone.

For a single-employer individual-account (defined-contribution) retirement plan, typically the employer, or some committee or officer of it, is the plan’s administrator. Of those, for some a bank or trust company is the plan’s trustee, but for others only people associated with the employer are trustees. (For the question I ask here, let’s leave aside an investment adviser, even if it is a fiduciary.) So, how often does it happen that both the administrator and trustee roles are filled by the employer? My query is only to support a lesson I teach my law school students. Any information you share I’ll use only with nothing identifying, and only in a very wide generalization.

And consider preferring a service provider that has a capability to treat a portion of payments to a retired minister as I.R.C. § 107 parsonage allowance, with Form 1099-R showing the taxable portion of a non-Roth distribution as less than the gross distribution, subtracting the amount the church specifies as the § 107 allowance.

To the extent that a nondiscrimination rule might be among factors to consider in evaluating whether § 401(k) or § 403(b) better serves a church’s and its employees’ interests, a church has no owner, might have no employee with compensation reaching $155,000 [2024], and so might have no highly-compensated employee. While I often prefer § 403(b) over § 401(a)-(k), the distinction can affect the availability of some investment alternatives, and even some service providers. For example, some collective investment trusts do not admit any § 403(b), even if both tax law and securities law could allow a church’s § 403(b)(9) retirement income account. And some unregistered group variable annuity contracts are offered only to a § 401(a)-(k) plan, and are unavailable for a § 403(b). Likewise, some recordkeepers won’t offer a service to a plan that doesn’t fit neatly into one of the provider’s established service models. On some of my charity engagements with churches, what was better from a tax law or plan-design perspective was the opposite of what was better from an investment or service perspective. For these and other reasons, one carefully considers all the surrounding facts and circumstances.

As ever, RTFD—Read The Fabulous Document. To state provisions that meet ERISA § 205, an ERISA-governed plan typically calls for a notary to witness a spouse’s consent, and (sometimes) officiate an acknowledgment of a participant’s qualified election. Many ERISA-governed plans do not otherwise call for a notarial act. For example, a beneficiary designation that does not deprive the participant’s spouse. But some plans provide that some claims, directions, or instructions require a participant to make and acknowledge the writing before a notary, even when that’s unnecessary to meet an ERISA command or an Internal Revenue Code tax-qualification condition. For a governmental plan, a non-ERISA church plan, or a plan that covers no employee, check not only “the” plan document but also applicable State law. This is not advice to anyone.

“[Internal Revenue Code § 414A](a) shall not apply to . . . any church plan (within the meaning of [I.R.C. §] 414(e)). I.R.C. (26 U.S.C.) § 414A(c)(3) https://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. And here’s the referred-to definition: I.R.C. (26 U.S.C.) § 414(e) https://uscode.house.gov/view.xhtml?req=(title:26%20section:414%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414)&f=treesort&edition=prelim&num=0&jumpTo=true. Is the plan sponsor the church itself? Or if something else, does the church sufficiently control the something else? Also, consider whether § 401(k) or § 403(b) better serves the church’s and its employees’ and ministers’ needs. Which of those is the better fit turns on carefully considering all the surrounding facts and circumstances.

If an ERISA-governed pension plan does not provide that a participant may change an annuity that began, the plan does not recognize as a QDRO an order that tries to change the annuity. “If a participant dies after the annuity starting date, the spouse to whom the participant was married on the annuity starting date is entitled to the QJSA protection under the plan. The spouse is entitled to this protection . . . even if the participant and spouse are not married on the date of the participant’s death, except as provided in a QDRO.” 26 C.F.R. § 1.401(a)-20/Q&A-25(b)(3) https://www.ecfr.gov/current/title-26/section-1.401(a)-20. See also, for example, Jordan v. Federal Express Corp., 116 F.3d 1005, 1009 (3d Cir. June 19, 1997) (“In response [to a domestic-relations order], Federal Express canceled Linda Jordan’s [who was the participant’s spouse as at the annuity starting date] right to receive the [survivor] benefits under the plans without either increasing [participant John Paul] Jordan’s monthly benefits or designating Patricia Jordan [the participant’s current spouse] as the new beneficiary [survivor annuitant].”) (emphasis added). DSG, consider (perhaps turning on which one, if either, is your client or your client’s client) whether the divorcing parties might negotiate and adjust property interests other than the commenced pension annuity to reflect that the husband’s pension annuity was lessened by providing a survivor portion (or that the nonparticipant obtained a survivor annuity). Likewise, consider how much or how little value the then-wife puts on her survivor annuity. Her personal sense of its value could be more than or less than what an actuary, economist, financial planner, or other adviser says the or a value is. And one might consider the creditworthiness of the pension obligor. This is not advice to anyone.

There are important differences between and among a letter-of-intent stage, a due-diligence time, receiving a conditional offer, negotiating a definitive agreement, required or permitted announcements of the agreement (if any), and seeking approvals. Yet, Paul I is right that knowing what would be called for in one or more of the later stages might influence a decision-maker’s thinking for one or more of the earlier stages.