Peter Gulia

David Rigby, thank you for your kind words. To my list of process-oriented law and fact questions a plan’s administrator might consider (even if one assumes Brian Gilmore’s observation sets a likely administration), I’ll add a suggestion: If a request from the participant or from the spouse or former spouse even arguably might be a claim, the plan’s administrator might consider following ERISA § 503 and the plan’s claims procedure, with careful attention to who bears a burden of producing evidence of a relevant fact or status (including, for example, the existence or end of a marriage), and with careful communication about a decision, especially one adverse to the claimant. In my experience (although I concede my experience is with retirement plans, not health plans), inviting a frustrated or disappointed person to invoke a process designed to allow someone to be heard and to channel decision-making often helps manage the frustration or disappointment. Some people recognize that one has no useful evidence to present. Others submit something and, even if still disappointed after an adverse decision, feel heard. (A few won’t be helped, no matter how skillful and tactful the administrator is.) And it’s much easier to defend, if need be, a plan administrator’s decision if due process was had. As ever, this is not advice to anyone.

Even when a TPA provides services it says are nondiscretionary with no tax or other legal advice, some TPAs prefer not to be associated, even with nothing more than computer processing, with a plan administrator’s Form 5500 report the TPA feels states inappropriate information. Other TPAs prefer to follow the plan administrator’s instruction, deliberately saying nothing about whether it’s right or wrong (even if it’s unambiguously wrong). Some TPAs look for a context-sensitive ground between those points. How a TPA sorts itself in those themes might involve questions on which a TPA wants its lawyer’s advice. Consider too that advice to a TPA about how to handle these situations might vary with an understanding of the advisee’s business goals, customer relationships, other business relationships, regulatory relationships, operating circumstances, legal and practical liability exposures, reputation aspects, and other facts and assumptions.

Thank you for that context explanation. If you are the successor TPA, you might want your lawyer’s advice about ways to protect yourself.

Here are some questions a plan’s administrator and its lawyer might consider to discern the situation: Does the health plan allow a participant to choose coverage for one’s spouse. (Not all do, but your description about “remain covered” suggests the plan allows coverage for a participant’s spouse.) If the plan allows coverage for a spouse, who decides whether to elect or omit that coverage? The participant? Even if there might be a court’s order that commands the participant to do (or refrain from doing) something, is there any court order that commands the plan’s administrator? Do the health plan’s governing documents specify who is or isn’t a spouse? Does a plan provision do anything more than refer to the status of spouse under public law? (For example, a plan might define the status more narrowly than by reference to public law alone.) Is the plan ERISA-governed? Or is it a non-ERISA church plan? Or a governmental plan? Does the health benefit involve a health insurance contract (not counting a stop-loss insurance contract)? If so, does the health insurance contract define who is or isn’t a spouse? Does the court that ordered the divorce have or lack personal jurisdiction over the plan’s administrator? Does the court that ordered the divorce have or lack personal jurisdiction over the health insurer (if any)? Has the participant taken any action to remove the participant’s spouse or former spouse from the coverage? If the participant did something, does it fit the plan’s provisions against mid-year changes, including provisions designed to follow the Internal Revenue Code § 125? Has the plan’s administrator received the domestic-relations court’s order granting the divorce? If what the administrator received is not an original or a court-certified copy, has the administrator done something to confirm the true document? Does the court order’s text state anything about when it is or becomes effective? If relevant (it might not be), what does the State’s law provide about the effect of an appealed-from court order? Does the appeal assert that the conditions for granting a divorce were not met? Or is the appeal only about economic or other matters (and not about whether the conditions for a divorce were met)? Even if the plan’s administrator is confident about all the facts and law suggested by these and other questions, it still might be smart to lawyer-up. Also, a plan’s administrator might want its lawyer’s advice about proper steps to avoid or defeat a State court’s jurisdiction. Or, if the plan’s administrator is served for a State court’s proceeding, to remove any action against the administrator to a Federal court, preferably the particular court, venue, and forum specified by the plan’s exclusive-forum provision.

Nic Pospiech’s question shows why a plan’s administrator ought to read, carefully, a third-party administrator’s draft of a Form 5500 report. Unless the service provider has discretionary authority and in writing accepted an allocation of fiduciary responsibility for the reporting, the plan’s administrator is responsible. (I’m not saying that different reporting would have been proper, only that the administrator lost an opportunity to consider, initially, the reporting.)

You’re right that politicians’ misleading expressions were deplorable.

austin3515, your second point shows why we should read the statute. (c) QUALIFIED OVERTIME COMPENSATION.— (1) IN GENERAL.—For purposes of this section, the term ‘qualified overtime compensation’ means overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed. (2) EXCLUSIONS.—Such term shall not include any qualified tip (as defined in section 224(d)). Internal Revenue Code of 1986 § 225(c), added by An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14, Pub. L. No. 119-21 § 70202(a) (July 4, 2025), 139 Stat. 72, 174 (2025), available at https://www.govinfo.gov/content/pkg/PLAW-119publ21/pdf/PLAW-119publ21.pdf [pdf page 104 of 331].

I don’t yet know anything about how the Treasury department or its Internal Revenue Service might interpret Internal Revenue Code § 224 (Qualified tips) or § 225 (Qualified overtime compensation). I.R.C. (26 U.S.C.) § 224 http://uscode.house.gov/view.xhtml?req=(title:26%20section:224%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section224)&f=treesort&edition=prelim&num=0&jumpTo=true I.R.C. (26 U.S.C.) § 225 http://uscode.house.gov/view.xhtml?req=(title:26%20section:225%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section225)&f=treesort&edition=prelim&num=0&jumpTo=true Neither provides an exclusion from any measure of wages. Neither provides an exclusion from gross income. Each provides a deduction. But I see the possibility of a difficulty. If the IRS might publish a form, instruction, other guidance, or an interpretation that could result in a plan provision some plan sponsors don’t intend, perhaps someone might persuade the Secretary of the Treasury (who now acts as the Commissioner of Internal Revenue) to treat that effect as a “disqualifying provision that [i]s integral to a qualification requirement of the Internal Revenue Code that has been changed”, and so allows a remedial-amendment period. 26 C.F.R. § 1.401(b)-1(b)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(b)-1#p-1.401(b)-1(b)(3)(ii). This is not advice to anyone.

A three-judge panel of the United States Court of Appeals for the Fifth Circuit holds [2-1] that the U.S. Constitution’s Quorum Clause does not require physical presence. The appeals panel’s majority reasons: The enrolled-bill rule does not preclude reaching the Quorum Clause challenge. That “Each House may determine the Rules of its Proceedings” does not negate an Article III court’s duty to decide a question of law about the meaning of the Quorum Clause. The Quorum Clause [art. I, § 5, cl. 1] does not require physical presence. Texas v. Bondi, No. 24-10386 (5th Cir. Aug. 15, 2025), available at https://www.ca5.uscourts.gov/opinions/pub/24/24-10386-CV0.pdf and https://www.govinfo.gov/content/pkg/USCOURTS-ca5-24-10386/pdf/USCOURTS-ca5-24-10386-0.pdf. If nothing intervenes, the mandate is scheduled to issue on October 6, 2025. I’ve not yet read anything about whether any litigant will seek rehearing en banc. Nor guessing about whether nine of the circuit’s 17 active judges would vote to hear the case. If the panel’s majority opinion becomes a published opinion and becomes a precedent of the Fifth Circuit (affecting courts for the nine districts of Louisiana, Mississippi, and Texas), it would be no more than persuasive authority for other appeals courts and their districts.

Recognize that the employee or service provider might have interests and preferences that might not be wholly aligned with those of the employer or service recipient. Each should want separate counsel. Also, one might wonder about how “executive” a select-group participant is if she neglects to collect on her contract right to a six-figure amount. This is not advice to anyone.

Whether a member’s K-1 from a limited-liability company reports income items, loss items, or some of each kind doesn’t necessarily tell you the fair-market value of the member’s LLC interests. If the LLC is taxed as a partnership, remember that different members of a limited-liability company might have different interests. One member might have only a guaranteed-payment right. Another member might have an income interest but no loss interest. Yet another member might bear loss interests, including those not borne by other members. Even if the whole company has a year’s loss or several years’ losses, that by itself does not mean that a particular member’s LLC interests lack value, or even that capital interests lack value. If an asset is not regularly traded on an exchange, doesn’t a third-party administrator rely on what the plan’s administrator says is the value?

An implied-assent default election (with an opt-out) makes most sense after the § 414(v)(7)-affected employee (not an unaffected self-employed individual) has not responded to the plan administrator’s repeated efforts to get the participant’s affirmative election. (Some of us are planning for workforces with hundreds or even thousands of § 414(v)(7)-affected employees, which inevitably will have some nonresponses. A smaller employer might have fewer employees to reach. And remember, a partner or other self-employed individual is unaffected.) Some employers might not apply a default election until the without-catch-up deferral limit is exhausted. For some employees, that might not happen until August or September 2026. Imagine an age 60-63 employee wants 2026 deferrals of $36,500 (2026 est.), is paid on a 24 pay cycle (the 15th and the last day of each month), and instructs $1,520.83 per pay. The first 16 pays would be within the without-catch-up limit, so the first $24,500 (2026 est.) won’t be exhausted until the 17th pay—September 15. Yet, for some employees, a deferral exceeding $24,500 (2026 est.) could happen as soon as January.

Los Angeles Dep’t of Water & Power v. Manhart, 435 U. S. 702, 708, 709-711 (Apr. 25, 1978) (“Even a true generalization about the class is an insufficient reason for disqualifying an individual to whom the generalization does not apply.”) (An employer violated Title VII by requiring its female employees to make larger contributions to a pension fund than male employees to obtain the same monthly benefits upon retirement.) (Congress decided that classifications based on sex, like those based on national origin or race, are unlawful.), https://tile.loc.gov/storage-services/service/ll/usrep/usrep435/usrep435702/usrep435702.pdf. Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v. Norris, 463 U.S. 1073, 1081, 1084 (July 6, 1983) (“[T]he classification of employees on the basis of sex is no more permissible at the pay-out stage of a retirement plan than at the pay-in stage.”) (“The use of sex-segregated actuarial tables to calculate retirement benefits violates Title VII whether or not the tables reflect an accurate prediction of the longevity of women as a class[.]”), https://tile.loc.gov/storage-services/service/ll/usrep/usrep463/usrep4631073/usrep4631073.pdf.

But how, if at all, does an employer tax-report (for any purpose) a cash tip the employer never saw and the employee never reported to her employer? Some employers estimate unreported-to-the-employer cash tips by extrapolating from records of bank-card tips, but some might not. And there might be some kinds of employers and employees for whom cash tips are the only kind. (Some businesses don’t accept bank-card payment.) As always, read carefully the plan’s governing documents for each definition for each measure of compensation. Consider also that the new Federal law is not an exclusion from gross income; it is a deduction from income in an individual’s tax return. The deduction does not affect any Federal tax law measure of wages, not even Federal income tax wages.

Others might suggest a conference. For a book, whether print or electronic, that covers needed information (without wasting your attention on stuff you’re unlikely to need), Brian Pinheiro’s Employee Stock Ownership Plan Answer Book (Wolters Kluwer) is useful.

I meant only that a recordkeeper might not have performed its services on amounts that didn’t pass through the recordkeeper’s processing. If so, the recordkeeper might not have cross-checked what was or wasn’t done by another service provider. And reading into your description of the situation, I imagined that the plan’s sponsor/administrator might not have skillfully or completely controlled the services the plan needs. If the sponsor/administrator had a mistaken assumption about tax-reporting life insurance, what else might they have missed? Who tested whether the life insurance met the incidental limits? Did anyone test whether prohibited-transaction exemptions were met? Might a predecessor service provider have been less capable than AlbanyConsultant? If a third-party administrator or the plan’s administrator provides the services needed but not done by the recordkeeper, that might meet the plan’s needs.

If you prepare or assemble more than a few Form 5500 reports consider A. Paul Protos’s 5500 Preparer’s Manual.

“Robert Choi, the leader of tax-exempt and government entities division, . . . , also [was] put on [administrative] leave.” Erin Slowey, Three Top IRS Leaders Put on Leave in Second Wave of Removals, Bloomberg Daily Tax Report (Aug. 16, 2025, 12:42 PM EDT).

My guess was based on imagining that the § 401(a)(9) statute’s and rule’s reference to § 416 might bring in the whole of § 416, including § 416(g)(4)(C)(i) about the determination date being the last day of the preceding year. Internal Revenue Code § 401(a)(9)(C)(ii)(I) refers to the whole section, not a particular subsection, paragraph, subparagraph, clause, or subclause. Not § 416(i)(1)(A)(ii), and not § 416(i)(1)(B)(i). Also, I’m imagining the text-interpretation aids that every phrase ought to bear meaning, and that a different usage suggests a difference in meaning. Internal Revenue Code § 401(a)(9)(C)(ii)(I) speaks “of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age[.]” Internal Revenue Code § 414(q)(2) provides: “An employee shall be treated as a 5-percent owner for any year if at any time during such year such employee was a 5-percent owner (as defined in section 416(i)(1)) of the employer.” If to determine a minimum-distribution 5%-owner Congress meant “at any time during” the applicable-age year, an interpreter might presume Congress would have said so; they knew how, because they did it in § 414(q). And if the look at ownership is not “at any time during” the applicable-age year, it must be at some date—for example, the first day of the year, the last day of the year, or, by bringing in § 416’s determination date, the last day of the preceding year. Except for selectively reading the statute’s and rule’s texts mentioned above, I’ve not yet done research on this. I’ll wait until nearing the end of 2026. The partner’s capital and profits interests could change before 2027, or even before the last day of 2026. Thank you for helping me think about this.

Here’s how ERISA sections 402, 403, and 405 work. ERISA § 403(a)’s starting point is that a plan’s trustee has responsibility to invest the trust’s assets. But that subsection has two exceptions: ERISA § 403(a)(1): A plan may provide that a trustee follows the proper directions of a named fiduciary that is not a trustee. Often, that directing fiduciary is the plan’s administrator. If the plan provides participant-directed investment, the administrator might specify the plan’s investment alternatives, designated and nondesignated. Also, the directions a directed trustee receives might include a direction to follow participants’, beneficiaries’, and alternate payees’ directions within the investment alternatives. ERISA § 403(a)(2): All or some investment authority might be delegated to a § 3(38) investment manager. Some publishers of IRS-preapproved documents include a spot for naming an Investment Manager or an “Investment Fiduciary”. A plan’s administrator or a discretionary trustee might appoint [ERISA § 402(c)(3)] an investment manager to decide—with no approval from an employer, administrator, or trustee—the plan’s menu of designated investment alternatives. You might be surprised by how many small plans do this. It’s not a surprise that an IRS-preapproved document sets up the plan’s administrator as the default investment fiduciary. Many documents are designed so a trustee is a directed trustee, with fiduciary discretion narrowed to no more than deciding whether a direction is improper. ERISA § 402 http://uscode.house.gov/view.xhtml?hl=false&edition=prelim&req=granuleid%3AUSC-prelim-title29-section1102&f=treesort&num=0&saved=%7CKHRpdGxlOjI5IHNlY3Rpb246MTEwMiBlZGl0aW9uOnByZWxpbSkgT1IgKGdyYW51bGVpZDpVU0MtcHJlbGltLXRpdGxlMjktc2VjdGlvbjExMDIp%7CdHJlZXNvcnQ%3D%7C%7C0%7Cfalse%7Cprelim. ERISA § 403 http://uscode.house.gov/view.xhtml?hl=false&edition=prelim&req=granuleid%3AUSC-prelim-title29-section1103&f=treesort&num=0&saved=%7CKHRpdGxlOjI5IHNlY3Rpb246MTEwMiBlZGl0aW9uOnByZWxpbSkgT1IgKGdyYW51bGVpZDpVU0MtcHJlbGltLXRpdGxlMjktc2VjdGlvbjExMDIp%7CdHJlZXNvcnQ%3D%7C%7C0%7Cfalse%7Cprelim This is not advice to anyone.

CuseFan, thank you. The minimum-distribution rule (quoted above) says “who is a 5-percent owner (as defined in section 416) with respect to the [described] year[.]” That’s why I imagine that the measurement date might be one that would be used to determine the key employees for a § 416 top-heavy test. If a plan’s administrator tests whether a plan is top-heavy for 2027, is December 31, 2026 the date for counting a participant’s ownership to determine whether she is a key employee in the 2027 test?

Paul I, thanks. Assume the paymaster is ready to switch a nonresponsive participant's paycheck deferrals from non-Roth to Roth. Imagine that won't need to happen until 2026's summer. Is a notice given in December 2025 good enough? Or might the IRS assert that the participant lacks an "effective opportunity" because by summer she's forgotten the notice she received last December?

About a higher-wage participant’s age-based catch-up, what is an effective opportunity to elect against Roth contributions? For Internal Revenue Code provisions about a higher-wage participant who must make age-based catch-up deferrals as Roth contribution (or get no such catch-up), a proposed rule lets a plan provide a deemed election for Roth contributions. Among other conditions, the plan must provide a § 414(v)(7)-affected participant an “effective opportunity” to make a different election. About what is or isn’t an effective opportunity, the proposed rule points to 26 C.F.R. § 1.401(k)-1(e)(2)(ii): “Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including the adequacy of notice of the availability of the election, the period of time during which an election may be made, and any other conditions on elections.” For the audience we seek to reach (age 49 or older, 2025 FICA wages > $150,000) and the choice the election asks, what facts do you think makes an effective opportunity? For a small plan with not many § 414(v)(7)-affected participants, one might give this notice with lots of “touch” and without needing a heavily programmed plan-administration regime. But imagine a plan with at least a thousand § 414(v)(7)-affected participants, who specified all deferrals as non-Roth contributions, and didn’t respond before 2026 to 2025’s communications imploring them to make revised deferral elections. When would you send such a participant a notice of the employer/administrator’s intent to treat a non-Roth election as a Roth election (absent an election for no catch-up deferral)? In setting a time for a notice, must it relate to when within the year the particular participant would be switched from non-Roth to Roth? Or is a notice given in December 2025 good enough? Recognize that for some a needed switch from non-Roth to Roth might be as late as summer, and for some it might be as soon as January. What makes sense?

Consider also that some tips paid directly by a customer, not processed through the employer’s payroll, and not W-2-reported by the employer might not count under a particular plan’s definition of compensation for one or more relevant purposes. Also, if a plan sponsor, thinking about changes regarding tips or overtime, wants to amend a plan, the recent budget-reconciliation act does not set a statute-specific remedial-amendment period.

For minimum distribution, what date’s ownership counts to determine a 5%-owner? Here’s my not-entirely hypothetical: A partnership is the plan sponsor and only participating employer of an individual-account § 401(a)-(k) retirement plan. The plan year is the calendar year. The partnership’s tax year is the calendar year. Every partner is on the calendar year for one’s tax year. The partnership has no mandatory retirement age, nor even a presumed ordinary retirement age. A working partner will reach age 73 during 2027 (and expects to continue working into her 80s). “For purposes of section 401(a)(9), a 5-percent owner is an employee [including a deemed employee] who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age.” 26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) (emphasis added) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii). Does this mean the measurement date is December 31, 2026? Under the partnership agreement, a partner’s capital interest can change any day. For example, a partner might get distributions from capital, or even might withdraw capital. A partner’s profits interest, if measured as a percentage of the partnership’s profit, can change because the partner’s interest is measured by several factors, including (for a relevant year or other period) the partner’s revenue generation to her practice, expenses specifically allocated to her practice, origination credits for having introduced a client to another partner’s practice, and a proportionate share of the partnership’s general overhead allocated to all practices. The plan’s administrator wants to get the measurement date right so it neither fails to meet § 401(a)(9) nor unnecessarily (and improperly) directs an involuntary distribution the plan does not provide. BenefitsLink neighbors, how’s my guess?