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blguest, are you certain the plan is an ERISA-governed plan? Might the plan be a governmental plan? If a governmental plan recognizes a domestic-relations order, the plan might require conditions much tighter than ERISA § 206(d)(3) sets. And there can be applicable law beyond the thing that to pension practitioners looks like “the” plan document. Even if an ERISA-governed plan must recognize, or a non-ERISA plan provides that the plan recognizes, not only an order that specifies “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee” but also an order that specifies “the manner in which such amount or percentage is to be determined”, a plan’s administrator might insist that an order “clearly specifies” that “manner”. ERISA § 206(d)(3)(C). Further, consider that a Federal court might defer to an administrator’s exercise of discretion about what “clearly specifies” means, unless one’s interpretation of law or finding of facts is too obviously capricious. For a governmental plan, State law often prescribes in which court and with what special notices and procedures one may sue a governmental actor. And a plan’s administration might be entitled to an attorney general’s or other government-engaged lawyer’s defense with no expense borne by a decision-making official or officer. This is not advice to anyone.

No, QNECs are not subject to 402(g). Somebody could do 24,500 AND get a QNEC. They're nonelective contributions, so I suppose a sponsor could give someone a 72,000 QNEC if they wanted to be that *one* employer..... They are included in the 401(k) test if the employer elects to treat them that way. So in theory, not necessarily, but it's one of those things where the sponsor's probably making them only with the intent of including them. (And then the 401a4 rules can get slightly annoying if you do have QNECs being used in the ADP test.)

The PA has no interest in the method of division, but (as @QDROphile correctly states) the PA can "refuse to do the math". Preferably, this condition is already stipulated in the plan's written QDRO procedures. You did review those procedures, didn't you?

The original poster could probably benefit from reading/re-reading the top-heavy statute, section 416 of the Internal Revenue Code: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section416&num=0&edition=prelim and the regulations: https://www.ecfr.gov/current/title-26/section-1.416-1. (Regs in Q&A format.)

Thank you, Bri! While an odd scenario I haven't used, a client brought it up today and I was very sure it was possible, just kind of silly as the math doesn't usually work in their favor. They're just the curious type and I like to be very straight with them on how things work. One follow-up - Is a QNEC is given in the "goodwill" fashion, the contribution given still counts as Employee Deferrals when calculating the ADP/ACP test, correct? And I would assume the 402(g) limit still needs to be followed when adding actual deferrals to the QNEC amount?

Correct It can, the rules on that changed some years ago, but check the terms in the plan document to verify it is allowed by that particular plan.

As long as they're permitted by your plan document, then that's absolutely a workable solution to the test results. QNECs in and of themselves can exist for no particular reason other than Sponsor goodwill. But they're usually provided specifically because of how they help testing results.

Bill Presson, thank you for aiding my thinking. About the plan that started my thinking about this recordkeeper service and its charge on a to-be-located participant’s account: From an employer’s perspective, a plan provision imposing a small-balance involuntary distribution would not be less expensive than any expense for a locator service if an employer pays no plan-administration expense. From a participant’s perspective: An involuntary distribution and default rollover could result in an IRA with similar yearly account charges and higher-expense investments. (Imagine a big employment-based plan has enough purchasing power to get investment funds with lower expenses than a nonwealthy individual’s IRA could get.) A mail-hold might not be put on an individual’s account until all addresses—email, smartphone, and postal—have suffered bounce-backs. That means such a participant likely would not receive a notice that her failure to specify what she prefers for her involuntary distribution results in an IRA she won’t know how to communicate with. (And a participant likely will have forgotten the summary plan description that described the plan’s provisions for an involuntary distribution and default rollover. 29 C.F.R. § 2550.404a-2(c)(4) https://www.ecfr.gov/current/title-29/part-2550/section-2550.404a-2#p-2550.404a-2(c)(4).) Even if imposing a small-balance involuntary distribution might lessen the number of people subject to a locator service, there would remain many with bigger accounts. A participant might no longer receive quarter-yearly notices of her electronic opportunity to retrieve account statements and other information. A participant might no longer receive paper statements. But a participant still has electronic access to the plan’s website the recordkeeper maintains, and electronic access to her account. And likely has telephone access. Some participants don’t need or want reminders. But paying for the recordkeeper’s locator service presumes the class of participants wants reminders. I see a view that some neglectful participants might welcome being told that one should furnish at least one functional address so the plan has a way to communicate to the participant. And I recognize that meeting that purpose involves acting on a class and so burdens some people who don’t want any reminder (or at least might welcome paying for it). Yet, questions about whether a fiduciary ought to incur an expense and who ought to bear the expense don’t always have one tidy answer about what course of action is “solely in the interest of the participants and beneficiaries . . . for the exclusive purpose of[] providing benefits to participants and their beneficiaries [while] defraying [no more than] reasonable expenses of administering the plan[.]” BenefitsLink neighbors, more observations about this?

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Hi Effen, yes I am sure. They stated they will not qualify an order using a fraction for any benefit in pay status, they will only consider hard numbers (straight percentage or dollar figures). They had no issue with the architecture of the fraction or its presentment, only that it was in use at all, which is what has me here canvassing for others' thoughts. As I read § 1056(d)(C)(ii), and of course the plan document, their demand has no legitimacy, but as it is always possible that those here with experience on the PA side of things may have ideas I haven't considered, I'm all ears. The weird part is that these are not small or new or specialized plans. That the sponsor is a quasi-governmental entity, albeit the plans being purely ERISA creatures, may have something to do with it, but the PA must still administer the plans properly.

Can a plan utilize both a QNEC and ROE for correcting ADP/ACP failures? The client essentially wants to fund a little via the QNEC which should, in turn, lessen the ROE. Is this allowed? Similarly - Can any client fund a QNEC at any time or are QNECs only for use in ADP/ACP corrections? I feel like I have been told they can be done whenever and wanted to make sure. Thank you!

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Are you saying the plan uses a permitted disparity formula and is using 100% of the taxable wage base? If so, you could view the formula as either 6% of all compensation, plus an additional 5.7% on any compensation over the SS wage base 6% of compensation between 0 and the SS wage base, and 11.7% on compensation over the integration level Both achieve the same thing, and I've seen different individuals prefer calculating it either way. If you're asking specifically about a formula for excel to calculate it, I'd use =0.06*B2 + 0.057*MAX(0,B2-176100) Assumes 2025 taxable wage base, replace the 176,100 if using a different year. B2 would be the compensation used for allocations, can be changed to meet your needs.

@Peter Gulia I'm glad you mentioned that. I was going back and forth on if legitimizing the distribution made it an eligible rollover distribution and therefore no longer subject to the early distribution penalty. @R Griffith This plan is already at brokerage accounts and the Custodian doesn't seem to want to assist with any part of the correction. I get the impression that renaming the Roth IRA is NOT an option.

Are you sure that is the reason for not qualifying it? I agree that the use of a coverture fraction is very common, so not sure why the PA has an issue with it. Have they specifically stated the coverture fraction is a problem? If so, what didn't they like about it? If the benefits are already in pay status, only option s/b a shared interest, so just a question of how you split the benefit that is already commenced.

Thanks! And, just so I'm clear, the Safe Harbor Match doesn't override the Top Heavy requirement in this case due to the presence of the Cash Balance Plan? (And, unlike the 3% Safe Habor, the Match doesn't apply to this Top Heavy requirement so participants who are getting the match will also get the full 5%?) Sorry, I just want to make sure I'm not overthinking this. Thank you!

A lot cheaper and fewer issues to add the $7k cash out isn’t it?

Thank you for taking the time to reply — I really appreciate it. As I continue on this path, the real challenge is understanding what the right seller or right‑size business would look like. I’m also checking out the broker idea--another member passed along a lead. Thanks to you and the other members, I’ve got a good starting point. Regards,

Thanks for your thoughts QDROphile. Courts frequently divide DB benefits by application of a coverture fraction, aka the time rule application to the marital portion of a benefit (X is assigned 50% of the marital portion of Y's benefit). Most folks here are aware that the fraction defines a marital portion of a benefit, the numerator representing a length of a marital period and the denominator representing the entirety of a benefit. A QDRO defines these elements precisely so that a plan can calculate the portion allocated to an alternate payee. The plan admin could not cite to any plan document provision exempting them from the application of 29 USC § 1056(d)(C)(ii) (manner in which such amount or percentage is to be determined), and I'm not seeing how the application it of creates any kind of problem for an ERISA DB plan. Of course, some plans may not want to do the math, even though that stance costs litigants (both plan beneficiaries) more money, but that does not give them an out from the statute for qualifying an order. You see it differently though, it seems, and I would appreciate your further thoughts on why. The time rule / coverture fraction exists because parties to a QDRO always know the numerator, but almost never know the denominator. For a benefit in pay status, the denominator is part of the plan's records, and may be known by the participant, but alternate payees and courts almost never know it, and plans are not forthcoming with the data in the absence of participant cooperation. As participants are frequently not around, or have died, that information remains out of an alternate payee's reach, making doing the math impossible for all but the plan.

Please explain how you envision that this would work and what aspect is troubling the plan . I think it is fair for the plan to require a “split the payment” approach: fraction x amount of monthly (?) scheduled payment = amount of monthly (?) payment to alternate payee The plan can refuse to do the math (apply a verbal formula) to determine the fraction and require the order to state the fraction.

Thank you very much. If I am interpreting all of this correctly, it would be fine for an employer to offer the benefit of lower health care rates to two employee families, as long as the employer offered the same lower rate to all two employee families. Is that correct?

Hmmm... interesting. I thought DRG claims were considered incurred at discharge.... as that is when the relative-weighted DRG pricing is charged because they take multiple factors that come up after initial diagnosis into account. However, I can see where an initial DRG could be set upon initial assessment. Upon admission, they bill the entire DRG amount and then perhaps make an adjustment based on objective factors if necessary (though the adjustment seems to go against the DRG concept). I think this is done in some forms of Bundled Payments. This timing does seem like an "end run" around normal timing rules for when a claim is incurred (i.e., when services rendered). Sorry, this isn't helpful... just replying in hopes someone responds with an authoritative answer. This should be coming up more often as this pricing has moved out of just Medicare/Medicaid environments.

You should really read or re-read the proposed regs. Federal Register :: Long-Term, Part-Time Employee Rules for Cash or Deferred Arrangements Under Section 401(k) They generally permit an employer to elect to exclude LTPT employees from the application of the nondiscrimination requirements of section 401(a)(4), the ADP test, the ADP safe harbor provisions of section 401(k)(12) and (13), the ACP test, the ACP safe harbor provisions of section 401(m)(11) and (12), and the 410(b) minimum coverage requirements. So, generally they can be excluded when determining whether a plan satisfies those nondiscrimination and minimum coverage requirements. They basically say that if you exclude LTPTs from nondiscrimination, they must be excluded from all nondiscrimination testing. In fact, the plan could exclude them from testing and still give them additional benefits (e.g., matches). Note that if your plan is not intended to satisfy the ADP or ACP safe harbors, the proposed regulation would not require an election to be set forth in the plan. However, the regs state that the plan would need to provide “enabling language.” It say in this case if the plan document doesn’t include enabling language, or an election under the proposed reg, then LTPT employees would not be excluded for purposes of determining whether the plan satisfies 401(a)(4), the ADP test, the ACP test, or the 410(b) minimum coverage requirements (to the extent those provisions would otherwise apply to the plan). If the plan is a safe harbor plan, it must specify in the document whether the safe harbor provisions will apply to the LTPTs. Apparently, this exclusion from testing seems like it would allow the owner the ability to get "creative" since these potential HCEs, i.e., the spouse and children of HCE, can escape testing.

QDRO filed in 2022. Separate 401k account established. The alternate payee (former spouse) is required to take the first RMD based on the participant reaching 73 this year, 2026. As I understand it, Treasury Regulations designate the Universal Life table for the calculation of the RMD. Fidelity has calculated the RMD using the Single Life Table. Eleven days after requesting clarification, Fidelity has continued to refuse to offer further explanation except to say “we have done the calculation and we’re not changing it.” Followed later in the conversation with “if you do not take the distribution voluntarily, you will be forced to take it.” Am I destined to loose this argument? Can they actually do this? Am I missing something and I am actually in the wrong?

Just an off the wall suggestion, and this is not advice to anyone and not suggesting to may be fully available. But have you thought of using a brokerage window for the plan and us the new Roth IRA as the brokerage window and make that a part of the plan assets? Not sure if the custodian would be on board, but if they would be on board to rename the account into the name of the plan, might you consider that to still be an in-plan rollover? I would for sure not go that route without actual advice from ERISA Counsel and of course the custodian would have to agree as well. Just something to ponder...