Peter Gulia

Although many retirement plans’ administrators often rely, practically, on a third-party administrator or other service provider, deciding how to present a Form 5500 report is the plan administrator’s (typically, the employer’s) decision.

Here’s what’s in the plan documents of a particular client I’m thinking about: “For purposes of this Plan, disability will mean (select one) [of four options]: Option 3: The Participant is eligible to receive disability benefits under the Social Security Act, as determined by the Social Security Administration.” Considering that this might be a shorthand that refers to a fuller provision in the basic plan document, I looked there. Nothing. (The plan sponsor hopes the plan is designed so the plan’s administrator need not face a discretionary decision about whether a participant is disabled.) A possible reading of the quoted definition of disability is that whatever the plan might provide because of a participant’s disability is not provided unless the claimant presents to the plan’s administrator the Social Security Administration’s disability determination. And that this applies even if the participant’s physical or mental condition is such that, were she a citizen with a sufficient work history, she would get the Social Security Act’s disability benefit. But some might worry that denying a benefit because the participant is not a citizen (and is not a qualified alien) might be contrary to one or more Federal civil-rights law, including those that preclude an employer’s discrimination regarding alienage or national origin.

Many adoption-agreement forms for a set of IRS-preapproved documents present a choice of ways to define a disability. Often, one of those ways is to follow the Social Security Administration’s determination that the person is eligible to receive Social Security Disability Insurance benefits under the Social Security Act of 1935. Suppose the plan sponsor ticked that box. But what if there would be no Social Security determination because the participant is an alien, but not a qualified alien, or is a citizen or qualified alien but lacks sufficient Social Security work credits? Does a basic plan document provide a fail-safe provision to determine a disability if there would be no Social Security determination? And what if no document states any such provision: May a plan’s administrator interpret the plan to treat a participant as not disabled, absent a Social Security determination, no matter how bad the individual’s physical or mental condition?

As some comment letters and the Treasury’s preamble explained, some plans’ administrators prefer to have no responsibility to look beyond a Form W-2 wage report. In some circumstances, one W-2 might include wages from employers other than the employer through which the participant is a participant under the plan to be administered. Beyond practical administration in applying a plan’s I.R.C. § 414(v)(7) provision, I’m unaware of a reason a plan’s sponsor or administrator would have for depriving a participant of an otherwise available opportunity to elect non-Roth deferrals.

Even if the plan’s administrator reports the plan’s financial statements with accrual accounting: To determine whether an individual participant “ha[d] [an] account balance[]” as the instructions for Form 5500 line 6g and other elements describe that construct, might it make sense to interpret the instruction considering what the participant would have seen had she looked up her individual account in the recordkeeper’s system on the relevant day? Many individual-account retirement plans are administered using systems and services that have no facility for recording an accrual in an individual’s account. Even if a service provider’s system counts in an individual’s account the individual’s share in the plan’s contribution receivable, does that by itself mean the plan’s administrator adopted accrual accounting for individuals’ accounts? This is not advice to anyone.

Even if the amount might be small, the trust ought to return the mistaken amount with no less net interest or time value of money than the trust obtained or, if more, the amount required under an applicable State wage-payment law. Even if no Federal or State statute specifies that the return is with interest (and nothing in the plan’s or its trust’s governing documents specifies how to deal with mistaken amounts), the law of trusts, agency, or other fiduciary relationships requires a fiduciary that has received money or other property that does not belong to the fiduciary (whether personally, or for the fiduciary relation) to return the property. The property interests to be returned might include not only the mistaken amount but also the time value of money. In correcting the error, consider which person—the trustee or the employer—bears the expenses of the return and other aspects of the correction. This is not advice to anyone.

If participant contributions were paid into a trust, shouldn’t the participant get the return of the mistaken amount with no less net interest or time value of money than the trust obtained? But might this be a small amount?

Without remarking on what is or isn’t typical or what a service recipient might demand or tolerate (or what a service provider might insist on or negotiate): To evaluate an indemnity provision or a limitation-of-liability provision, distinguish whether the provision applies: between the 3(16) fiduciary and the plan; between the 3(16) fiduciary and the plan’s administrator (personally, not as the plan’s fiduciary); between the 3(16) fiduciary and the employer. Each of those can result in different law about what’s void or otherwise legally ineffective, and what might be legally enforceable. If the plan is governed by ERISA’s fiduciary-responsibility provisions, consider ERISA § 410 [29 U.S.C. § 1110] https://uscode.house.gov/view.xhtml?req=(title:29%20section:1110%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1110)&f=treesort&edition=prelim&num=0&jumpTo=true. A plan may exonerate or reimburse a fiduciary for its prudently incurred expenses if the fiduciary did not breach its responsibility. The plan (or a use of the plan’s assets) can’t relieve a fiduciary, including a 3(16) administrator if it is a fiduciary, from its responsibility or liability to the plan. ERISA § 410(a) does not preclude a person other than the plan or its trust from indemnifying a plan fiduciary, as long as that other person uses personal resources rather than the plan’s assets. A court might not enforce an indemnity provision if it has the effect of setting up an incentive for a fiduciary not to perform the fiduciary’s responsibility. Consider Artie M’s suggestion that a service recipient ought to expect a service provider to stand behind its services. That’s so even if the service provider is a mere contractor, and ought to be especially so if the service provider also is a fiduciary. Over the past 41 years, I’ve done all sides of these negotiations. And with many layers of bargaining power. Remember, an indemnity obligation is only as good as the financial capacity and honesty of the obligor. This is not advice to anyone.

Is the group health plan coverage provided by a health insurance contract? Or is the coverage provided under an employer's "self-funded" arrangement? Were participant contributions paid into a trust? Or were participant contributions a set-off from the employer's obligation to pay wages?

Am I right in guessing that the delinquent-filer relief is completely computerized, and does not depend on a Labor department employee being available to process a submission?

If an author of a book partly AI-generated copied, even temporarily for the generative software, others’ works, one wonders about copyright infringement. Those who understand authors’ and publishers’ efforts might not support a book that infringes or otherwise harms an author’s economic, or even moral, rights.

What do the documents governing the plan provide about how to apply forfeitures? (That a plan could allow a use of forfeitures without tax-disqualifying the plan does not by itself mean that the plan does allow such a use of forfeitures.) Does the plan document specify the order in which forfeitures are applied? (Some plan sponsors prefer that the plan’s administrator lack discretion. If there is no choice, one cannot have made it disloyally.) Does the plan document grant the administrator discretion about applying forfeitures? To the extent (if any) that forfeitures may be applied to plan-administration expenses, is paying the market-value adjustment a proper and reasonable expense of administering the plan? If the plan’s administrator treats a payment of the market-value adjustment as a restorative payment [see above], does this suggest the administrator believes it has a reasonable risk of liability for its breach of a fiduciary duty? If so, does the plan’s administrator have a self-interest in a decision about how to apply forfeitures? If so, must or should the plan’s administrator engage an independent decisionmaker or get independent advice? This is not advice to anyone.

It’s sad that Congress enacts a law calling for this PTIN charge but Congress enacts no appropriation that enables the Treasury department to find the many tax preparers who, despite collecting fees to prepare tax returns that require a PTIN, omit this and prepare fraudulent returns.

Consider also what scope of work your service agreement provides, and whether it’s wise or unwise to do something beyond that scope.

Thanks. With your explanation, I see how some plans’ administrators and service providers might prefer not to separate communications from operations. And how some might prefer using cautious amounts until the IRS-announced amounts become available.

David Rigby, thank you for describing a different outlook. About your idea that a statute provides what it provides, and that a provision might not be conditioned on whether an executive agency publishes or omits some further act, there is at least some room for a range of interpretations. Even the now-overruled Chevron doctrine never required deferring to an agency’s interpretation of an unambiguous statute. Now, the Supreme Court’s Loper Bright Enterprises decision holds that a court may consider but does not defer to an executive agency’s rule that interprets a statute. But Loper Bright Enterprises left some room for what the parlance calls a legislative rule—one that implements Congress’s delegation to the agency. Further, reasoning minds differ about how to interpret or apply a statute that includes Congress’s direction that an executive agency do a specified thing. Some of the Internal Revenue Code’s many provisions about inflation adjustments, even if otherwise unambiguous, call for “the Secretary” to set the adjustment. For example: The Secretary shall adjust annually— (A) the $160,000 amount in subsection (b)(1)(A), (B) in the case of a participant who is separated from service, the amount taken into account under subsection (b)(1)(B), and (C) the $40,000 amount in subsection (c)(1)(A), for increases in the cost-of-living in accordance with regulations prescribed by the Secretary. Internal Revenue Code of 1986 (26 U.S.C.) § 415(d)(1) http://uscode.house.gov/view.xhtml?req=(title:26%20section:415%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section415)&f=treesort&edition=prelim&num=0&jumpTo=true; 26 C.F.R. § 1.415(d)-1 https://www.ecfr.gov/current/title-26/section-1.415(d)-1. Neither that paragraph of I.R.C. § 415(d) nor Treasury’s implementing rule specifies what amount applies if the Commissioner of the Internal Revenue does not publish in the Internal Revenue Bulletin an adjustment. Although I.R.C. § 415(d)(2)-(4) specifies the measures and formula, reasoning minds might differ about whether some act of the Treasury department or its Internal Revenue Service is or isn’t needed to set an adjustment. ****** About a fiduciary’s duty of communication, courts’ interpretations that a fiduciary should communicate information a participant needs to enable her to make informed choices suggest that in some circumstances a prudent fiduciary might prefer to communicate reasonably anticipated or estimated information, with an explanation that it is not yet determined. ****** At least some of the adjustments for 2026 seem obvious. For example, I don’t see how the § 414(v)(7) amount could be less than $150,000 (adjusted from $145,000). ****** Neither of 2018’s shutdowns—one that began January 20, and another that began December 22—resulted in furloughs during October, when ordinarily BLS assembles September inflation measures and IRS determines inflation adjustments. ****** BenefitsLink neighbors, do you have different or further observations?

About disfavoring estimates in participant communications: Do you disfavor it because you worry that, despite an “estimated” explanation, some readers might perceive an amount as somehow more settled than it is? If a worry is about what some readers perceive, why would communicating amounts that likely won’t apply for 2026 be better? Or, does a plan’s administrator communicate old amounts because one believes doing so somehow involves less discretion about what to communicate? What if the adjusted amount is almost a certainty? For example, if inflation through August was more than enough to surpass the next increment of rounding and any further inflation in September won’t be enough to meet another increment of rounding? Does that affect your thinking about whether to communicate an estimated amount? Or is your view about not communicating an estimated amount unaffected by one’s confidence in the estimate? These are open-inquiry questions. I seek to learn what BenefitsLink neighbors think about how to manage ambiguity.

Imagine there is a US government shutdown in October. (In the past 30 years, shutdowns were 1995—26 days, 2013—16 days, 2018—38 days.) Imagine the shutdown lasts through October. Imagine the Bureau of Labor Statistics report on inflation to September 30, usually released in October, is not released until late November. Imagine the Internal Revenue Service’s yearly notice of inflation adjustments for retirement plans, usually released in early November, is not released until mid-December. What steps would you change or delay while waiting for the IRS’s notice? Would you put estimates in your software? Or wait for the official notice? If there is a communication to send, would you: delay it, if it’s not required by 30 days before 2026? send it, but describe limits or factors without specifying an amount? send it, with estimates (flagged as estimated) for each inflation-adjusted amount? How else might a delay of inflation adjustments affect your work?

If the plan’s administrator has regularly used the accrual method of accounting for the plan’s financial statements and Form 5500 reports, why would a receivable or a payable be limited to a small amount? This is not advice to anyone.

The answer to my query is in a BenefitsLink discussion 2½ years ago. Paul I won the day. The penalty’s up-to amount remains $110. https://benefitslink.com/boards/topic/70445-what-is-the-penalty-amount-to-show-in-an-erisa-rights-notice/; 29 C.F.R. § 2575.502c-1 https://www.ecfr.gov/current/title-29/section-2575.502c-1, 62:45 Federal Register 40696 (July 29, 1997). The penalty is on an administrator’s failure or refusal to furnish ERISA-required information a participant or beneficiary requested. ERISA § 502(c)(1) [29 U.S.C. § 1132(c)(1)].

Some plan sponsors might not decide which deemed election (if any) to implement until there is an immediate need to apply one. For some situations, that might happen as soon as January. But for many typical situations that might not happen until 2026’s spring, summer, or autumn. Illustration: For 2026, Jill elects a deferral of $1,354.16 for each semimonthly pay period [$32,500 / 24]. Jill does not elect that any portion of that amount be made as Roth contributions. Jill would not exhaust 2026’s $24,500 limit on non-catch-up deferrals until the year’s 19th pay period. For the first 18 of 24 pay periods, the plan can credit Jill’s non-Roth deferrals.

I have sometimes suggested an employer/administrator file a Form 5500 even when the rules excuse it for a small one-participant plan. With other potential advantages, which might include starting the running of a statute-of-limitations period and setting up other defenses: An expense to file an unrequired Form 5500 might be less than the expense of informing EBSA or IRS about why a report or return for an earlier year was not required. This is not advice to anyone.

By now, many retirement-services people have learned that an applicability date of an executive agency’s rule that interprets Congress’s statute does not control when the statute applies. About the recently published catch-up rule, many articles explain that one follows the final rule by 2027, and for 2026 may defend a good-faith interpretation of the statute. Considering the opportunities and flexibilities the final rule allows, why not follow it for 2026 too? To do something beyond what the final rule allows, the employer and the plan administrator would need to think about what that something is and be ready to defend how one formed a prudent finding that it is a reasoned interpretation of the statute. Even if an interpretation need not be formed with an ERISA fiduciary’s prudence, a good-faith interpretation must be formed with at least the ordinary prudence that would be used by a business-prudent employer that is conscientiously seeking to follow tax law. Such an effort might be more expensive than simply following the final rule. And for a TPA, recordkeeper, or other service provider to maintain a pretense that it did not provide tax or other legal advice, might it be simpler to follow the final rule? Yet: BenefitsLink neighbors, if time, effort, and money were no constraint, is there anything you’d want to allow in 2026 that the 2027-applicable interpretation doesn’t allow?

At least one big recordkeeper can process a correction by crediting each specified amount on each specified past date according to each participant’s then-effective investment direction, using each fund’s actual share price or unit value for each date. If that’s what was done, would EBSA accept that explanation?

Although TPAs give lots of legal advice that relates to one’s work as a TPA, this participant’s question might be more fully addressed by his lawyer. Yet, with the caution that a prudent person ought to read the plan’s governing documents, the trust agreement or declaration (if the plan has a trust), the custody agreement (if the plan has a custodianship), each annuity contract, and anything more that might be relevant: One arrangement (if none of the documents precludes it) is to name the retirement plan’s trustee, including successor trustees, as an annuity contract’s holder and particularly intended third-person beneficiary. That way, the plan’s trustee uses an annuity contract’s rights, collects the insurer’s payments, and pays each plan beneficiary according to the plan’s provisions. Or, an annuity contract might be a substitute for what otherwise would be the retirement plan’s trust. See Internal Revenue Code of 1986 § 401(f)-(g), 26 C.F.R. § 1.401(f)-1 https://www.ecfr.gov/current/title-26/section-1.401(f)-1. If so, the plan’s administrator would name the plan beneficiaries as an annuity contract’s beneficiaries. Also, if the participant, before his death, begins an annuity measured regarding a life beyond the participant’s life, the insurer might require the contract’s holder to name the second annuitant—even when the insurer’s payee will be the plan’s trustee or custodian. For a life-contingent annuity, an insurer needs to know whose death ends the insurer’s obligation. This is not advice to anyone.