§401(h) is rule-bound but not complicated. Most failures we see are operational, not structural — and almost all of them are preventable with a competent TPA and a quarterly compliance check.
Structural and design mistakes
- Trying to attach a §401(h) to a 401(k) plan (only DB plans qualify)
- Skipping the plan amendment and treating §401(h) as a TPA add-on
- Commingling §401(h) and pension assets in trust accounting
- Sizing §401(h) at exactly 25% with no smoothing buffer
Operational mistakes
- Reimbursing non-qualified expenses (cosmetic procedures, supplements)
- Reimbursing expenses incurred before retirement
- Missing §401(h) line items on Form 5500
- Allowing §401(h) reversion to the employer without satisfying ERISA conditions
Beneficiary mistakes
- Naming non-dependent adult children as §401(h) beneficiaries
- Failing to update beneficiary documentation after marital status changes
Educational only. This page is for general education on §401(h) accounts and qualified retirement plan design. It is not individualized investment, tax, or legal advice. Consult a qualified fiduciary advisor, enrolled actuary, and ERISA counsel before adopting a §401(h) sub-account.