Artie M

@Connor https://www.federalregister.gov/documents/2025/09/16/2025-17865/catch-up-contributions

Based on your description, I am not seeing the discrimination issue: "participants whose FICA wages were $150k or less in the prior year can continue to make catch-up contributions on a pre-tax basis, but those whose wages exceed this limit are not permitted to make any catch-ups." So, here, the over $150K participants do not get catch-ups (because they have to be Roth). So they took away something from the more highly compensated.... Under the Code, there cannot be discrimination against NHCEs... no rule says you can't discriminate against HCEs. The discrimination issue comes up if a Plan has participants who do not earn FICA wages and they are HCEs for nondiscrimination testing but not highly paid individuals for Roth catch-up purposes. In that situation HCEs who are not HPIs might be able get catch-ups but some NHCE who are HPIs could not get catchups. That is a very specific set of circumstances. This set of circumstances is addressed in the regs that provide a safe harbor if those HCEs who are not HPIs are not eligible for catch-ups either. If you don't use the safe harbor the Plan would need to do BRF testing (and may or may not fail it). Those same regs say you can design a plan permitting catch-ups but does not permit Roths. The communications piece you read may be meant for the general population and not for a plan with this specific set of facts. Maybe I am misunderstanding the query....

Thanks, Brian

Employer maintains an FSA plan that provides for a grace period. Calendar year plan. Regs state that if it has a grace period it cannot also provide for a carryover. The Regs state that it can be amended prior to end of year to change. So, under the Regs, a calendar year plan permitting a grace period in 2026 relating to 2025 could be amended to instead use a carryover to 2026 of unused 2025 health FSA amounts (as limited) if amended by December 31, 2025. I didn't think you could do it this late but the Regs state differently. However, Notice 2013-71 states "If a plan has provided for a grace period and is being amended to add a carryover provision, the plan must also be amended to eliminate the grace period provision by no later than the end of the plan year from which amounts may be carried over. The ability to eliminate a grace period provision previously adopted for the plan year in which the amendment is adopted may be subject to non-Code legal constraints." Can someone expand on what "subject to non-Code legal constraints" means? I have some thoughts but would like to hear from others.

I think you need to be more specific on what type of correspondence you are referring to. If it is a document that relates to a filing the ERISA statutory retention period is 6 years (though we normally advise 8 years). If it is a document that relates to determining participant's benefit which is due or may become due, there is no set period (we recommend holding it until at least 3 years after final distribution). One big warning...do not rely on prior record keepers to retain your documents.

Though the listed authorities usually come out with estimates prior to the IRS formal release and their estimates are usually on point, they all still state they are estimates. Not sure when the IRS guidance will come out due to the government shutdown

I am not sure we have enough facts to answer your question. Is this person still working at the law firm in 2025--presumably so or there doesn't seem to be an issue. Are you asking whether the switch from partner status in one year to non-partner status the following year affects or doesn't affect the start of their RMDs? I mean for retirement plan purposes, a self-employed individual (i.e., a person who has earned income for a tax year) is treated as an employee. See 401(c)(1). Also, no 5% issue. If they are still working at the law firm in 2025 with no ownership then I take that to mean they are providing services as a non-partner (a person could be a non-equity partner, i.e., no ownership, and still be a treated as a self-employed partner if they receive a share of the firm's income). A question then is whether they are providing services as an employee or as an independent contractor. Another is whether the plan has a definition of "retires" with regard to partners. Assuming they haven't retired for purposes of this query, if they are providing services to the law firm as an employee, seems like they would not be required to take a distribution simply because they have not retired (also assumes that the plan uses both the "age 73" and the "later of" rule). Otherwise, if they are providing services as an independent contractor (or not providing services at all) then it seems they would be required to take a distribution by 4/1/2026. Sorry if I am being dense or reading more into this than is necessary (overly anal)...

This can be done. Your company should put all the language it can in the service agreement stating the limits of its activities with regard to an ERISA plan and must ensure that it doesn’t do anything that goes past those limits. The service agreement, at a minimum, should state that the company does not provide specific investment recommendations to a plan on a regular, defined basis under a written agreement for compensation. The service agreement should explicitly state the company is not acting as an investment advisor and is not providing investment recommendations. It should state that it only provides factual information or administrative services. The company should carefully document its activities to show a lack of discretionary investment advice. The company should merely provide “access” to investments. It shouldn’t state something like this is the standardized slate we offer to plans…. They should likely frame this more as here is a slate of investments that we have seen ERISA plans utilize… it makes no recommendations regarding the appropriateness of an investment for an ERISA plan… tell the client to consult their own financial and investment advisors as to whether any investment is a prudent and proper investment for their plan…. All investment decisions, whether they are obtained through your company’s service agreement or through another provider, are the decisions of the plan sponsor. Nothing in your communications should even allude to or be able to be interpreted that any determination has been made by your company as to whether the offered investments are appropriate for any ERISA plan (just relay the fact that ERISA plans utilize them). The company can provide facts concerning the investments, prospectuses etc. This means it can provide educational materials about investment options in general and concepts but it cannot communicate anything that even appears to be recommending particular funds. Not advice, stream of thoughts here...

Parroting the Regulation example quoted above (changes to Reg language are bracketed and italicized), using your facts: "Because Participant['s] FICA wages from Employer[] for calendar year 202[5] exceeded [$145,000], Participant[] is subject to the requirements of section 414(v)(7)(A) for 202[6], and any catch-up contributions that Participant[] makes under the plan during 202[6] (which includes the [latter portion] of the plan year beginning [May 1, 2025]) must be designated Roth contributions." So, if your participant has catch up contributions in 2026, which you are saying they will (assuming they contribute to the plan after March 1, 2026).... Just substituting your facts in the language from the example in the Regulation.

Given what has been stated, the plan does not explicitly prohibit a loan to a participant on or going on leave. Since it is silent, it seems the plan could permit a loan to this participant. There is no prohibition in the Code for a loan being given to a participant on or going on leave. To me this would fall under the plan administrator's right to interpret the terms of the plan. As long at the loan provisions (e.g., suspension of payments, reamortization, and deemed distribution, if necessary) are administered properly, I don't see a qualification failure if the loan is provided. Once concern though is that your post states that the Plan Sponsor wants to work with this participant and permit the loan. Presumably this type of situation has never come up before (if it has, it should be treated like it was in the past). However, if the loan is approved and this situation comes up again, the loan should be made to the next participant who requests a loan when they are going on or are on leave (regardless of the Plan Sponsor's desires) as loans must be available to all participants and beneficiaries on a reasonably equivalent basis and the loans must be administered according to a uniform loan program.

While researching something else I saw this today. This may not be directly on point because of the structure of the transactions under the facts of PLR 9836028 but note the precise use of the terms seller and purchaser and the one way nature of the interpretation by the IRS in this excerpt from the PLR. Section 1.401(k)-1(d)(4)(i) of the Regulations provides that (i) the seller must maintain the plan. A distribution may be made under section 401(k)(10) and paragraph (d)(1)(iv) or (v) of this section only from a plan that the seller continues to maintain after the disposition. This requirement is satisfied if and only if the purchaser does not maintain the plan after the disposition. A purchaser maintains the plan of the seller if it adopts the plan or otherwise becomes an employer whose employees accrue benefits under the plan. A purchaser also maintains the plan if the plan is merged or consolidated with, or any assets or liabilities are transferred from the plan to a plan maintained by the purchaser in a transaction subject to section 414(l). A purchaser is not treated as maintaining the plan merely because a plan that it maintains accepts elective transfers described in sections 1.411(d)-4, Q&A-3(b)(1), or rollover contributions of amounts distributed by the plan (including distributions that the recipient elects, under section 401(a)(31), to have paid in a direct rollover to the plan of the purchaser).

You may want to check with the author of the plan document for clarification. Plus the answer may depend on if this is an EACA, QACA, etc. For instance, Treas. Reg § 1.401(k)-3(j)(2)(iv) regarding QACAs states: (iv) Treatment of periods without default contributions. The minimum percentages described in paragraph (j)(2)(ii) of this section are based on the date the initial period begins, regardless of whether the employee is eligible to make elective contributions under the plan after that date. However, for purposes of determining the date the initial period described in paragraph (j)(2)(ii)(A) of this section begins, a plan is permitted to treat an employee who for an entire plan year did not have contributions made pursuant to a default election under the qualified automatic contribution arrangement as if the employee had not had such contributions made for any prior plan year as well. Here, the plan is permitted to provide for something... but it doesn't have to....

Treas. Reg. §1.414(v)-2(d)(3) Example (3). Application of section 414(v)(7)(B) to a plan with a plan year other than the calendar year. (i) Facts. Participant B participates in an applicable employer plan sponsored by Employer E. The plan year begins on July 1 and ends on June 30. Participant B had $160,000 in wages within the meaning of section 3121(a) from Employer E for calendar year 2026, and is a catch-up eligible participant for calendar year 2027. For the plan year beginning July 1, 2026, the plan allows all catch-up eligible participants to make catch-up contributions and requires that any elective deferrals in excess of an applicable limit made by catch-up eligible participants who are subject to the requirements of section 414(v)(7)(A) be designated Roth contributions. (ii) Analysis. Because Participant B's FICA wages from Employer E for calendar year 2026 exceeded $155,000, Participant B is subject to the requirements of section 414(v)(7)(A) for 2027, and any catch-up contributions that Participant B makes under the plan during 2027 (which includes the second half of the plan year beginning July 1, 2026) must be designated Roth contributions. Because Participant B is permitted to make catch-up contributions that are designated Roth contributions under the plan for the plan year beginning July 1, 2026 (after Participant B reaches an applicable limit (as defined in § 1.414(v)-1(b)(1)), all catch-up eligible participants under the plan must be permitted to make catch-up contributions that are designated Roth contributions for the plan year. Furthermore, if the plan continues to permit catch-up contributions for the plan year beginning July 1, 2027, then any catch-up contributions that Participant B makes under the plan during the first half of that plan year must be designated Roth contributions (as well as any catch-up contributions in the second half of the plan year if Participant B had wages exceeding the applicable threshold in 2027). Only authority I know of that is "directly" on point regarding your question.

quickly consulted Mr. Google... no formal authority but IRS website (https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts) says this:

I would look this up... my understanding is that a deemed distribution from a defaulted loan cannot be a qualified distribution even if the 5-year rule is met. Also, if less than 59 1/2 10% penalty.