Forfeitures Cases Proceed with Mixed Results & DOL Weighs In

401(k) plan fiduciaries have been challenged in approximately 65 class action suits alleging that they improperly used participant forfeitures to offset employer contributions rather than pay plan expenses that were eventually paid by plan participants. Forfeitures occur when a plan participant leaves employment before the plan sponsor’s contributions to the participant’s account have vested.

The Internal Revenue Service has previously approved the use of forfeitures to offset employer-matching contributions. So, these cases were initially thought to lack merit. However, there is a valid argument: If a plan document gives fiduciaries discretion to use forfeitures to either favor the employer by offsetting matching contributions or favor the participants by paying plan expenses, not favoring the participants has been argued to be a breach. The Department of Labor (DOL) had not previously addressed the fiduciary aspects of using forfeitures.

Although many of these cases have been dismissed in the early stages, some are proceeding, and one was recently settled. Three cases are on appeal following dismissals at the district court level.  In one of the appeals, the DOL has weighed in by filing an amicus brief supporting the defendant plan fiduciaries. An amicus brief is a way for a non-party to offer their view for a court’s consideration. The DOL’s filing was in Hutchins v. HP Inc. (9th Cir. filed 2025; on appeal from C. D. Cal.). In that case, the plan document permitted forfeitures to be used either to pay plan expenses or to offset the employer’s matching contributions. The district court found that the decision of how to use forfeitures was a fiduciary decision. However, the court characterized the plaintiff’s position that forfeitures must be used to pay expenses as a “novel legal theory.” The district court went on to dismiss the case, observing that requiring forfeitures to be used to pay expenses in all cases was too broad to be plausible. It also said that the plaintiff’s position is inconsistent with the “settled understanding of Congress and the Treasury Department.” The disappointed plaintiffs appealed dismissal of their case.

The DOL’s amicus brief supported the defendant fiduciaries, first saying the plaintiff’s position contradicts the decades-long understanding that forfeitures may be used to offset employer contributions rather than defray plan expenses. The DOL went on to say that the plan’s inclusion of a choice of how to use forfeitures was a settlor (plan sponsor) decision, and the fiduciaries’ decision between those proscribed choices could not support a fiduciary breach claim.

Following the Supreme Court’s elimination of Chevron deference, the DOL’s position is non-binding on the court of appeals—or any other court. Even so, the DOL’s position is likely to be frequently referenced in other forfeiture challenge cases. We will report on the results of the appeal.

In other forfeiture cases:

In Wright v. JPMorgan Chase & Co., the plan dictated an order for the use of forfeitures: first, to reduce future contributions of the company, and second, if no future company contributions are anticipated, to pay plan expenses. This language permitted the court to quickly resolve the matter. 

Fees and Investment Performance Cases—The Churn Continues

The flow of cases alleging that plan fiduciaries have overpaid for services and retained underperforming funds has continued. Good fiduciary process continues to win the day. In a new twist, plan fiduciaries have been challenged for assessing recordkeeping fees from only the accounts of participants with a balance of more than $5,000. 

DOL: Negative Cryptocurrency Guidance Rescinded; Fiduciary Caution Still Warranted

As previously reported, in 2022 the DOL issued guidance directing plan fiduciaries to exercise “extreme caution” before adding cryptocurrencies to a 401(k) plan’s investment lineup. That guidance also warned that plans offering cryptocurrencies would be likely targets for DOL audits. Under new leadership this year, the DOL rescinded the prior guidance on using cryptocurrencies in 401(k) plans. DOL Compliance Assistance Release No. 2025-01 (5.28.2025).  

Importantly, the new guidance did not support or endorse the use of cryptocurrencies in 401(k) plans. We are left with no guidance from the DOL on this issue.

Caution continues to be warranted for 401(k) fiduciaries who are considering cryptocurrency in their 401(k) plans. Some considerations include:

Health Insurer’s Alleged Overcharges with “Flip Logic” Approach Revived

A lawsuit was filed against Blue Cross Blue Shield of Michigan (BCBSM) by one of its plan sponsor customers alleging that BCBSM intentionally overpaid out-of-state claims and then systematically recovered the overpayment—while charging the customer a 30 percent fee on the recovered overpayments. When out-of-state charges are incurred in the Blue Cross Blue Shield network, the local insurer, BCBSM in this case, reimburses at the rate negotiated by other state’s Blue Cross Blue Shield affiliate.

According to the complaint, BCBSM would “flip” the out-of-state provider’s status from “in-network” to “out-of-network” and initially reimburse services at the much higher out-of-network rate. Then the “error” would be corrected and the reimbursement reduced to the in-network rate. Internal documents at BCBSM allegedly referred to this arrangement as “flip logic.”  Because the plan sponsor self-funded its insurance, it was charged the 30 percent recovery fee.

The U.S. District Court dismissed the case, finding that it was not plausibly alleged that BCBSM was an ERISA fiduciary. On appeal the dismissal was reversed. The appellate court noted that anyone who exercises discretion or control over plan assets is a fiduciary under ERISA. It went on to observe that BCBSM’s overpayments to healthcare providers were an exercise of control over plan assets and found BCBCM to be a plan fiduciary. With respect to BCBSM paying itself 30 percent of recovered overpayment recoveries, the court of appeals acknowledged that there was no discretion in applying the contracted 30 percent recovery rate. However, BCBSM effectively decided how much to reimburse itself by deciding how much to overpay and then recover. Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan (6th Cir. 2025) The above is based only on the complaint in the case. With dismissal reversed, the case will go back to the district court for consideration of the facts and allegations of “flip logic.”

Incomplete Email Leaves Employer Responsible for Lapsed $663,000 Life Insurance Payout

Thayne Watson was employed by a company that was acquired. As part of the acquisition, he entered into a voluntary separation agreement. He continued to be paid and was eligible for health and life insurance benefits for 11 months. Under the separation agreement, he was permitted to continue health benefits at the employee rate on a self-pay basis after the 11-month pay continuation period.

Ten months into the pay continuation period he enrolled in the benefit program so he could continue his benefits after the continuation period. He received confirmation of his enrollment, including that he had $663,000 of group term life insurance coverage.

At the end of the pay continuation period, he sent an email to the HR department asking how to pay for his benefits for the next year. In response he received an email from an HR representative that he would receive a bill from ADP, and “benefits remain active during the transition.” Neither Watson nor the HR representative separately mentioned health and life insurance benefits.

Mr. Watson died about a year later, having paid all bills received from ADP. When his wife tried to collect the life insurance proceeds from MetLife, the claim was denied. The life insurance policy had lapsed at the end of the pay continuation period and was not converted to an individual policy.

Ms. Watson sued her husband’s former employer for breach of fiduciary responsibility, alleging that they should have informed him of the need to convert the group term life insurance policy, and at a minimum the HR representative had a duty to be clear that the ADP bills would cover only health insurance and life insurance premiums would be billed by MetLife. 

The court sided with Ms. Watson, finding that Mr. Watson had asked about his benefits as a whole and the HR representative was obligated to respond to his inquiry with complete and accurate information, including that his life insurance had to be converted to an individual policy for that benefit to continue. The former employer was ordered to pay Ms. Watson $633,000 ($663,000 reduced by the unpaid premiums that would have been due). Watson v. EMC Corp. (D. Colo. 2025). An appeal of this decision is pending.

Understanding the Family Office 

A family office is a dedicated entity or division that manages the financial and personal affairs of a high-net-worth family. It acts as the central hub for investment oversight, wealth preservation, estate planning, family governance, and more. Traditionally, families created separate entities to manage wealth independently of the operating business. Today, many families choose to integrate the family office functions directly into the business structure. Here’s why:

Benefits of Integrating a Family Office within the Business 

Streamlined Operations: Integrating a family office into the business streamlines financial management and administration. This alignment reduces redundancy and improves overall efficiency.

Cost Efficiency: Operational synergies often reduce costs. Housing family office functions within the business minimizes administrative overhead related to talent acquisition and managing a separate entity.

Strategic Alignment. Embedding a family office in a business aligns financial strategies with the operating company’s goals and objectives, leading to better decision-making.

Enhanced Governance: Integrating the family office can foster better governance by facilitating communication and collaboration between the business and the family. It can also strengthen family values and preserve the legacy of the business.

Expertise Integration: Incorporating the family office into the business allows access to key employees who understand both the company’s operations and the family’s financial needs.

Integrating a family office structure into your operating business can be a strategic decision that enhances efficiency, governance, and wealth management. However, success requires careful planning, defined objectives, and effective governance.

When executed thoughtfully, this integration creates synergies between the family’s financial affairs and the business, contributing to the long-term success and sustainability of both. By leveraging the strengths of an integrated family office, you can navigate the complexities of wealth preservation and estate planning while fostering a legacy that will endure for generations to come.

A trusted financial advisor can help you determine if a family office structure suits your specific business and family needs.

Key Takeaways

Investment Depth Perception

Bifocal lenses have two distinct focal points. One allows the wearer to see clearly things that are near, while the other clarifies vision farther away. Successfully navigating the investment landscape requires a similar, multifocal approach.

The chaos we saw in the first half of 2025 shortened the focal point for all investors. Against a backdrop of heightened policy uncertainty—fiscal, monetary, trade, and geopolitical—it was nearly impossible to maintain a balanced perspective. The result was an S&P 500 Index that experienced a bear market (-20 percent decline) and a bull market (+20 percent increase) all in six months, while ending the first half at an all-time high.

S&P 500 Index Performance

Sources: Bloomberg, CAPTRUST research

Shifting Landscapes

In “Preparing for the Year Ahead,” our 2025 outlook article published in early January, the CAPTRUST Investment Committee described four potential market scenarios investors could face in 2025:

  1. Optimism fades (projected probability 10 percent)—In this scenario, enthusiasm surrounding the AI value proposition diminishes.
  2. Extreme uncertainty (projected probability 25 percent)—In this scenario, policy uncertainty alters the entire investment landscape.
  3. More of the same (projected probability 50 percent)—In this, the most likely, scenario, we see a concentrated equity backdrop with inflation remaining above the Federal Reserve’s target range.
  4. An upside surprise (projected probability 15 percent)—Here, inflation pressures ease and productivity begins to accelerate.

In January, we expected one of these scenarios to come true. But since we wrote that piece, three of the four have become reality, at least temporarily. No wonder the markets are volatile, and investors are losing focus. Here’s what happened.

1.      Optimism Fades: A DeepSeek Surprise (January 27 – April 1)

In late January, a China-based AI startup company called DeepSeek shocked the technology community and investors alike by announcing that its AI model, R1, had matched the output of its competitors at a fraction of the cost. This marked a huge jump in the development of large language models.

The market response was immediate and record-breaking, especially for U.S.-based tech giants. On January 27, the Nasdaq Composite lost nearly $1 trillion in value. This included a $590 billion drop in Nvidia’s value alone—the largest single-day market cap loss for any company in U.S. history.

The broader tech sell-off was driven by concerns about the long-term profitability of the massive AI-related capital investments made by the mega-cap tech giants, which are projected to exceed $300 billion in 2025. The reason for the outsized Nvidia impact was that most of these capital expenditure dollars, historically and projected, are going toward computer chips manufactured by Nvidia.

2.      Extreme Uncertainty: Negotiation, New Paradigm, Negotiation (April 2 – April 8)

In a late 2024 interview with Bloomberg News, President Trump said, “To me, the most beautiful word in the dictionary is tariff, and it’s my favorite word.” And so, it was no surprise that global trade became an important agenda item in President Trump’s second term.

On February 1, less than two weeks after Inauguration Day, the President signed an executive order imposing tariffs on imports from Mexico, Canada, and China. The political reaction was very loud. However, investors and markets mostly dismissed these early announcements as a negotiation ploy to improve trade conditions for U.S. exporters.

On April 2, he announced a broader package of import duties that shocked investors with both its scale and magnitude. They could no longer dismiss the potential economic impact and were forced to consider a completely new global trading paradigm. Over the next four trading days (April 3 – April 8), the S&P 500 dropped more than 12 percent.

That same week, the yield on the 10-year U.S. Treasury began to surge, and it seemed foreign owners were beginning to liquidate. The President’s office relented, postponing the effective date of these tariffs for 90 days. The decision to pause stabilized Treasury yields while the S&P 500 roared back, rising more than 9.5 percent on April 9. Investors returned to viewing tariffs as a negotiating tool and now realized there was an economic variable that could cause the new administration to pause: 10-year Treasury yields.

3.      More of the Same: Nvidia’s Return (April 9 – Present)

For much of 2023 and 2024, the U.S. equity landscape was dominated by a very small subset of mega-cap securities called the Magnificent Seven (Mag-7), and Nvidia led the pack. Everything appeared to be reversing in early 2025. However, when first-quarter earnings were complete, it was clear that these mega-cap—and AI-driven—growth giants continued to dominate the earnings landscape.

First Quarter 2025 Earnings Growth for the Mag-7 and S&P 500 Excluding the Mag-7

Sources: Factset, CAPTRUST research

Against this backdrop, the Mag 7 surged back to their 2024 leadership position, pulling the S&P 500 to all-time highs. An investor just glancing at their midyear statement would see a +6.2 percent return for the S&P 500 at the halfway point of 2025, with approximately 50 percent of this return coming from Nvidia, Microsoft, and Meta. That person would likely think, “Oh, more of the same.” But the markets went through so many other scenarios to get back to this point.

Market Rewind

The second-quarter rally lifted most asset classes into positive territory for the year. U.S. small-cap stocks were the exception. Despite a solid 8.5 percent return in the second quarter, the broad benchmark for U.S. small-cap stocks remains negative for 2025, pressured by higher interest rates and interest rate expenses.

Investment grade U.S. bonds have experienced elevated volatility but reached the midway point of 2025 with a 4 percent year-to-date return. Real estate and commodities also delivered low single-digit gains.

Finally, for the second consecutive quarter, foreign equity markets have led the way, benefiting from both improving stock prices and a weakening U.S. dollar. Year to date, nearly half of the foreign equity results have been driven by the weakening U.S. dollar.

Asset Class Performance for the Second Quarter and First Half of 2025

Source: Morningstar Direct; CAPTRUST research. Asset class returns are represented by the following indexes: Bloomberg U.S. Aggregate Bond Index (U.S. bonds), S&P 500 Index (U.S. large-cap stocks), Russell 2000® (U.S. small-cap stocks), MSCI EAFE Index (international developed market stocks), MSCI Emerging Market Index (emerging market stocks), Dow Jones U.S. Real Estate Index (real estate), and Bloomberg Commodity Index (commodities).

2025 Outlook Revisited

If the CAPTRUST Investment Committee were rewriting its 2025 outlook at this midway point, it would look very similar in both possibilities and probabilities.

A Balanced Perspective

Against this unsettled backdrop, investors would do well to wear their bifocal glasses and maintain a balanced perspective—aware of things both near and far.

The volume of daily distractions for investors continues to accelerate, exposing them to the rampant dangers of emotion-based reactions. Despite the last two quarters’ extreme volatility, pulling money out of the market would likely have been extremely punitive in the first half of 2025.

Our advice? When reading the daily headlines, remember this: Approximately 85 percent of the value of a healthy, perpetually growing company (i.e., the S&P 500) is derived from earnings that are more than five years in the future. Then ask yourself, what is the likely duration of today’s biggest headline?

Ultimately, the two opposing forces that will drive investment returns over the next decade are debt and demographics on one side, with productivity and artificial intelligence on the other. Monitoring the ongoing progress on these two fronts will have long-term value implications. Nearly everything else will likely be short-term noise.

Index Definitions

Indexes are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly.

S&P 500® Index: Measures the performance of 500 leading publicly traded U.S. companies from a broad range of industries. It is a float-adjusted market-capitalization weighted index.

Russell 2000® Index: Measures the performance of the 2,000 smallest companies in the Russell 3000® Index. It is a market-capitalization weighted index.

MSCI EAFE Index: Measures the performance of the large- and mid-cap equity market across 21 developed markets around the world, excluding the U.S. and Canada. It is a free float-adjusted market-capitalization weighted index.

Bloomberg U.S. Intermediate Govt/Credit Bond Index: Measures the performance of the non-securitized component of the US Aggregate Index. It includes investment-grade, US Dollar-Denominated, fixed-rate Treasuries, government-related corporate securities. It is a market-value weighted index

This long-awaited letter ended with an admonition: “Our residence halls are already full. Attached is a list of off-campus housing we suggest for first-year students.”

Gardener dreamed of living in New York City since she’d first learned about Dorothy Parker’s Algonquin Round Table lunches of the 1920s. Nearly every day, Parker joined other writers, critics, and actors at the Algonquin hotel for food, barbed humor, and sophisticated takes on life.

It formed Gardener’s image of—and yearning for—New York. For her, it was home to the witty, the fashionable, and the egg cream, whatever that was. She couldn’t wait to find out.

But her acceptance letter to NYU ended up in a drawer, never to be answered. “Maybe if there had been a residence hall to live in, I’d have taken the chance,” says Gardener. “But just to be out there in New York on my own? It suddenly felt too scary.”

Gardener attended nearby Michigan State University instead, where she won a scholarship to study in London for a summer, graduated with honors, and, incidentally, met her husband.

Still, Gardener says she has always regretted not going to school in New York.

Where Does Regret Come From?

Regret is the heavy feeling we get when we picture how things might have been if we’d made different life choices. When the feeling arises, research shows that two specific areas—the amygdala and the medial orbitofrontal cortex—are activated in the brain. This same brain activity also shows up in animals, who need to experience regret for survival.

While these pangs of conscience can affect us physically, causing symptoms like muscle tension, headaches, and even a weakened immune system, they also can be a healthy part of self-learning and growth, helping people move on from poor decisions.

What Do We Regret Most?

Dr. Shoshana Ungerleider is an internal medicine physician, host of the podcast Before We Go, and founder of the nonprofit End Well, which strives to reshape negative attitudes toward death and dying.

Over the years, Dr. Ungerleider has heard the deathbed regrets of several patients. These regrets seem to have two common themes: being afraid to take chances and focusing on the wrong things. Specifically, she lists them as:

There are four key categories of regret, says Daniel Pink: foundation regrets, boldness regrets, moral regrets, and connection regrets.

No Regrets

What about people who aren’t bothered by these kinds of feelings and claim to live without remorse? These are the folks who may proudly sport bumper stickers, t-shirts, even the occasional tattoo proclaiming “No Regrets.”

For people who have experienced injury to their medial orbitofrontal cortex, this may be true. Damage to that area of the brain can make it impossible to feel regret. But aside from having a brain injury, is it possible to live a life without remorse?

Dr. Ungerleider says that those who claim to live without regrets are usually expressing a desire to feel at peace with their choices. But this attitude can sometimes prevent people from engaging in meaningful self-reflection and personal growth.

“As someone who has worked with patients at the end of life, I’ve come to realize that the notion of living with no regrets is often an oversimplification of the complex human experience,” says Dr. Ungerleider. “While it’s admirable to strive for a life well lived, the reality is that regrets are a natural part of our journey.”

Acknowledging that we have regrets doesn’t diminish how we have lived, she says. “Instead, it can lead to profound moments of insight, reconciliation, and even personal transformation.”

Living with Regret

Self-compassion is a great way to begin to embrace regret. Instead of rehashing your mistakes, acknowledge that you did the best you could with the knowledge and resources you had at the time, says Dr. Ungerleider. “Treating yourself with kindness can shift the narrative from blame to understanding, allowing those painful moments to feel less overwhelming.”

Also, try to live in the present. When you dwell on past decisions, you are sending electricity to your medial orbitofrontal cortex. Do this often enough, and you create a well-traveled electrical pathway that can make you feel stuck or like you’re not in control of your thoughts. Instead, look forward to the choices ahead of you, which can be guided by what you’ve learned so far.

“It’s never too late to learn from regrets, no matter how old we are,” says Dr. Ungerleider. “Middle age and beyond offer a unique opportunity to reflect on past experiences with greater wisdom.

“While we can’t change the past, we can change how we respond to it, finding ways to reframe regrets and use them as a catalyst for growth,” she says. “What matters is how we interpret and integrate those experiences into the story of our lives, allowing us to embrace both the paths we’ve taken and the ones we haven’t.”

By Karen Sommerfeld

For more than a decade, Karen Sommerfeld has written content for the finance industry. She’s drawn to the behaviors and emotions around money. Karen joined CAPTRUST in the spring of 2024 as a marketing specialist. E.B. White inspired her retirement dream, which is to run a farm animal sanctuary.

Over the years, through regulation changes and plan design mandates, the three predominant types of defined contribution retirement plans—403(b), 401(k), and 457(b)—have grown more similar. 

However, a number of key distinctions remain. 

Understanding the nuances between these plan types can be daunting. But for those plan sponsors with a choice, like private tax-exempt 501(c)(3) charitable organizations, digging into the differences may help clarify which plan type, or combination of plan types, to offer. Below are the most significant distinctions among the three types of plans, in order of importance. 

Employer Eligibility 

One of the primary differences is the type of employer eligible to sponsor a particular type of plan. For example, state and local governments, public colleges, and universities may not offer a 401(k) plan unless their state maintained a 401(k) plan that was established before 1987.

Likewise, private tax-exempt organizations that are not 501(c)(3) educational or charitable organizations, such as associations and clubs, may not maintain a 403(b) plan. And while public and private colleges and universities may maintain a 457(b) plan, the rules governing these plans vary widely depending on employer type. 

Nondiscrimination Testing

Nondiscrimination testing in 401(k) plans requires that highly compensated employees (HCEs), defined in 2025 as those earning more than $155,000 in 2024, stay within a specific contribution rate determined by the average contribution rate of non-highly compensated employees (NHCEs). 

This testing is one of the key reasons why many private tax-exempt 501(c)(3) charitable entities, such as hospitals and colleges and universities, continue to use 403(b) plans instead of 401(k) plans. For 403(b) plans, it is unnecessary to test salary-deferred employee contributions. As a result, these HCEs have no additional limitations imposed on their ability to save other than the overall IRS 402(g) restrictions. 

For example, in a typical private 501(c)(3) tax-exempt organization, unmatched elective deferrals for NHCEs average 2 percent (this average includes individuals not deferring anything). At this level, HCEs in a 401(k) plan are limited to approximately 5 percent of pay rather than the 2025 IRS limit of 100 percent of pay up to $23,500 per year (or $31,000 if age 50 or older, $34,750 if age 60-63). Thus, these higher-compensated plan participants face significantly restricted deferral limits, which are otherwise moot in a 403(b) plan. 

A 457(b) plan presents the opposite problem for private tax-exempt entities. A 457(b) plan, sponsored by a private college or university that is not a 414(e) religious organization, is of limited use, since these top-hat plans are required to discriminate in favor of HCEs. Thus, they do not serve as the primary retirement plan for these organizations but are instead used as a supplemental plan for select groups of management employees. 

An advantage of 457(b) plans is that employer contributions of any type can be discriminatory, whereas in 401(k) and 403(b) plans, employer contributions must be tested for nondiscrimination (with the exception of certain organization types exempt from testing). 

Nondiscrimination testing is not a consideration for certain types of organizations. For example, governmental plans, such as those sponsored by public universities, are not subject to nondiscrimination testing, and 457(b) plans can be offered to all employees at these organizations. 

ERISA Coverage

Another defining feature of 403(b) and 457(b) plans is that elective deferral-only plans of private 501(c)(3) charitable organizations are generally exempt from the Employee Retirement Income Security Act (ERISA). While this is uncommon among 403(b) plans, ERISA exemptions are not a possibility for 401(k) plans. Note, however, that public entities and churches are not subject to ERISA, regardless of plan type; churches may elect ERISA coverage, but it is rare. 

Private education employer 457(b) plans are technically subject to ERISA, but a single top-hat filing with the government essentially exempts the plan from ERISA requirements. 

For 403(b) plans to be exempt, plan sponsors must only permit elective deferrals (no employer contributions) and satisfy several other requirements that generally restrict employer involvement in the plan. This exemption means that for these plans, no summary plan descriptions are required, no annual Form 5500s or summary annual reports are required to be filed and distributed, and an annual audit is unnecessary—the audit alone can be a significant cost factor as well as an administrative burden. While the 403(b) exemption is not as attractive as it once was due to new regulatory requirements, the ERISA exemption remains an important option for 403(b) and 457(b) plans, one that is unavailable in the 401(k) world.  

Universal Availability

The universal availability requirement is unique to 403(b) plans. Universal availability requires that all employees, with limited exceptions, be permitted to make elective deferrals from the date of hire. This contrasts with 401(k) plans, for which eligibility to make elective deferrals can be restricted, subject to nondiscrimination testing requirements. It is important to note that the recently enacted Setting Every Community Up for Retirement Enhancement (SECURE) Act now requires the inclusion of certain part-time employees in these 401(k) plans. 

Public 457(b) plans have no eligibility requirements, meaning that plan sponsors can allow all or any employees of their choosing to participate. As previously noted, private tax-exempt 457(b) plans can only permit select management and HCEs to participate. Additionally, independent contractors are permitted to participate in 457(b) plans, but not in 401(k) or 403(b) plans. 

Contribution Limits

While elective deferral limits to all three plan types are $23,500 in 2025, there are some other important contribution limit distinctions. In 457(b) plans, the limit on combined elective deferral and employer contributions is the same as the elective deferral limit ($23,500). In both 401(k) and 403(b) plans, the combined elective deferral, and employer contribution limit is significantly larger—up to $70,000 in 2025, depending on compensation. 

While the combined 457(b) limits are lower, the 457(b) elective deferral limit is not offset by 401(k) or 403(b) deferrals. Thus, the maximum deferral limit of $23,500 may be contributed to a 457(b) plan, regardless of whether any deferrals or employer contributions have been made to a 403(b) or 401(k) plan. For organizations offering a combination of these plans, this presents an opportunity for a participant to contribute to both. 

Special elections allow additional elective deferrals based on certain factors. The age 50 catch-up election, which expands the $23,500 limit in 2023 to $31,000, is available in 403(b), 401(k), and public 457(b) plans but is unavailable for 457(b) plans of private tax-exempt organizations. The same is true for the new Age 60-63 catch-up election under SECURE 2.0, which expands the $23,500 limit to $34,750.

Unique to 403(b) plans is the 15-year catch-up election, which allows a plan to permit employees who have 15 or more years of service and who satisfy additional requirements to defer up to an additional $3,000 beyond the 402(g) limit of $23,500 ($31,000 if age 50 or older, $34,750 if age 60-63) in 2025. However, this election can be complicated to calculate. The 457(b) election permits those in their final three years of employment prior to retirement to defer up to an additional $23,500 in 2025. 

Distributions

The 403(b) and 401(k) plans generally mirror each other in terms of distribution restrictions. For example, elective deferrals may not be withdrawn in either plan type until the attainment of age 59 1/2, termination of employment, hardship, death, or disability. 

However, 457(b) plans have different restrictions. Contributions may not be withdrawn until severance of employment, attainment of age 59 1/2 (70 1/2 for private tax-exempt organizations), or occurrence of an unforeseeable emergency (different rules than hardship withdrawals). For 457(b) plans at private tax-exempt organizations, there are additional restrictions as to the type of distributions that can be taken, and rollovers are not permitted. One advantage of 457(b) plans, however, is that the 10 percent excise tax for distributions prior to age 59 1/2 does not apply. 

Transfers and Exchanges

In 401(k) plans, the most common reason for plan-asset movement is employer-directed transfers due to the transition to a new recordkeeper. The situation is similar for 457(b) plans; however, some participants use plan-to-plan transfer provisions for cases in which a rollover is not permitted (i.e., private tax-exempt plans).

For 403(b) plans, there is more flexibility; however, even this has been somewhat restricted by the final 403(b) regulations that became effective a few years ago. Employers may transfer plan assets from one provider to another, but these transfers are more likely to be restricted at the provider contract level than in the case of a 401(k) plan. Plan participants may transfer plan assets in the form of an exchange to any approved provider in a 403(b) plan. Plan-to-plan transfers are also permitted, though employees often opt for a rollover instead.

Payroll Taxes

Contributions from employers with 401(k) and 403(b) plans are generally not subject to payroll taxes, such as FICA or Medicare. Since 457(b) plans are deferred compensation plans rather than retirement plans, employer contributions are treated as compensation that is subject to payroll taxes.

Provider Availability

A myriad of recordkeepers service 401(k) plans. Meanwhile, 403(b) and 457(b) plan assets are concentrated among a smaller selection of vendors. While this relative lack of competition can affect pricing and marketplace advancements for larger plans, 401(k), 403(b), and 457(b) product and service offerings are often comparable. While it is not uncommon for multiple recordkeepers to be offered within a 403(b) plan, it is less frequent in 457(b) plans and rare in 401(k) plans. 

Investments

Another important distinction for 403(b) plans is their limitation in terms of the investment types that can be offered. In these plans, investment types are limited to 403(b)(1) fixed and variable annuities and 403(b)(7) custodial accounts (known more commonly as mutual funds). Investments that are permitted in 401(k) and 457(b) plans, like individual securities, are prohibited in 403(b) plans. As of this writing, there is legislation pending that would permit Collective Investment Trusts, or CITs in 403(b) plans, but that legislation has not been passed as yet. It should also be noted that some 457(b) plans are subject to investment-type restrictions by law. 

Providing a competitive retirement plan benefit is often an important component of an organization’s recruitment and retention efforts. Understanding the availability, benefits, and limitations of the different plan types can help plan sponsors craft and maintain the most impactful retirement plan offering.

In addition to the key distinctions listed above, Figure One provides a comprehensive comparison of the remaining similarities and differences between 403(b), 401(k), and 457(b) plans.  

Figure One: Digging Deeper into the Similarities and Differences of 403(b), 401(k), and 457(b) Plans

Excise Tax on Large Endowments 

The law expands the existing 1.4 percent excise tax on net investment income for colleges and universities with large endowments. Now, more institutions may meet the threshold based on the size of their assets relative to student enrollment.

If you’re affiliated with a school or donor network affected by this provision, it’s worth reviewing your exposure. 

Two Key Changes to Charitable Deductions 

The new law enables more taxpayers to take charitable deductions. Currently, only about 10 percent of taxpayers itemize their taxes1, which means most of the remaining 90 percent receive no tax benefit for their giving. The OBBB addresses this by allowing all taxpayers to deduct a portion of their charitable giving: up to $1,000 for individuals and $2,000 for married couples. 

Second, high-income donors will see tighter limits on itemized deductions, including charitable contributions. While the charitable deduction remains intact, the cap on total itemized deductions, sometimes called the Pease limitation, has been reinstated for certain earners. This change could affect giving behavior among major donors. 

Private Foundation Reforms 

Private foundations also face new compliance expectations, including: 

These updates may lead to more administrative oversight and planning considerations for foundation boards and staff. 

Proposed increases on excise taxes for private foundations did not make it past the Senate. These increases would have had a significant impact, especially on the largest private foundations, amounting to an estimated annual tax increase of $2.9 billion.2

Funding for the IRS and Oversight 

The bill increases funding for IRS oversight of tax-exempt organizations, signaling a likely rise in audits and enforcement activity in the years ahead. 

The Bottom Line 

While this legislation is primarily tax-focused, it also has implications for the nonprofit sector. Now is a good time to review governance policies, assess compliance processes, and revisit planned giving strategies with your advisory team. 

If you have questions or want to talk through next steps, your CAPTRUST team is here to help. 

1 “Trends in Itemized Deductions Since TCJA,” USAFacts

2 “Understanding Proposed Tax Changes for U.S. Private Foundations,” United Philanthropy Forum

The information provided is for educational purposes only, and does not constitute an offer, solicitation, or recommendation to sell or an offer to buy securities, investment products, or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. Consult your tax and legal professional for details on your situation. 

Many Temporary Tax Cuts Are Now Permanent 

Several provisions from the 2017 Tax Cuts and Jobs Act (TCJA) are here to stay.  

Changes for Seniors, Young Families, Students, and Tip-Earners 

These are changes to keep an eye on, especially if you’re a high-income filer or retiree: 

Other Tax Changes at a Glance 

What This Could Mean for You

This legislation may reshape your tax and estate strategy. While some provisions take effect in 2026, others start immediately. 

This is a great moment to revisit your financial plan. Reach out to your CAPTRUST advisor to explore what these changes could mean for you—and how you might adjust your investment portfolio, estate plan, or withdrawal strategies to navigate the new tax landscape.

The information provided is for educational purposes only, and does not constitute an offer, solicitation, or recommendation to sell or an offer to buy securities, investment products, or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. Consult your tax and legal professional for details on your situation. 

When it comes to safeguarding your family’s financial future and protecting your wealth, life insurance plays a pivotal role. Regularly reviewing your life insurance portfolio with an experienced advisor should be an integral part of your financial planning.

Understanding Your Life Insurance Portfolio

Life insurance is often an undermanaged insurance asset. Conducting a periodic or annual review of life insurance policies can identify weaknesses and lead to opportunities for improvement that can substantially reduce risk and potentially improve your long-term results.

Over time, policies acquired may not perform as originally expected. Couple this with life’s changing financial, family, and health circumstances, and it becomes imperative to monitor your life insurance policies and coverage needs regularly.

Key Considerations in Life Insurance Policy Reviews

  1. Tax Efficiency: Life insurance can have significant income and estate tax implications, both during your lifetime and after. Strategies like creating an irrevocable life insurance trust or using tax-advantaged investment options within your policy can lead to reduced tax consequences.
  2. Identifying Coverage Gaps: Over time, financial obligations, taxes, and other liabilities can change. Your financial advisor can conduct a thorough review of your insurance coverage to identify any gaps and recommend appropriate adjustments to help ensure you and your family are adequately protected.
  3. Optimizing Your Insurance Portfolio: Life insurance policies vary widely in terms of structure and features. Ask your financial advisor to help you assess whether your current policies are suitable for your needs. They can explore options to optimize your policies, such as converting term life insurance to permanent insurance or adjusting the coverage amount to align with your current financial situation and objectives. In some cases, policies can lapse before life expectancy, or there will be deadlines within the policies that must be adhered to.
  4. Life Insurance Investment Performance: Some life insurance policies, particularly permanent policies such as variable universal life insurance, include cash value components that can be invested. When conducting life insurance policy reviews, an advisor can assess the performance of these investments within your policies and assist with adjustments or reallocations to optimize returns and align with your risk tolerance.
  5. Cost Efficiency: As you age and your circumstances change, the cost-effectiveness of your policies will also be an important consideration. An advisor can help you evaluate whether you’re getting a fair value for your premiums and explore cost-efficient alternative options, if necessary.

As you develop your financial plan, many elements could be labeled as set-it-and-forget-it aspects. Life insurance is not one of them. To remain effective, it requires regular attention and adjustment. Regularly reviewing your life insurance portfolio within the context of your wealth, estate, and business preservation planning is not just a prudent practice; it’s essential.

Nonqualified deferred compensation (NQDC) plans are a key tool for attracting and retaining top-tier executives, allowing high earners to save beyond the limits of qualified retirement plans. But understanding how to maximize this benefit isn’t always clear.

Increasingly, plan sponsors are realizing that many NQDC plan participants are underinformed or simply unaware of how to take full advantage of their plans. The result? A growing need for robust financial wellness solutions that offer not only education but personal financial advice.

“It’s easy to assume that people who earn a higher income must be financially well educated or financially savvy,” says Katie Securcher, a senior manager on CAPTRUST’s nonqualified executive benefits team. “But the truth is that these folks need help—help understanding their benefits and making the best use of their plan.”

The Case for Better Education

The 2024 NFP “U.S. Executive Compensation and Benefits Trend Report” found only 29 percent of participants fully understand their NQDC benefits. That’s a problem, especially when participants are making long-term decisions with complex tax consequences.

The good news is, for the most part, employers know that communication and education need to improve. According to the 2024 Newport/PLANSPONSOR “NQDC Plan Trends Survey,” 72 percent of plan sponsors say improving communication and education is their top priority for NQDC plans. This outpaces other enhancements like digital tools (32.8 percent) or investment menu reviews (32 percent).

It’s important to remember that Section 409A, which created and governs NQDC plans, has only been around for 20 years. “We spent the last two decades rolling out these plans, making the benefit available, and trying to get people to participate,” says Securcher. “But the industry hasn’t done a great job advertising them or teaching people how they work.”

Financial Wellness as the Fix

That’s where financial wellness comes in. “The best financial wellness programs, like the best financial advisors, don’t just explain how things work,” says Securcher. “They help participants connect the dots between their income, savings, tax strategy, and long-term goals. They show people how to balance all the various pieces of their finances and view them as part of a holistic picture.”

In the past few years, financial wellness programs have become an increasingly popular employee benefit. For both employers and employees, they have been highly desirable. And they seem to work.

A recent PLANADVISER spotlight noted a 60 percent drop in extreme financial stress among employees who engaged with one financial wellness tool. These aren’t just feel-good benefits. They have a measurable impact on participant well-being and performance.

“We have an opportunity to make a real difference for participants—but that requires engagement,” says Chris Whitlow, senior director and head of CAPTRUST at Work, the firm’s financial wellness solution for employers and retirement plan sponsors. “Many participants don’t fully realize the strategic nature of nonqualified plans until they’re at a decision point, often under pressure. That’s why education and early planning are so critical.”

Three Distinct Phases of NQDC Participation

Whitlow says a more tailored approach to education starts with recognizing where someone is on their NQDC journey. “We tend to see participants fall into one of three phases—early, middle, or late,” says Whitlow. “Each phase comes with a unique set of questions and planning considerations.”

“Effective education must be tailored,” Whitlow says. “Someone just getting started needs foundational guidance. Someone preparing for distributions needs highly specific, scenario-based advice. A segmented approach makes education far more relevant—and ultimately more actionable.”

How to Deliver NQDC Education

Here are a few examples of what some plan sponsors are doing to educate participants.

  1. Use live sessions to spark engagement: Whether virtual or in person, regular sessions give participants the opportunity to ask questions and get clarity. “Employers sometimes have a hard time explaining the ins and outs of their nonqualified plan,” says Securcher. “But they can tap their financial advisor or plan administrator to help. Once people hear things without jargon, it usually clicks.”
  2. Provide support before the enrollment window: Most key decisions and elections need to be made during open enrollment or onboarding windows. “We want participants to start investigating and learning about their options before it’s decision time,” says Whitlow. “If we wait, we’ve likely missed the window to influence an appropriate outcome.”
  3. Pair digital tools with human help: A well-designed portal is useful, but nothing replaces a personal conversation. “Typically, the participants who really understand their plan are the ones who got personalized advice from a human,” said Securcher. “A coach, an advisor, someone who explained the ‘why.’”
  4. Tailor communication to senior leaders: For executives, delivery matters. Keep communication concise, context-specific, and benefit-focused. Consider incorporating tax projections or scenario modeling into conversations.

What’s In It for Plan Sponsors?

When employees maximize their NQDC plan they’ll value it more, and they’ll advocate for it. What are the benefits for plan sponsors?

Enter Generative AI

Generative AI has the potential to revolutionize participant education by making it smarter, faster, and more personalized. AI-powered tools can offer on-demand explanations of plan provisions, simulate distribution strategies, or help participants model the tax impact of deferral decisions—all in natural language.

“AI can play a meaningful role in lowering the barrier to entry for participants who may feel hesitant or unsure,” says Whitlow. “When applied thoughtfully, it can personalize the experience, introduce a sense of empathy, and help participants ask more informed questions when they engage with their advisor.”

Instead of reading through dense plan documents, participants could one day ask detailed questions about their unique financial situation and receive a tailored, plain-English answer—instantly.

AI can’t replace good, human advice, but it can be a powerful first step. Especially for early-phase participants who are intimidated or unsure, AI can help reduce the friction of getting started. “If technology helps participants approach a conversation with greater clarity and confidence, that’s a win—for them and for their advisor,” says Whitlow. “It’s not a replacement for human advice, but it can be a powerful complement.”

Moving Forward

Whether your NQDC plan is a legacy benefit or a recent addition, now is the time to re-evaluate how well participants understand it. Do they know how to elect deferrals strategically? Are they choosing thoughtful distribution schedules? Do they understand the tax implications?

If not, the solution isn’t just plan redesign—it’s education.

“Sometimes, we hear from employers that NQDC participation is low and people don’t seem to take advantage of the benefit,” says Securcher. “Almost always, what’s happening is not a lack of interest. It’s a lack of clarity. When people get clear on what the plan can do for them—they use it.”

DISCLOSURE: The information provided is for educational purposes only, and does not constitute an offer, solicitation, or recommendation to sell or an offer to buy securities, investment products, or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. Consult your tax and legal professional for details on your situation. 

Investment advisory services offered by CapFinancial Partners, LLC (“CAPTRUST” or “CAPTRUST Financial Advisors”), an investment advisor registered with the SEC under The Investment Advisers Act of 1940.

Estate planning is an iterative process organizing finances and belongings. Each estate plan varies depending on your unique situation. It reflects the complexity of your financial life, building on early foundations as complexity layers. Estate planning can ensure that transfer of property aligns with your wishes during life and after death. It can also mitigate costly expenses like estate tax and probate fees. Always consult an estate planning attorney to draft documents relevant to your specific situation.

Considering your stage in life helps identify some common estate planning steps that could be helpful to consider. Regardless of your stage in life, there are essential documents applicable to all adults.

The Five Essential Estate Documents:

Young Adult

These five essential estate documents listed above are important documents from the time a child turns 18 years old. The child is legally an adult, and the rights that parents previously had to discuss medical choices or deal with financial matters cease.

Even though a young adult may not have substantial assets, it is important to establish basic documents. A simple will granting their estate to their parents or siblings should be considered.

Another priority is establishing a Durable Power of Attorney and Healthcare Power of Attorney. Consider parents or another trusted adult for these responsibilities. In the event of an unexpected medical or personal emergency, these legal documents allow a trusted person(s) to handle the affairs of an adult unable to make decisions on her or his own.

Establishing Living Will and HIPPA Authorizations help the trusted person(s) operate within the wishes of the individual drafting the documents, empowering them to share necessary information.

Ensuring primary and contingent beneficiaries are listed on investment accounts and insurance policies also impacts the ease of asset transfer, ensuring that wealth impacts the people you want it to.

For Unmarried Partners

If you have a committed partner but aren’t legally married, it is important for couples to discuss and execute estate planning documents, since a non-married partner is not granted many of the state-law and federal benefits of a married spouse. A non-married partner will not have certain inheritance rights that a married couple would have. A will or trust is crucial to help ensure that upon one partner’s death the other receives intended assets, without family or government intervening. Without one, state laws usually prioritize your closest relatives, which could mean your partner is left out entirely.

For Married Couples

As you plan your future together with your spouse, it is critical to discuss and prepare your estate plan. When you get married, your legal and financial status changes. As you potentially begin obtaining shared income, purchasing property together and filing joint tax returns, you will also want your estate plan to reflect a married relationship. Along with the five essential estate planning documents you will want to review your beneficiaries and possibly change the ownership of assets to joint.

Parents

Establishing guardianship in the event of the death of a parent is non-negotiable for parents. Without doing so, the court may determine where children may live. That may conflict with the wishes of parents with a much more intimate understanding of their children’s needs.

Life insurance is also important, as it can provide financial support to your family in the event of an untimely death, helping to replace your income and ensure your family’s needs are met.

Beyond wills, you might consider setting up a trust to oversee your children’s inheritance if both parents die simultaneously. Trust provisions can provide detailed instructions about your intentions for when and how your children receive their inheritance.

Parenthood also opens the opportunity to leverage 529 Plans to help save for children’s education. Parents can super-fund these flexible tax advantaged accounts, meaning they can contribute the equivalent of five years’ worth of annual exclusion gifting without filing a gift tax return.

Early Retirement

Reviewing the essential estate planning documents, account beneficiaries, and any trust documents is imperative. Levels of assets, age of beneficiaries, and the time from the last draft of the document could have changed. This means that your documents may no longer reflect your wishes.

Advanced Age

If you are elderly or dealing with illness, it’s important to create or update your will and think about setting up a revocable living trust. Make sure you have a durable power of attorney and a clear healthcare directive in place to guide decisions if you become unable to speak for yourself. Communicate your wishes openly with your family and ensure they know where to find your essential documents.

Resource by the CAPTRUST wealth planning team