Carol V. Calhoun

Yes, they can. But that doesn't deal with participants who become missing after the annuity purchase date but before the benefit commencement date. E.g., you have a 30-year-old participant and a benefit that doesn't start until age 65.

A couple of things: First, the PBGC's missing participants program specifically provides for turning the money over to an insurance company, not the PBGC, so long as you tell the PBGC where it is. As to why you wouldn't do this, my concern would be someone who becomes missing after the plan termination and before reaching normal retirement. And my question is, if it is not acceptable for the plan to escheat the money if it cannot find the participant after a diligent search, why would it be acceptable for the plan to turn the money over to an insurance company that announced in advance that it would escheat the money after a diligent search? The concern is generated by Field Assistance Bulletin No. 2025-01. It makes no sense to me that a plan can never escheat a benefit of over $1,000, no matter how long the person has been missing and no matter what diligent efforts the plan has made to find the person. But with that out there, I am worried about allowing a plan to do indirectly (by purchasing an annuity that will result in escheat) what it cannot do directly.

I guess my concern is that a plan is not otherwise permitted to take away benefits by annuitization. For example, you can't purchase an annuity contract that eliminates a form of benefits, or that uses interest or mortality assumptions less favorable than the plan had. The Department of Labor has now said that participants have the right not to have benefits escheated except under very limited circumstances. Can you eliminate that right just by annuitizing? Extreme case: Plan terminates and permits everyone to take a lump sum. It has already taken all reasonable steps to find the missing participants. Everyone except the missing participants takes the lump sum. The plan would not at that point be permitted simply to escheat the missing participants. Can it then turn the money over to an insurer which escheats everyone the next day? That just seems a little too easy.

Has anyone thought about the permissibility of escheat in the context of annuity contracts issued under a terminated defined benefit plan? Field Assistance Bulletin No. 2025-01 currently permits escheat from a qualified plan only for benefits of less than $1,000 (among other conditions). However, we are now dealing with a terminating defined benefit plan which is seeking an insurer to provide the annuities required in the case of a terminated plan. Several of the companies have provisions in their contracts saying that they will escheat benefits of missing participants in accordance with state law (with no cap on the amount that may be escheated). When questioned, they say that the insurance company is not subject to ERISA and thus need only comply with state law. My concern here is that even if the insurer is not subject to ERISA, the plan is. And if the plan cannot directly escheat benefits of missing participants, is the plan violating its fiduciary duties if it signs a contract to purchase an annuity that explicitly states that benefits may be escheated? What are other plans doing in this situation?

Garnishment of a participant's account outside of a QDRO is allowed under ERISA only for federal tax debts or court-ordered criminal restitution. If it doesn't say it's for one of those things, I'd respond that this is a qualified plan which is forbidden from complying except in those situations.

Plan is intended to be a safe harbor plan. It defines compensation to exclude bonuses. Most of the time, we would assume this is acceptable under 414(s), because bonuses are typically received disproportionately by HCEs. But due to unusual circumstances, this turned out not to be true for 2025, a fact which they discovered only after 2025 ended. My assumption is that this eliminates safe harbor status for 2025, and that they must now run ADP tests and take the normal steps to correct. But is this correct? "Dropping safe harbor status" is supposed to be prohibited mid-year, but would this be considered dropping safe harbor status or never having had it? And if this would be considered an impermissible dropping of safe harbor status, what would the correction be, anyway? Also, what happens for 2026? Are they precluded from making changes for 2026 on the theory that it is a safe harbor plan for 2026 unless the compensation definition also proves to be discriminatory in 2026? In particular, can they remove a top paid group election from the plan and/or change the definition of compensation for 2026?

Oh, absolutely! This one just has some extra stuff like links to each of the IRS and Social Security authorities for each year, and cautionary notes about the fact that 403(b) plans have more than one catch-up. But the IRS one works, too.

Thanks! And you're right--a big reason I waited this long to retire was that I didn't want to do so until I had something satisfying to do on the other side.

Thank you! And I'd love to have BenefitsLink take over that page. I've e-mailed you with information. Thanks, Bill! This is definitely bittersweet for me. I've been practicing employee benefits law for 46 years now, and maintaining my site for 28, and it's hard to walk away from all that. But I am 72, and it's time for a new chapter in my life. I've been accepted as a volunteer EMT trainee with a local fire department. That will be about a year of classes, practical training, and helping out the EMTs, after which I'll be certified as an EMT myself. Some questions have been raised as to whether I actually understand the meaning of "retire," which I hear is supposed to mean relaxing and playing golf or something. But I'm excited about the new challenges.

I have now retired, and will no longer be updating my site. So for all of you who have been relying on my maximum benefits and contributions page for historical limits, it is unlikely I will be updating it and I may take it down at some point. However, I do have the database with all the limits back to 1996. If anyone wants it so that they can develop their own page, let me know.

If you're going to offer a match to 457(b) contributions, you want the match to go into a 401(a) plan. That could be the existing one, but with a separate benefit structure for the part-time employees, or a new one. The problem here is that the 402(g) limit ($23,500 in 2025, disregarding catch-ups) for 401(k) and 403(b) plans applies only to the employee's own contributions. However, the comparable limit for 457(b) plans applies to the aggregate of employee and employer contributions. So for example, if the employer is doing a 100% match and putting it all into the 457(b) plan, the employee could contribute a maximum of $11,750. That would give rise to an employer match of $11,750, and the employer and employee contributions together would equal the $23,500 limit. However, if the employer match goes to a 401(a) plan, the employee could contribute up to $23,500 to the 457(b) plan, because the contributions to the 401(a) plan would not count against the limit.

Yeah, at least in the 457 context, the rule is that an employee cannot delay the vesting of a voluntary deferral unless the new vesting date is at least 2 years after they original vesting date and the employee gets at least a 25% premium for delaying the vesting. The theory seems to be that no one would voluntarily defer an amount that they could get right away unless they got something extra for it. And if the delay in vesting were not recognized here, then the short-term deferral rule would not apply and we would need to ensure that the agreement met the 409A conditions. I'm not sure that the assumption that no one would delay vesting really applies here, in the sense that if the person got the money right away, it would be subject to the clawback. But it would seem prudent to comply with 409A. However, I'm not sure how one would comply with 409A. A particular issue in this regard is that Treas. Reg. § 1.409A-2 in general requires a deferral election to be made by December 31 of the year before the compensation is to be earned. There is an exception upon initial participation, but it requires that the election be made in the first 30 days of employment and apply only to compensation earned after that date--which would seem not to work in this case, since the compensation would be earned on the first day. There is another exception for an initial deferral election with respect to certain forfeitable rights, but it would apply only if the IRS were to recognize the delay in vesting (i.e., that the rights were forfeitable).

The California "stay or pay" rule effective January 1, 2026 will in general prohibit clawbacks when an employee leaves employment. However, under limited circumstances, the rule does not apply to a signing bonus. Among the conditions for it not applying is that the employee must have the option to delay the signing bonus until the end of the retention period. Has anyone thought about the taxation of the signing bonus if it is deferred? Presumably, if it is considered "made available," it would be taxed immediately upon hire, even if the employee elected to defer it until the end of the retention period. And a signing bonus that is actually paid is taxed upon payment, even if it has to be returned if the employee doesn't stay until the end of the retention period, so presumably the same rule would apply to a bonus that is made available. In the 409A context, presumably in order to avoid this issue, a deferral is recognized only if it is made within the first 30 days, and only if it relates to compensation earned after the election. But a signing bonus is earned upon signing, so that wouldn't work here. Any thoughts?

Thank you, @John Feldt ERPA CPC QPA!

@Peter Gulia, oh, I know we won't have the official figures for a while. But in past years, people have been able to use @Tom Poje's spreadsheet to project the limits once the BLS came up with its numbers. @John Feldt ERPA CPC QPA, are you yet able to do that?