Peter Gulia

Thanks, Gina Alsdorf and justanotheradmin. I’m aware that a “cash” position or a money-market fund or account is a broker-dealer’s typical default for uninstructed amounts under a securities account. But if the plan’s administrator or trustee wants ERISA § 404(c)(5) relief for a defaulted-in participant’s deemed investment direction, wouldn’t the plan’s trustee instruct the broker-dealer to invest the account in a target-year fund or balanced fund so it can be a continuing qualified default investment alternative? Although a principal-preservation investment might be a QDIA for a first 120 days, might a fiduciary prefer a default investment that remains a QDIA if the participant continues in not communicating her affirmative investment direction? 29 C.F.R. § 2550.404c-5(e)(4)(iv)(B) https://www.ecfr.gov/current/title-29/part-2550/section-2550.404c-5#p-2550.404c-5(e)(4)(iv)(B).

Consider that an answer might vary with whether the plan’s sponsor and administrator seek to meet only Internal Revenue Code § 403(b)(12)(A)(ii) or also seek to obey ERISA sections 202(c) and 203(b)(4). Applicable or relevant law is ambiguous. Forty comments on the Treasury’s proposed rule are available at https://www.regulations.gov/document/IRS-2023-0058-0001/comment. Some comments flag your question as an open issue the Treasury’s proposed rule does not resolve. Likewise, some comments flag a coordination between tax law conditions and ERISA’s minimum-participation and minimum-vesting provisions as an open issue the Treasury’s proposed rule does not resolve. Although some might guess the Treasury lacks power to interpret ERISA § 202(c) and 203(b)(4), the 1978 Reorganization Plan transfers that authority to the Treasury. https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/executive-orders/4. But even if the Treasury publishes a final rule and no court vacates the rule, a Federal court does not defer to an executive agency’s interpretation of the statute. An ERISA-governed plan’s administrator must administer the plan according to the plan’s governing documents or, to the extent a document is inconsistent with ERISA’s title I, ERISA’s title I. That might call for an administrator’s prudent interpretations of ERISA sections 202 and 203. Different law applies for a governmental plan or for a church plan that did not elect to be ERISA-governed.

ERISA’s supersedure of States’ laws makes it unnecessary for an employee-benefit plan’s administrator to know, or even consider, any State’s law. Section 514(b)(7)’s limited exception regarding a qualified domestic relations order or qualified medical child support order might call a plan’s administrator to read an order’s text, but one need not know the State’s or Tribe’s law underlying the order. ERISA § 206(d)(3) calls a plan’s administrator to follow only a QDRO that “clearly specifies” the necessary information and instructions. An order does not “clearly specify” if the plan’s administrator cannot determine the amount to pay to, or set aside for, the alternate payee from the order’s text alone.

Some individual-account retirement plans that provide participant-directed investment lack designated investment alternatives. Instead, each participant gets a securities account with a bank or a securities broker-dealer. Trade lingo calls this a brokerage-window-only plan. According to an ERISA Advisory Council report, “BWO” is mostly with small (< 100 participants) plans, and especially plans with “fewer than 25 employees.” A brokerage-window-only plan calls the plan’s trustee to open and maintain a securities account for each participant. Although the trustee is the account’s holder, the participant instructs the broker-dealer on what securities to buy, hold, or sell. An automatic-contribution arrangement sometimes requires a plan’s administrator and trustee to act for a participant who does not communicate (other than by not counteracting an automatic-contribution notice). About a broker-dealer’s account-opening forms (or anything needed to maintain an account): Does anything require a signature from the participant? Does anything require information about a participant that the plan’s administrator lacks? Will a broker-dealer open an account if the individual’s profile information is incomplete? Did some brokerage-window-only plans have, before any I.R.C. § 414A condition, an automatic-contribution arrangement? Did it work, or have there been difficulties? If your clients include brokerage-window-only plans that have a § 401(k) arrangement (or will have one by 2025), do you expect difficulties in setting up and maintaining securities accounts for those participants who neither opt out nor affirmatively enroll?

But what about “[e]xpenses for the repair of damage to the employee’s principal residence that would qualify for the casualty deduction under section 165 (determined without regard to section 165(h)(5) and whether the loss exceeds 10% of adjusted gross income)[?]” 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(6) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(6).

As QDROphile mentions, some securities law exemptions regarding a single-employer retirement plan do not apply regarding a multiple-employer plan. Securities Act of 1933 § 3(a)(2), 15 U.S.C. § 77c(a)(2); Employee Benefit Plans; Interpretations of Statute, SEC Securities Act Release No. 33-6188 (Feb. 1. 1980), 45 Fed. Reg. 8960-8979 (Feb. 11, 1980), available at https://www.sec.gov/files/rules/interp/33-6188.pdf. See also SEC No-Action Letters: Honeywell International Inc. Savings Plan Trust (Oct. 7, 2002); Samaritan Health System (Dec. 14, 1993); Sunkist Master Trust (June 5, 1992); Eli Lilly and Co. (Dec. 31, 1991); Nat’l Ass’n of Home Builders of the United States (Nov. 10, 1980 & April 1, 1981); Harvard University Pension Plans and Trusts (July 7, 1980 & July 23, 1980). If a church plan delivered disclosures regarding the plan’s securities law exemptions, participants and other investors in a church plan’s § 403(b)(9) retirement income accounts do not enjoy the protections (or bear the expenses) of Federal securities laws registrations. Securities Act of 1933 § 3(a)(13), 15 U.S.C. § 77c(a)(13); Securities Exchange Act of 1934 § 3(a)(12)(A)(vi), 3(g), 15 U.S.C. § 78c(a)(12)(A)(vi), 78c(g); Investment Company Act of 1940 §§ 3(c)(14), 30(i)–(j), 15 U.S.C. §§ 80a-3(c)(14), 80a-29(i)–(j).

The plan’s administrator might first evaluate whether the order is a qualified domestic relations order. To be a QDRO, an order must “clearly specif[y] . . . the amount . . . to be paid by the plan to each such alternate payee, or the manner in which such amount . . . is to be determined[.]” If an order sets an amount but also mentions a past “date of segregation” and does so without stating that the alternate payee neither benefits from nor is burdened by investment change after that date, that sets up an ambiguity. Or that two intelligent people read the order and are uncertain about what it provides or doesn’t might suggest an ambiguity. If the plan’s administrator has already instructed you that it found the order is a QDRO, require the administrator to instruct you about what amount to set aside for the alternate payee. If you use discretion and either the participant or the might-be alternate payee understands the order differently than you see it, you invite blowback and a liability exposure (even if small). This is not advice to anyone.

A church plan might have participating employers somewhat beyond the church, mosque, synagogue, temple, or other body but sufficiently tied to the church’s mission and control. Suggest your client lawyer-up to design all relationships with the other charitable organization so the plan stays within both ERISA’s and the Internal Revenue Code’s church plan definitions. It can’t be so that the church has 100% “ownership” of the other charitable organization because a § 501(c)(3) charity has no owner. Rather, all the details, including about governance, matter. And look for whether the charity’s functions are something that’s a logical extension of the church’s mission. This is not advice to anyone.

Might the employer have paid the amounts under a mistake of fact so that the plan's administrator and trustee might return to the employer the amounts mistakenly paid? This is not advice to anyone.

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?