Peter Gulia

BG5150, thank you for the reminder to look into already published administrative law. If all is adjusted before a W-2 wage report is filed or furnished, might one say there is no failure that calls for even a self-correction?

Is this benefit provided under an employment-based employee-benefit plan? If so, is the plan ERISA-governed? If so, one presumes the plan’s trustee or administrator must administer one’s responsibility “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title [I] and title IV.” ERISA § 404(a)(1)(D). Is the death benefit provided by a life insurance contract, from the plan’s trust, or from an employer’s assets? Is there a written plan? If there is a life insurance contract, does the written plan make the life insurance contract a part of the plan such that the life insurance contract also is in the writings “governing the plan”? Of “the documents and instruments governing the plan”, do they state a provision about an unlocated beneficiary? Do the documents state or omit a provision for giving up a beneficiary’s death benefit? If there is a forfeiture provision, in what circumstances does it apply? Without a supporting plan-document provision, I would be reluctant to deprive a participant-named beneficiary of a death benefit merely because the plan’s administrator has not located the beneficiary. Does the plan set a time limit on a beneficiary’s claim for the benefit? Does the plan set a time by which a death benefit must be paid, even as an involuntary payment? This is not advice to anyone.

Anyone with a different view?

QDROphile, thank you for your helpful and thought-provoking explanation.

Requiring that a claim be signed in the presence of a notary or under a medallion signature guarantee program might help guard against a forgery. But a plan’s administrator might prefer to follow its procedures, including its claims procedure and other plan-administration procedures. A procedure might call for a witness to a signature if the claim would result in a payment more than $100,000 or some other specified amount. If not a standard like that, could an administrator defend its requirement as no more burden than is imposed on a similarly situated claimant? Or, if the “similarly situated” is that the administrator requires a witness whenever the administrator suspects a more-than-normal probability of a false claim, what factors does the administrator use to discern that probability? Is that discretion so wide that the administrator lacks an impartial procedure? Might too much burden on presenting a claim mean that the administrator lacks a fair procedure? This is not advice to anyone.

The Treasury’s rule to implement § 414(v)(7)’s requirement that a higher-wage participant’s age-based catch-up deferrals must be Roth contributions includes this: “Permitted correction on Form W–2. A plan may correct a section 414(v)(7) failure by transferring the catch-up contribution (adjusted for earnings and losses in accordance with § 1.402(g)–1(e)(5)) from the participant’s pre-tax account to the participant’s designated Roth account and reporting the contribution (not adjusted for earnings and losses) as an elective deferral that is a designated Roth contribution on the participant’s Form W–2 for the year in which the elective deferral was originally excluded from the participant’s gross income. However, this correction method may be used only if the participant’s Form W–2 for that year has not been filed or furnished to the participant.” 26 C.F.R. § 1.414 (v)–2(c)(2)(ii) (final and effective, but not yet compiled). I’m wondering whether a plan’s administration may do the converse: for deferrals that need not have been processed as Roth contributions, transfer that amount (adjusted for investment gain or loss) to the participant’s non-Roth subaccount and wage-report deferral amounts accordingly (if all steps are complete before W-2s run). The Treasury’s rule doesn’t explicitly say so. Yet, it seems logical and within proper plan accounting. But I hope BenefitsLink neighbors would spot weaknesses in my logic. Here’s my hypo: A plan has only elective deferrals, no nonelective or matching contribution. The plan excludes key employees and highly-compensated employees. The plan provides no limit on elective deferrals beyond what’s needed for the plan to tax-qualify. Suppose a 62-year-old § 414(v)(7)-affected participant has specified non-Roth for all her deferrals (and, despite the employer/administrator’s efforts, has not communicated anything about her preference regarding 2026’s Roth catch-up constraint). Her instruction for deferrals—specified by dollar amount, not a percentage of any measure of compensation—is $1,375 each pay. Her deferrals for the year’s first 17 (of 26) pays are within the without-catch-up limit. The 18th pay would have most of its deferral allocated to the normal limit, but some to catch-up. And pays 19-26 would be wholly allocated to catch-up. Imagine the employer, fearing a § 414(v)(7) failure, mistakenly stops this participant’s non-Roth deferrals sooner than is necessary and, applying what the administrator assumes is a deemed election, treats as Roth contributions some of what could properly be non-Roth deferrals. The participant, still inattentive, ignores the employer/administrator’s communications. On Friday, January 1, 2027, the participant (following her New Year’s Day custom) checks, online, her plan account, and sees the unrequested amounts in Roth subaccounts. On Saturday, she asks her friend, an associate in a law firm’s employee-benefits practice, about this. After hearing him explain the essence of § 414(v)(7), she explains she prefers non-Roth, and wants to tolerate Roth only for a deferral that can’t be made as non-Roth. He suggests, cautiously, that she ask her employer whether it will adjust amounts between the Roth and non-Roth subaccounts. On Monday, the participant calls her employer. The payroll and human-resources managers both are willing to do adjustments and complete them before W-2s are run, but only if the retirement plan’s third-party administrator says it would be proper. BenefitsLink neighbors, would you suggest allowing such a Roth to non-Roth transfer? What issues am I missing?

QDROphile, since I so often am largely in harmony with your clear-minded observations about ways to administer employee-benefit plans, I hope you’ll teach me your reasons about why it’s unwise to name “the employer” as an employee-benefit plan’s administrator. Assuming a typical situation in which no outside service provider will serve, is your suggestion that the governing documents ought to name a particular human or set of humans? Or is your idea more than that? Is limiting the oversight responsibility of the employer’s governing body a part of your reasoning? Is an element of your reasons that naming “the employer” could set up a claimant’s argument that she reasonably believed the person she received a written (including emailed or texted) or oral statement from was someone with implied authority to act for “the employer” as the plan’s administrator? Do you have further or different reasons about why it’s unwise to name the employer as the plan’s administrator? I’m seeking to learn (likely about situations I have not experienced).

For each previously written provision the plan sponsor now considers incorrect or unintended, is the to-be-amended provision more or less favorable to a participant than what the documents governing the plan now state?

You’ve spotted a real issue that calls for attention to § 409A.

Might a signing bonus not be available until a not-yet employee has signed and become bound by the “separate agreement” California Business and Professions Code § 16608(b)(2)(D)(i) requires to set up a § 16608(b)(2)(D) exception to § 16608(b)(1)? Recognizing that “[t]he worker has an option to defer receipt of the payment to the end of a fully served retention period” [§ 16608(b)(2)(D)(iv)], could the agreement include the not-yet employee’s exercise (or nonexercise) of that option and election, irrevocable, specifying the date or dates of the employer’s payment obligation? If these are so, might the obligee have no legally enforceable right to a signing-bonus payment until its agreed payment date? Might the employer’s obligation be set by the separate agreement?

In my experience, almost all business lawyers suggest bringing in an employee-benefits lawyer—even when working on a micro deal. Often, a client rejects that advice, does not engage an eb lawyer or consultant, and does not authorize the business lawyer to engage an eb lawyer or consultant. Also, some sellers and some buyers keep the deal-making secret from even one’s regular advisers, including some who might bill nothing for useful help. Bad consequences result, but it might not be the fault of a lawyer or other professional.

I hope your seventh book will be the music notation and lyrics of your songs about the law of retirement plans.

Controls about identity or authority might call for different methods when none of the communication is face-to-face.

If the buyer bought shares, LLC interests, or partnership interests of the seller organization such that the buyer now governs the seller organization, the buyer may decide what to do with the seller organization’s retirement plan. If the buyer bought assets from the seller organization (and not shares or other interests of the seller organization), the seller organization, acting by whoever has power to act for it, decides what to with its retirement plan. This is not advice to anyone.

If the documents governing the plan provide no more than is needed to meet § 401(a)(9): “The account balance is increased by the amount of any contributions or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date. For this purpose, contributions that are allocated to the account balance as of dates in the valuation calendar year after the valuation date, but that are not actually made during the valuation calendar year, may be excluded.” 26 C.F.R. § 1.401(a)(9)-5(b)(2)(i) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-5#p-1.401(a)(9)-5(b)(2)(i).

If the key reason your client is thinking of dissolving a company is so the company and other business organizations are not treated as one § 414 employer, your client might reevaluate. In 2001, Congress recognized that an employer’s contribution to a retirement plan for a household employee is nondeductible if the contribution is not made for a trade or business. See Internal Revenue Code of 1986 (26 U.S.C.) § 4972(c)(6)(B) https://www.govinfo.gov/content/pkg/USCODE-2023-title26/pdf/USCODE-2023-title26-subtitleD-chap43-sec4972.pdf. I.R.C. § 414(c) refers to “employees of trades or businesses (whether or not incorporated) which are under common control[.]” If the LLC and its household employee do no work for a trade or business, there might be no need to treat the LLC as a part of the same employer as the businesses the owner controls. Consider whether the LLC might establish a § 408(k) SEP or a § 408(p) SIMPLE for its household employee. As always, get one’s lawyers’ advice. This is not advice to anyone.

A caution for others who might do one or both sorts for who might be § 414(v)(7)-affected: An employee who’s 49 at the beginning of a year might turn 50 by the end of the year.

If a portion of the settlement might be “back pay” for wages (or, arguably, self-employment income) that would have happened had the claims complained-of not happened, there might be some opportunities for applying a participant’s elective-deferral election, matching or nonelective contributions (to the extent the plan provided), and years of service (possibly for eligibility, benefit accrual, and vesting). “Back pay. Payments awarded by an administrative agency or court or pursuant to a bona fide agreement by an employer to compensate an employee for lost wages are compensation within the meaning of section 415(c)(3) for the limitation year to which the back pay relates, but only to the extent such payments represent wages and compensation that would otherwise be included in compensation under this section.” 26 C.F.R. § 1.415(c)-2(g)(8) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-2#p-1.415(c)-2(g)(8). But the details of how to write the settlement agreement; how to allocate amounts to particular plan, limitation, and tax years; and how to time and document elections are tricky. And there are other employee-benefits issues. If your client does not have a regularly engaged employee-benefits lawyer or that lawyer wants to add one who is specially knowledgeable for this situation, Bradley Horne (Super Lawyers Rising Stars: 2024, 2025, 2026) at Smith & Downey has a developed knowledge of how to handle the retirement, health, and other employee-benefit plans’ aspects regarding settlements of employment-related disputes. https://www.smithdowney.com/professionals/bradley-j-horne/

BenefitsLink neighbors can tell us if I’m guessing wrong, but I guess the conventional approach is to treat the plan as having the provision needed to tax-qualify the § 401(k) arrangement, then recognizing a failure to administer that assumed-in provision as an operational failure.

Jakyasar seems to describe a situation in which, at least for 2026, no participant will be constrained to make age-based catch-up contributions as Roth contributions because no participant will have had 2025 Social Security wages more than $150,000. BenefitsLink mavens, if the plan sponsor is confident no participant will be § 414(v)(7)-constrained to make catch-up deferrals only as Roth contributions, do you think it’s safe for such a plan sponsor to omit a Roth-contribution provision?

My observation was only about what tax law tolerates for when the § 414A-needed automatic-contribution provisions must be stated in what tax law imagines as “the” written plan. Among the conditions of the legal fiction of the remedial-amendment period is that “the plan or contract is operated as if such [delayed, but retroactive] plan or contract amendment were in effect[.]” SECURE 2022 § 501(b)(2)(A). So, a plan’s administrator must administer the plan according to the administrator’s prudent assumption about what the later-amended plan is deemed to have provided retroactively. If that didn’t happen, pursue corrections. For a convenient reference to C.B. Zeller’s pointer, my note above cites Notice 2024-2 and gives the particular hyperlink. (Because the IRS ended printing the weekly Internal Revenue Bulletins, https://www.irs.gov/irb is the official source.) This is not advice to anyone.

Many § 403(b) plans lack a service provider that’s obligated to inform the charity about a perception or suspicion that the plan’s elective-deferral arrangement does not meet § 414A.

Internal Revenue Code § 414A(a)(1) provides: “[A]n arrangement shall not be treated as a qualified cash or deferred arrangement described in section 401(k) unless such arrangement meets the automatic enrollment requirements[.]” A plan might be amended to remove automatic-contribution provisions if the plan is amended to omit an elective-deferral arrangement. But how many plan sponsors want a plan only for an employer’s nonelective contributions?

If the plan was not established before December 29, 2022 (or the plan’s elective-deferral arrangement began on or after December 29, 2022), the plan is neither a governmental plan nor a church plan, and neither the new-employer nor the small-employer exception applies: Are you sure there is, for tax-treatment purposes, a plan-document failure? If the plan provides an automatic-contribution arrangement because the employer presumes it will amend, retroactively, the written plan to meet Internal Revenue Code § 414A’s tax-treatment condition, shouldn’t such an amendment be within Congress’s (SECURE 2022) and the IRS’s remedial-amendment period? IRS, Miscellaneous Changes Under the SECURE 2.0 Act of 2022, Notice 2024-2, 2024-2 I.R.B. 316, 332-333 (Jan. 8, 2024), at Q&A-J1., https://www.irs.gov/pub/irs-irbs/irb24-02.pdf.

For anyone who might help cheersmate reason through those questions, here’s the final rule: https://www.govinfo.gov/content/pkg/FR-2025-09-16/pdf/2025-17865.pdf. The rule paragraphs cheersmate mentions [26 C.F.R. § 1.414(v)–2(b)(2)-(3)] are on page 44549 [page 23 of 27 in the pdf].