Peter Gulia

For those of us who keep the CCH Pension Plan Guide hardbound volumes of before-1986 rulings, Revenue Ruling 81-10 is in the Pre-1986 IRS Revenue Rulings volume at ¶ 19,554. The ruling’s assumed facts describe an ongoing plan, not a discontinued plan. The ruling does not mention § 415’s annual-additions limit. Why does someone seek to allocate forfeitures to participants who lack compensation? If a forfeiture allocation—whether in relation to compensation, or to account balances—were restricted to participants with compensation in the limitation year in which the allocation is annual additions, are there not enough participants (or insufficient § 415 limits) to use the remaining forfeitures balance? This is not advice to anyone.

If a plan followed the IRS’s nonenforcement announcement, 2026 is the first year to apply a provision that a higher-wage participant’s age-based catch-up must be a Roth contribution. Whether a participant is § 414(v)(7)-burdened for 2026 turns on 2025 Social Security wages. Do BenefitsLink neighbors concur in my estimate that § 414(v)(7)’s $145,000 will be inflation-adjusted to $150,000 for 2025 Social Security wages that drive whether a participant is § 414(v)(7)-burdened for 2026?

In addition to the Bakers’ BenefitsLink posting, here in context is today’s Federal Register publication of the rulemaking. https://www.govinfo.gov/content/pkg/FR-2025-09-16/pdf/2025-17865.pdf This states the effective date (not any applicability date) is November 17. (When I counted 60 days from September 16, I didn’t look at a calendar and so didn’t see that November 15 is a Saturday.)

I don’t know whether EBSA’s software is smart enough to process as not an error the situation you describe. Consider attention to some details to help lower the risk of a query. Part 1 line B: “Box for First Return/Report. Check this box if an annual return/report has not been previously filed for this plan. For the purpose of completing this box, the Form 5500-EZ is not considered an annual return/report.” Form 5500-SF Instructions, page 8 left column. Does this suggest the software might be smart enough to see that an opening balance greater than $0 is not necessarily inconsistent with a first Form 5500-SF report because the preceding year might have permitted a Form 5500-EZ report (or none at all)? Part II line 1c: “the date the plan first became effective”. Part II line 5 about the counts of participants. While this might not prevent a query, a count of 1 or 2 might support an explanation that the plan was a one-participant non-ERISA plan for the preceding year. This is not advice to anyone.

If there are forfeitures unused, perhaps austin3515 didn’t bill enough. To find an allocation is good enough, let it be the administrator’s decision, not austin3515’s risk (however slight). Remember, a recordkeeper proclaims that it does not provide tax or other legal advice. And courts have followed those warnings and contract provisions, putting the responsibility and liability on the plan’s administrator. That said, I often favor letting a plan’s administrator (knowingly) accept risks, especially if an expense for advice would be disproportionate to the exposure. This is not advice to anyone.

Even if the suggested interpretation of ERISA’s title I and the Internal Revenue Code might be reasonable (and I don't suggest that it is), what does the plan’s governing document provide?

The statute, Internal Revenue Code § 414(v)(7), applies to contributions in a participant’s tax year that began or begins after December 31, 2023. (The Internal Revenue Service announced a nonenforcement for 2024 and 2025.) The Treasury’s rule “applies [assuming the rule is published on September 16 and becomes effective on November 15] to contributions in taxable years beginning after December 31, 2026.” For most participants that means 2027. “For prior taxable years [including 2026], a reasonable, good faith interpretation standard applies with respect to [I.R.C. §] 414(v)(7).” A Treasury rule might interpret the statute, but is not itself the source of the law.

"The final regulations do not extend or modify the administrative transition period provided under Notice 2023-62."

austin3515, thank you for your helpful observations. I can use them to improve my advice. A fiduciary deciding a default target-year fund for a class of individuals might know nothing about any individual beyond the common fact of the year in which they were born. So, even if a fiduciary considers mortality or longevity, it’s for the class of participants born in a year. And guessing an age at which an imagined person “plan[s] to retire and leave the workforce” might involve a range of plausible assumptions.

Observe that the rule’s applicability dates refer to “taxable years”—a participant’s tax year.

How much of what the plan sponsor seeks might be accomplished by setting as allocation conditions for a nonelective or matching contribution 1,000 hours of service in the year and employed on the last day of the year? (I ask this as an open-ended question; I don't know the workforce Connor describes or why the plan sponsor seeks to restrict reentry.)

Artie M. and Paul I, thank you for helping me. That a person is highly educated or is a knowledge worker (or is both) doesn’t always mean one knows how to select investments. Or, someone who does know might choose, whether rationally or otherwise, not to put one’s time on that activity. Moreover, even if 99% of the participants deliver affirmative investment directions, a plan’s fiduciary might set a default for the 1% who don’t. And should have a reasoning for the default one sets. In my not-so-hypothetical, the fiduciary that selected the menu of designated investment alternatives also is the fiduciary that must decide the default investment. The target-year funds’ investment strategy described above is from a disclosure for the Vanguard Target Retirement Trust funds. Those funds’ disclosures don’t say ‘this fund is for someone who will turn 65 (or some other age Vanguard assumed) in or near the target year.” Rather, Vanguard says: ‘The fund invests according to an asset-allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 20yy (the target year).’ If an individual affirmatively directs investment, the individual may decide her guess of when she expects to leave the workforce. But for a default-invested participant, the plan’s fiduciary must form its estimate or assumption. If the fiduciary that decides which target-year fund in the set is a participant’s default assumes that the collective trustee’s description of the funds is truthful, I’m imagining it might be prudent to follow that description’s logic. While that way is not the only way to meet 29 C.F.R. § 2550.404c-5, it at least has an explainable logic. And all it asks of the default-deciding fiduciary is to form a reasoned guess about when a typical default-invested participant leaves the workforce.

Paul I, thank you. In my hypo, the fiduciary has selected which manager’s set of target-year funds are included in the plan’s designated investment alternatives. The fiduciary’s remaining decision is about how to sort a default-invested participant into a target year. I’m imagining a fiduciary might find it’s prudent to use a target-year fund as the fund was designed to be used. (My hypo’s invented quotation about a fund’s investment strategy is adapted from a disclosure of the collective investment trusts of the investment manager with the biggest market share for target-year funds.) Many fiduciaries’ defaults seem to aim at age 65 as a presumed normal retirement age. But for many individual-account retirement plans, ERISA § 3(24)’s construct of a normal retirement age has almost no practical effect. BenefitsLink neighbors, even if 65 might approximate a retirement age for the U.S. general population, would you use a different assumption if you know the workforce you’re planning for all are highly educated knowledge workers? If so, what age would you assume for the target?

The fiduciary is considering setting which target year applies to a default-invested participant by assuming a few might plan to leave the workforce or otherwise begin a payout as young as 73 (even if most people work a few years longer). Thus, a participant born in 1997 (now 28) would be defaulted into the 2070 fund. A participant born in 1962 (now 63) would be defaulted into the 2035 fund. Can anyone suggest a reason why the fiduciary should not decide that?

It might be too hard even to think about a question like this. The expense for even a short bit of a professional’s time to consider even a partially reasoned course of action might be horribly disproportionate to the probability-discounted risk exposure. This is not advice to anyone.

Imagine the responsible fiduciary of an individual-account retirement plan with participant-directed investment decides to use a set of target-year funds for the plan’s qualified default investment alternative. Each of those funds describes its investment strategy with this: “The fund invests according to an asset-allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 20yy (the target year).” How should a fiduciary select the age at which a default-invested participant is assumed to leave the workforce? 60? 62? 65? 67? 70? 73? Assume the fiduciary does not know when the plan’s participants leave the workforce because almost all people who leave the employer go to work for another employer. If the fiduciary knows that the plan’s participants all are knowledge workers, does that suggest anything about what leaving-work age the fiduciary ought to assume? Whatever else a fiduciary might consider, is there some advantage to falling in with a recordkeeper’s norm? Do recordkeepers have a norm? Am I imagining a choice a plan’s fiduciary doesn’t practically have because a recordkeeper will require its customer to use the recordkeeper’s regime for sorting default-invested participants?

Consider also which plan pays a corrective distribution. Your client might have a preference.

And read carefully (if completed), or negotiate, the business-deal documents’ provisions about employee-benefit plans. For example, even if nothing in ERISA or the Internal Revenue Code precludes merging an acquiree’s plan into an acquirer’s plan, an acquirer might be unwilling to allow a merger of plans.

About 3½ years after this discussion left off, have tools for computing the required lifetime-income illustrations developed?

Might a fiduciary-decided investment portfolio be “invested in accordance with the requirements of [29 C.F.R. §] 2550.404c-5”? (Observe that the statute’s text does not use the term qualified default investment alternative.) The referred-to rule allows: “An investment fund product [sic] or model portfolio that applies generally accepted investment theories, is diversified so as to minimize the risk of large losses[,] and that is designed to provide long-term appreciation and capital preservation through a mix of equity and fixed income exposures consistent with a target level of risk appropriate for participants of the plan as a whole. For purposes of this paragraph (e)(4)(ii), asset allocation decisions for such products and portfolios are not required to take into account the age, risk tolerances, investments or other preferences of an individual participant. An example of such a fund or portfolio may be a “balanced” fund.” 29 C.F.R. § 2550.404c-5(e)(4)(ii) https://www.ecfr.gov/current/title-29/part-2550/section-2550.404c-5#p-2550.404c-5(e)(4)(ii). If a plan does not provide participant-directed investment and instead provides a common investment for all participants, beneficiaries, and alternate payees, wouldn’t a fiduciary seeking to meet its responsibility under ERISA § 404(a)(1)(B)-(C), including diversification and impartiality, invest for a similar balance? The statute provides: “An eligible automatic contribution arrangement meets the requirements of this paragraph if amounts contributed pursuant to such arrangement, and for which no investment is elected by the participant, are invested in accordance with the requirements of section 2550.404c-5 of title 29, Code of Federal Regulations (or any successor regulations).” Internal Revenue Code of 1986 (26 U.S.C.) § 414A(b)(4). The Treasury’s proposed interpretation states: “An eligible automatic contribution arrangement satisfies the requirements of this paragraph (c)(4) only if amounts contributed pursuant to the arrangement, and for which no investment is elected by the employee, are invested in accordance with the requirements of 29 CFR 2550.404c-5 (or any successor regulations).” Proposed 26 C.F.R. § 1.414A-1(c)(4). Neither text limits the phrase “no investment is elected by the participant”. And neither text describes, at least not expressly, a context in which such a fact condition might occur. Couldn’t the fact condition the phrase describes result because the plan does not provide for a participant’s investment direction? And in that situation, would Internal Revenue Code § 414A(b)(4) be met if the fiduciary-decided portfolio is sufficiently balanced? This is not advice to anyone.

RatherBeGolfing, thank you for the information about identifying a distributee. For a participant’s, beneficiary’s, or alternate payee’s address change that would be instructed by a person other than the plan’s administrator, what identity controls does a service provider use to find that the change is requested by the individual whose address would be changed? Is it only about entry to the recordkeeper’s or third-party administrator’s computer system? Or are there other steps? If an individual seeks an address change by paper rather than in a computer system, what steps?

If the employer affiliates with the Colorado Public Employees’ Retirement Association’s PERAPlus § 457(b) plan, PERA has set the plan’s provisions. If State law grants the employer a power to establish and maintain a distinct plan, the employer must follow the restrictions of the Colorado statutes that so enable the employer and Colorado laws that burden the employer. Consider that Colorado law differs based on the exact local, county, municipal, special-district, or other government, or its agency or instrumentality. A State or local government employer’s § 457(b) plan typically sets no eligibility conditions beyond being an employee. Typically, entry is the next pay date after the employer has processed the employee’s wage-reduction agreement. If State law authorizes and the employer provides a nonelective or matching deferral, those eligibility and entry provisions might differ from those for wage-reduction deferrals. Whether a governmental § 457(b) plan must allow long-term-part-time employees to make elective deferrals turns on State law. Even if State law does not preclude an exclusion of part-time employees, many governmental employers find little reason to set an exclusion for wage-reduction deferrals that do not affect the employer’s budget. This is not advice to anyone.

A hyperlink above points to the statute’s text. BenefitsLink neighbors, am I right in guessing there is no Treasury rule to interpret that paragraph of the statute? Likewise, is there an absence of IRS guidance. If so, a taxpayer might follow its interpretation of the statute.

Every plan I’ve seen turns off distributions for a period after an address change. An ERISA rule allows a plan’s administrator to treat this as not a blackout if the plan’s regular restriction had been disclosed to possibly affected participants, beneficiaries, and alternate payees. 29 C.F.R. § 2520.101-3(d)(1)(ii)(B) https://www.ecfr.gov/current/title-29/part-2520/section-2520.101-3#p-2520.101-3(d)(1)(ii)(B). This is not advice to anyone.

Thank you again, especially for the wider observation. At least since World War II, tax law has favored specified kinds of pension, health, other welfare, education, and fringe benefits over money wages. And that has resulted in distortions in how businesses and other employers compensate (and even hire) workers.