PROFESSOR SAMANTHA PRINCE AND RESEARCH ASSISTANTS LUKE GORMAN AND NICOLE CESANEK COMMENT ON THE EFFECTS OF VESTING SCHEDULES ON VICTIMS OF DOMESTIC ABUSE
October 2024 — Professor Samantha J. Prince was joined by members of her research team, Luke Gorman ’25 and Nicole Cesanek ’26, in responding to the Internal Revenue Service’s request for comment with respect to Section 72(t) of the Internal Revenue Code.
Their public comment drew on Professor Prince’s scholarship in the employee benefits space to inform the IRS on how vesting schedules inhibit victims of domestic abuse from accumulating funds necessary to escape an abusive situation. SECURE 2.0 Act permits 401(k) plans to include the ability for domestic abuse victims to withdraw from their vested accounts (subject to limitations). This is an important feature to aid an individual who needs access to funds particularly to escape their abuser. Section 314 of the SECURE 2.0 Act allows for this withdrawal to occur without the typical pre-retirement withdrawal ten percent penalty. Therefore, domestic abuse victims are able to withdraw funds from their 401(k) before the typical retirement time without penalty.
Importantly, the statute limits the amount that one can withdraw based on an individual’s total vested account balance. In other words, a victim of domestic abuse must either accumulate the funds necessary to escape their abuser on their own or must wait years to access those funds solely due to their employer’s vesting schedule. When money is needed and time is of the essence, a vesting schedule should not be the sole reason that a victim cannot escape their abuser. This comment argues that, for this reason and many others, vesting schedules should be disallowed in 401(k) plans.
This comment builds off research illustrated in Professor Prince’s recent scholarship: Benefits Transparency (forthcoming Marquette Law Review), Megacompany Employee Churn Meets 401(k) Vesting Schedules: A Sabotage on Workers’ Retirement Wealth?, and The Effects of 401(k) Vesting Schedules — In Numbers.
The comment was directly submitted to the Internal Revenue Service on October 7, 2024.
Professor Samantha Prince is an Assistant Professor of Law and Director of Legal Analysis & Writing at Dickinson Law. She has a Master of Laws in Taxation from Georgetown University Law Center and was a partner in a regional law firm where she handled transactional matters that ranged from an initial public offering to regular representation of a publicly-traded company. Most of her clients were small to medium sized businesses and entrepreneurs, including start-ups. A significant part of her practice was in employee benefits including retirement plan design and operation. An expert in entrepreneurship law, she established the Dickinson Law entrepreneurship program, is an advisor for the Entrepreneurship Law Certificate that is available to students, and is the founder and moderator of the Inside Entrepreneurship Law blog. Her research mainly comprises the changing world of work.