C-ELBW common mistakes
C-ELBW · Understand the traps and how to avoid them.
Treating ERISA's fiduciary duties as identical to the prohibited transaction rules and analyzing a self-dealing fact pattern only under the prudence and loyalty standards, never running the party-in-interest analysis under ERISA section 406 or the statutory exemptions.
The two concepts are taught together and both appear in questions about fiduciaries, so candidates collapse them into one issue and stop after finding a breach of loyalty. They miss that a transaction can be exempt from section 406 but still fail the section 404(a)(1) duties, or vice versa.
What to do instead
Adopt a two-step checklist for every fiduciary fact pattern: first identify whether the person is a fiduciary acting in a fiduciary capacity, then test the conduct separately under section 404(a)(1) (prudence, loyalty, diversification, plan documents) and under sections 406(a) and 406(b) (party in interest, self-dealing, kickbacks). For each section 406 issue, expressly ask whether a statutory or administrative exemption (for example PTE 84-14, 2020-02, or the section 408(b)(2) service arrangement rule) applies before concluding a violation exists.
Applying the ADP and ACP tests, top-heavy rules, and coverage tests to the wrong employee population, for example testing only non-highly compensated employees who are participants rather than all eligible employees, or forgetting to include employees who could have deferred but chose not to.
The testing rules use several different denominators (all eligible employees, all nonexcludable employees, all benefiting employees), and candidates memorize formulas without tracking which population each test uses. The 410(b) coverage ratio, 401(a)(26) minimum participation, and 401(k) ADP test each pull from a different group.
What to do instead
Before computing any test, write out the exact population definition the regulation uses and reconcile it to the plan's eligibility and entry provisions. For ADP/ACP, build the average of actual deferral percentages using all eligible HCEs and all eligible NHCEs, including zero-deferral employees, and confirm the testing year and compensation definition. For 410(b), use the ratio percentage and average benefit tests on nonexcludable employees, then check 401(a)(26) separately for defined benefit and certain other plans.
Concluding that a benefit claim is exhausted or that a participant has no remedy without walking through the ERISA claims procedure timelines, the deemed-exhaustion rule, and the standard of review that applies after suit is filed.
Candidates conflate the internal appeal process with the litigation standard and assume that a procedurally flawed denial automatically results in an award of benefits. They also overlook that the plan's failure to meet deadlines can create deemed exhaustion in the participant's favor and that discretionary authority language affects judicial deference.
What to do instead
Map the claim timeline step by step: initial decision deadlines (generally 30 days for group health and disability, 90 days for pension claims, with permitted extensions), appeal deadlines (generally 60 days for group health, 180 days for disability, 60 days for pension), and the consequences of missing each deadline. Then state the standard of review (de novo unless a valid discretionary grant exists, subject to the firestone framework and any state-law ban on discretion for disability claims). Analyze procedural irregularities as a factor affecting the remedy, not as an automatic win.
Calculating a withdrawal liability payment using the plan's contribution rate or the employer's average contribution without correctly identifying the applicable allocation method, the unfunded vested benefits, and the statutory caps and de minimis adjustments.
Withdrawal liability questions look like simple arithmetic, so candidates skip the framing questions: which allocation method the plan uses (presumptive, modified presumptive, rolling-five, direct attribution), whether the employer is completely or partially withdrawn, and whether the 20-year payment cap or the 20% down payment rule applies.
What to do instead
For every withdrawal liability problem, first classify the withdrawal (complete versus partial, and the sale-of-business and building-and-construction exceptions), then identify the allocation method from the plan document and any plan amendment. Compute unfunded vested benefits as of the plan year before withdrawal, apply the allocation to the employer's contribution base units, then apply the statutory limits: the annual payment cap based on the highest contribution in the prior 20 years, the 20-year cap on total payments, and the de minimis reduction for small employers. Show each step separately so partial credit is preserved.
Analyzing deferred compensation arrangements under the constructive receipt doctrine alone and ignoring the section 409A operational rules on initial deferral elections, permissible payment events, and the six-month delay for specified employees.
Older study materials and general tax training emphasize constructive receipt, so candidates default to that framework. They then miss that section 409A imposes separate documentary and operational requirements, that violations trigger immediate income inclusion plus a 20% additional tax and interest, and that certain payment events (such as a change in control or unforeseeable emergency) have narrow definitions.
What to do instead
For any nonqualified deferred compensation fact pattern, run a 409A checklist: is there a written plan, was the initial deferral election timely (generally before the year of service, with the 30-day and performance-based exceptions), is each payment triggered by a permitted event under section 409A(a)(2), and does the plan apply the specified-employee six-month delay and the prohibition on acceleration. Separately analyze constructive receipt for arrangements that fail to defer, and note the 280G golden parachute and 162(m) deduction limits where change-in-control or executive pay facts appear.
Answering COBRA questions by reciting the 18-month maximum period without checking the qualifying event, the small-employer exception, the disability extension, the second qualifying event extension, and the plan's obligation to give timely notices with correct content.
The 18-month figure is the most memorable number in the COBRA rules, so candidates anchor on it and overlook that different qualifying events carry different maximum periods (36 months for divorce, death, Medicare entitlement; 29 months for disability) and that the employer must notify the plan within 30 days of certain events while the plan administrator must notify qualified beneficiaries within 14 days.
What to do instead
Build a qualifying-event table listing, for each event, who must give notice, the deadline, the maximum coverage period, and whether the disability extension or second-event extension applies. Always check the 20-employee threshold and the controlled-group aggregation. Verify the election window (60 days from the later of coverage loss or notice) and the premium payment grace period (45 days for the initial payment, 30 days thereafter) before concluding coverage lapsed.
Treating an operational failure as uncorrectable or, conversely, assuming self-correction is always available, without applying the specific correction program's eligibility conditions, such as the requirement that the failure be insignificant, that it be corrected within the applicable correction period, and that the plan have established practices and procedures.
Candidates learn the names of the correction programs but not their gatekeeping conditions. They apply the self-correction safe harbor to significant failures, or they assume a plan can use the voluntary correction program for an egregious failure or for a failure that is actually a disqualifying defect requiring a different remedy.
What to do instead
For each failure, state the type (plan document, operational, demographic, employer eligibility), then test eligibility for self-correction: insignificant versus significant, the correction period (generally two years for significant failures under the current self-correction framework), and the practices-and-procedures requirement. If self-correction is unavailable, describe the voluntary correction submission, the required content (description of failure, method of correction, calculation of amounts), and the sanctions. Confirm the correction restores participants to the position they would have occupied, including earnings.
Missing the health and welfare mandates that interact with ERISA, such as the ACA market reform requirements, HIPAA portability and privacy rules, and the mental health parity and transparency rules, because the candidate treats health plans as governed by ERISA alone.
ERISA is the first framework taught, and candidates apply its reporting and fiduciary rules to health plans without layering on the Public Health Service Act mandates incorporated through the Code and ERISA, or the HIPAA nondiscrimination and special enrollment rules that apply to group health plans.
What to do instead
Create a layered checklist for any group health plan question: ERISA (fiduciary, reporting, claims), the Code (nondiscrimination, cafeteria plan rules, ACA taxes and mandates), the PHS Act (market reforms such as preventive services, dependent coverage to age 26, lifetime and annual limit bans, and the transparency and parity rules), and HIPAA (portability, special enrollment, privacy, and nondiscrimination on health factors). Note which requirements apply based on grandfathered status and plan size, and state the exception or exemption relied on before answering.
Ignoring the ethics and professional responsibility dimension of a fact pattern, such as a conflict of interest, a client's request to backdate a document, or a fiduciary's reliance on an adviser with a financial stake, and answering only the technical compliance question.
Candidates treat ethics questions as soft or obvious and focus on the substantive rule. They miss that the exam expects identification of the conflict, the duty of loyalty and prudence, the obligation to disclose conflicts, and the professional standards (competence, confidentiality, integrity, and avoidance of conflicts) that apply to the adviser or fiduciary.
What to do instead
When a fact pattern contains a conflict, a pressure to alter records, or an adviser with a financial interest, add an explicit ethics paragraph: identify the duty implicated, state whether disclosure and consent are required, describe the recommended course of action, and note the consequences of failing to act. For document-integrity issues, state that backdating or altering records is prohibited and describe the proper correction route. Keep the technical analysis separate so both are scored.
Applying a rule from memory without checking its effective date and transition relief, particularly for recent legislation and regulations such as the SECURE Act and SECURE 2.0 provisions, the 2020 final regulations on electronic disclosure, and the 2024 mental health parity rules.
Recent developments are tested with dates and applicability conditions, and candidates remember the headline change but not when it applies, which plans are exempt, or what transition relief exists. They then apply a requirement to a plan year before its effective date or ignore a delayed applicability date.
What to do instead
For every recent-law question, write the provision name, its statutory or regulatory citation, its effective date, and any transition relief or plan-size exemption before applying it. Build a one-page timeline of the major recent changes (SECURE Act 2019, SECURE 2.0 in 2022, the 2024 parity final regulations, the 2024 automatic enrollment and emergency savings provisions) with the plan years to which each applies, and check the plan year in the fact pattern against that timeline.