Peter Gulia

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.

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?