Peter Gulia

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense. While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan. https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties. I don’t know what might obtain tax law relief. This is not advice to anyone.

Under the Treasury’s proposed interpretation, an Internal Revenue Code § 414A(c)(4)(A) new-business exception is available “if, as of the beginning of the plan year, the employer maintaining the plan (aggregated with any predecessor employer) has been in existence for less than 3 years.” Proposed Treas. Reg. § 1.414A–1 A(d)(4)(i) (emphasis added). The Treasury’s notice of proposed rulemaking states: “Comments specifically are requested on whether guidance is needed to define the term ‘predecessor employer’ as used in section 414A(c)(4)(A) of the Code[.]” Internal Revenue Code § 414A(c)(4)(A) does not state or refer to a definition of predecessor employer. https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartB-sec414A.htm The proposed rule includes some interpretations about plan mergers. The proposed rule includes some interpretations about business mergers, and about other transactions that result in a different § 414(b)-(c)-(m) employer. But § 414A is not in any of § 414(b)-(c)-(m)’s lists of Internal Revenue Code provisions for which a § 414(b)-(c)-(m) definition of the employer applies. The Treasury proposes that a final rule (if published and effective) applies “to plan years that begin more than 6 months after” notice of the final rule is published. “For earlier plan years, a plan [is] treated as having complied with section 414A if the plan complies with a reasonable, good faith interpretation of [Internal Revenue Code] section 414A.” Observe too that a final rule the Treasury might make would be an interpretive rule, not a legislative rule Congress directed. A Federal court might be persuaded by, but does not defer to, the Treasury’s interpretation. At least for 2026, a plan’s sponsor or administrator might get its lawyer’s advice and consider the range of possible and plausible interpretations. More than one interpretation could be a substantial-authority interpretation. And even if one seeks the higher more-likely-than-not standard, more than one interpretation might meet that standard. This is not advice to anyone.

I don’t suggest a settlement agreement, when there is one, always is incorporated into a divorce decree or other court order. I’ve seen many domestic-relations orders that did not do that. And my observations are from all 50+ States. (Whether an incorporation-by-reference is a good or a bad thing for a domestic-relations litigant is beyond my scope.) While each plan sponsor, plan administrator, or service provider might have a range of purposes, needs, and interests, I have often suggested a retirement plan’s administrator ought to prefer, and, to the extent applicable law permits, require, a domestic-relations court’s order the administrator can apply with no need to look at—and a preference to avoid seeing—a settlement agreement, a divorce decree, or any writing beyond the single-purpose order a claimant seeks to get recognized as a QDRO. (It might have been better for the Office of Personnel Management to have considered a similar clarity and efficiency when making its part 838 rule.) Your client has a helpful view. I wish you luck in persuading someone at OPM to think.

In my view (which is not advice to anyone), a fiduciary ought not to direct paying or reimbursing from plan assets such a penalty if a fiduciary, a service provider, or an employer is responsible for the act or failure to act that results in the penalty. That’s so even if a penalty was administratively addressed to the plan. If an employer paid a penalty but another person was at fault, the employer might get its lawyer’s advice about rights and remedies regarding the other person.

Might the pastor's choices be expressed in the form of a salary-reduction agreement that states a proper elective deferral?

DSG, here’s what I see on a quick surface reading. (I’ve never had the United States as my client, and so have never advised anyone about any Federal governmental plan.) A part 838 section states: “Claimants are responsible for—(a) Filing a certified copy of court orders and all other required supporting information with OPM[.]” 5 C.F.R. § 838.123(a), https://www.ecfr.gov/current/title-5/part-838/section-838.123#p-838.123(a) (emphasis added). Some might interpret that sentence to grant OPM some discretionary authority to say what “supporting information” OPM reasonably, or at least not capriciously, “require[s]”. One might imagine OPM could require a settlement agreement if the order an applicant seeks to get treated as a COAP merges in or “incorporates by reference” the settlement agreement. And one might imagine OPM could require a settlement agreement if the order an applicant seeks to get treated as a COAP refers to the settlement agreement and the court’s order would or might be incomplete without the settlement agreement. A CSRS/FERS Application for Court-Ordered Benefits for Former Spouse [https://www.opm.gov/forms/pdf_fill/sf3119.pdf] suggests OPM’s reviews of domestic-relations orders might be based on such an interpretation: “Supporting documentation must be submitted with this application. . . . . Additionally, all documents referenced in the court orders must be included as well as . . . divorce decrees[.] Divorce decrees include . . . the Property/Marital Settlement Agreement[.] . . . .” (emphasis added). Beyond that, one might imagine OPM uses some beyond-the-rule practices. To help you consider whether OPM properly can require a settlement agreement not needed to make the State court’s order complete, ask yourself this: What documents would an applicant furnish had the divorcing litigants never agreed on a settlement and instead the State court decided the allocations of property between the former spouses? If your client is the former spouse, strongly prefers not to furnish the settlement agreement, and you believe OPM ought not to need the settlement agreement to decide that the State court’s order is a COAP (particularly if the order does not refer to the settlement agreement): Evaluate whether you as your client’s representative might submit an application that includes the State court’s order but omits the settlement agreement. If OPM finds the order is acceptable, your client will have a welcome answer. If OPM finds the order not acceptable, OPM must “provide the specific reason(s) for disapproving the application.” That might help you learn why OPM thinks a settlement agreement is needed. Or, if OPM’s finding (after all layers of within-the-agency review are exhausted) is capricious, that might set the stage for your client’s action for a Federal court to vacate OPM’s decision. This is not advice to anyone.

David Rigby, for many States’ and political subdivisions’ employee-benefit plans, an agency or instrumentality that administers a plan might be permitted or mandated to make plan-administration procedures by making and publishing a rule or regulation under an administrative-procedure act and other law that governs the government’s other executive agencies. So, writings an ERISA-governed plan’s administrator might call a claims procedure or a QDRO (or QCMSO) procedure might, if made for a governmental plan, be compiled in the State or local government’s code for rules and regulations. For some plans for Federal government employees, rules for a “Court order acceptable for processing” are compiled in the Code of Federal Regulations at title 5, chapter I, subchapter B, part 838 (Court Orders Affecting Retirement Benefits)—5 C.F.R. §§ 838.103 to 838.1121.

The topic you ask about is full enough that Derrin Watson wrote a whole treatise, and over 28 years has revised it. Who’s the Employer https://www.erisapedia.com/static/WTE.pdf. While it’s tempting to seek a shortcut, a plan’s sponsor, participating employer, or administrator wouldn’t know which organizations and businesses are in or out of “the employer” until checking everything. Consider limiting your scope to what affects the design and administration of the one retirement plan you work on. Consider warnings that your work must not be relied on about how discerning who’s-the-employer for the one plan you work on affects employee-benefits plans of other organizations and businesses an owner of your client owns, whether indirectly or even directly. This is not advice to anyone. If you need advice, consider Ferenczy Benefits Law Center.

While a plan’s administrator must read the documents governing the plan, many plans put compensation in the period in which it was or is paid. That often is so even if that’s not the period in which a worker’s service earned the compensation. That often is so even if the retirement plan’s measure is inconsistent with an employer’s accounting for when the compensation is the employer’s expense. If the plan’s provisions for defining compensation and putting it in a period result in compensation in a period in which the participant is not an employee or deemed employee, look to other plan provisions to discern whether a nonelective contribution is allocated. This is not advice to anyone.

Begin by reading, carefully, the plan’s definition of compensation, at least the definition for compensation to determine allocations of the nonelective contribution. Next, if relevant, consider when the check was drawn and when it was sent. If the distributee received the paycheck on Saturday, January 3, might the employer have paid that money in December? (Thursday, January 1, was likely not a business day, and Wednesday, December 31, was still 2025.)

A Treasury rule includes this: Q-13 Does a transaction or accounting methodology involving an employee’s designated Roth account and any other accounts under the plan or plans of an employer that has the effect of transferring value from the other accounts into the designated Roth account violate the separate accounting requirement of section 402A? A-13. (a) Yes. Any transaction or accounting methodology involving an employee’s designated Roth account and any other accounts under the plan or plans of an employer that has the effect of directly or indirectly transferring value from another account into the designated Roth account violates the separate[-]accounting requirement under section 402A. However, any transaction that merely exchanges investments between accounts at fair market value will not violate the separate[-]accounting requirement. 26 C.F.R. § 1.402A-1 https://www.ecfr.gov/current/title-26/section-1.402A-1.

DSG, in circumstances like those Santo Gold describes, it can be proper for an ERISA-governed plan’s administrator to wait until a claimant has submitted a claim. Then, the plan’s administrator (or its claims administrator, if the plan has such an allocation of fiduciary responsibilities) evaluates the claim. To do so, a fiduciary would follow the documents governing the plan (which almost universally include a default-beneficiary provision, often like the one Santo Gold quotes above), and would follow the plan’s written claims procedure.

In the circumstances you describe, it seems unlikely that a small-estate-affidavit regime would be effective to transfer title to real property. Or, even if a person acting under a small-estate-affidavit regime could transfer real property, the value of the decedent’s estate (counting all assets) might be more than a State’s small-estate limit. The IRS has directed EP examiners not to challenge a plan for a failure to meet a minimum-distribution provision when the plan’s administrator cannot identify the beneficiary. This is not advice to anyone.

To simplify an illustration, I deliberately left out expenses for initial and periodic valuations. About those expenses, the ERISA fiduciary questions and tax law nondiscrimination issues are similar. Would expenses for valuing the almond-ranch business be paid personally by, or charged against only the plan account of, the individual who directs that investment? If so, might such a condition for a directed investment disfavor nonhighly-compensated employees? Or if an expense is not borne by the directing individual alone, is it fair for others to be burdened with extra expense? And each year’s incremental expense for ERISA fidelity-bond insurance might be nontrivial in the small-plan context Dougsbpc describes. An insurer might require a bigger premium because the coverage limit is higher, or because the investment in the almond-farm business might involve ways of handling insured plan assets that lack some controls used regarding fund shares processed by a trust company or a registered investment company.

For an ERISA-governed retirement plan, a situation in which, without another valid beneficiary designation, the plan-provided default beneficiary is the personal representative of the decedent’s estate, the plan’s administrator decides what evidence persuades the administrator to approve a claim. A State’s law might be relevant in, and might support, an administrator’s fact-finding and decision-making about who is or isn’t a personal representative, and about whether the plan’s obligation to pay the decedent’s personal representative has been satisfied. Yet, the claims procedure and a fiduciary’s decision-making are governed by the documents governing the plan, including an ERISA § 503 claims procedure, and ERISA’s title I. Many administrators look for “letters testamentary” or “letters of administration”, or some other court order that grants or recognize a person’s authority to act for the decedent’s estate. And some administrators use further steps designed to test whether what’s presented as such a record or certificate is authentic or a forgery. Some administrators might act following a claimant’s small-estate affidavit if it meets the conditions under a relevant State’s law and meets any further conditions the plan or its administrator imposes. Other administrators do not consider a small-estate affidavit. (For a background, including views that might differ from some of my observations, see https://benefitslink.com/boards/topic/63408-does-a-plan-pay-on-a-small-estate-affidavit/.) If a plan’s administrator has not already done so, it should design, with its ERISA lawyer’s advice, a procedure for these situations—a procedure the administrator is ready to apply regularly, uniformly, and impartially, with no more than prudent plan-administration expense. An obedient and prudent fiduciary follows one’s claims procedure (except insofar as it’s contrary to ERISA’s title I or other Federal law). This is not advice to anyone.

Thought experiment: For a retirement plan that allows a participant to direct investment beyond designated investment alternatives and brokerage windows, consider whether the plan might require, uniformly, that the directing participant at her personal expense deliver to the plan’s administrator the US Labor department’s prohibited-transaction exemption or a written opinion, addressed to the administrator, of a law firm acceptable to the administrator, that a proposed investment involves no nonexempt prohibited transaction. Reciting the idea reveals the risk about tax law’s nondiscrimination condition: The IRS or a court might perceive the uniform condition as favoring some highly-compensated employees, who might have or get money to spend on lawyering, when many nonhighly-compensated employees might lack that financial capability. But if the would-be directing participant doesn’t bear the expense, who does? Would getting advice that each proposed investment involves no nonexempt prohibited transaction be a loyal and prudent plan-administration expense for the plan’s exclusive purpose? If it is a proper expense, how would the administrator allocate the expense among individuals’ accounts? Would it be fair that an individual who directs investment only in designated fund shares is charged a portion of expenses incurred because others seek question-raising investments? Or, if the legal-advice expenses are charged only among individuals who requested question-raising investments, does that raise nondiscrimination issues (even if at a different layer)? Despite a participant’s otherwise proper direction, a plan’s fiduciary must not invest if she knows or, using an experienced fiduciary’s “care, skill, prudence, and diligence”, would know that the investment involves a nonexempt prohibited transaction. So, someone has to pay for the needed lawyering—whether that’s serving as an applicant’s representative in a submission to the Labor department, or researching law and analyzing facts to write a lawyer’s opinion. If a plan’s administrator, trustee, or other fiduciary doesn’t get some legal comfort, how would she show she acted prudently?

Artie M, now I see your observation. An organization that otherwise might tolerate some risk about a tax treatment of an employee’s compensation might be more cautious about a director’s compensation, because the directors govern the organization. Likewise, the organization’s C-suite executives, including the general counsel, might seek to maintain the directors’ respect, trust, and good graces, and might find that doing so is in the organization’s proper interests. Also, an organization’s caution regarding a director’s risk might be influenced by knowing that some, many, or all the directors each engages one’s personal counsel, independent of the organization’s inside and outside counsel. Further, many law firms could face positional or issue conflicts (even if not conduct-violating, at least practically) if they would provide arguably inconsistent advice even to differently situated clients.

Many plan sponsors design one’s plan to follow this: 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B). Of the seven situations deemed an immediate and heavy financial need, EBP’s paraphrases are of –(B)(2) and –(B)(4).

Although a nonexecutive director of an organization is not its employee, one is a service provider. Much in the § 409A rules is conceptually similar whether the relationship is employee-employer or service provider and service recipient.

Thoughts about other ways: If the plan allows participant loans, might this participant prefer to borrow a needed amount, with an opportunity to repay over five years? If the plan provides (or might be amended to provide) a § 72(t)(2)(I) emergency personal expense distribution, might that be a partial fit for the participant’s needs? A distribution can be “for purposes of meeting . . . immediate financial needs relating to necessary personal or family emergency expenses.” I.R.C. (26 U.S.C.) § 72(t)(2)(I)(iv). Practically, this distribution is almost standardless, especially if the plan provides it on a participant’s self-certifying claim. Although $1,000 might be much less than the participant needs, it might be better than nothing. I.R.C. (26 U.S.C.) § 72(t)(2)(I) https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partII-sec72.htm. This is not advice to anyone.

Here’s another way to think about this: Which adviser advises which advisee? How confident must a conclusion be to serve one’s advisee’s purposes? How much must an adviser explain to steer clear of malpractice and negligent-communication risks? Recognize that tax law consequences for an employee or service provider might not be entirely aligned with consequences for an employer or service recipient. Recognize that an employee or service provider often does not get the employer’s or service recipient’s indemnity if a plan does not get a desired tax treatment.

Those rules to interpret § 401(k), § 414(v) generally, and § 414(v)(7) particularly presume a reader has at least awareness of many other tax law conditions for eligible retirement plans. The Treasury department did what they could with what Congress enacted.

For a reader who might explore the uses, here’s Internal Revenue Code § 401(b)(3) (as compiled in the United States Code): (3) Retroactive plan amendments that increase benefit accruals If— (A) an employer amends a stock bonus, pension, profit-sharing, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions (as defined in subsection (m)(4)(A))), (B) such amendment would not otherwise cause the plan to fail to meet any of the requirements of this subchapter, and (C) such amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof) which includes the date described in subparagraph (A), the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective. I.R.C. (26 U.S.C.) § 401(b)(3) https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartA-sec401.htm.

When I do a recordkeeper selection, I design the timeline so there’s eight months from the decision to the turn date. (Even if all needed tasks can be done in one month, there’s value in helping people feel comfortable with a change.) Timelines vary with a plan’s size and complexity, and with an employer’s size and complexity. Timelines also can vary with the conversion-out and conversion-in recordkeepers’ motives and how much they differ or align, or overlap.

Oops, no more than half . . . . , or just half.