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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...

I would think buying a TPA with built in clients already would be the easier route to go - but may require more up-front cash (but at the same time, starting a TPA would require a large cash outlay with buying all the software you would need), but at least purchasing a TPA you would have built in revenue source. Agree about the 5-year business plan for either buying or starting - need to make sure you get over that initial process. My brother is an engineer but a serial entrepreneur and has purchased a few companies over the years. He always works with a broker who does all the leg work on finding him an acquisition target. My suggestion would be to find someone who can find you the right company to purchase - of course you will probably owe them a commission or some sort of compensation, but they will more than likely find you a lot more leads than just google searches. Good Luck!

Anyone ever come across an ERISA DB plan administrator who refuses to qualify QDROs employing a time rule (coverture fraction) division for benefits in pay status? I am dealing with one, first one ever in 30 years of practice. All comments welcome.

Yup. I was imagining ombskid might want some explanation about why it would not make sense to depart from what ombskid describes as the customary way, including identifying a beneficial owner. And, seeing the follow-up about an "intermediary", might want an explanation that it could be improper to pay a "corp." other than the licensed bank or trust company that would serve as an IRA's trustee or custodian.

I was too hasty in setting up my question about whether a plan sponsor might amend a plan to increase a benefit. A retroactive amendment doesn’t work for a matching contribution. Internal Revenue Code of 1986 (26 U.S.C.) § 401(b)(3) provides (3) Retroactive plan amendments that increase benefit accruals If— (A) an employer amends a stock bonus, pension, profit-sharing, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions (as defined in subsection (m)(4)(A))), (B) such amendment would not otherwise cause the plan to fail to meet any of the requirements of this subchapter, and (C) such amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof) which includes the date described in subparagraph (A), the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective. CuseFan, if a situation like what Tom describes were about a nonelective contribution, would a § 401(b)(3) amendment (assuming coverage, nondiscrimination, and other conditions for § 401(a) treatment are met) work? Or are there other reasons for a no-go or slow-go?

If the plan sponsor amends, with retroactive effect, the plan to legitimate what was paid out, would that distribution be an eligible rollover distribution? And if so, might the payment into an IRA have been a satisfactory rollover? If so, doesn't that mean no too-early tax no matter the distributee's age?

100% this something that an experienced ERISA law firm should handle. This is NOT the type of VCP to cut your teeth on, even if you as a TPA want to start offering VCP services and have staff with the proper enrollment (CPA, ERPA, ETC) to do so.

This is just a plan design question. Check the plan materials (SPD, carrier/TPA/stop-loss, etc.) to see if it's directly addressed. If not, any consistent approach should be fine. Your reference as to whether it might "violate ERISA"--that would generally only be an issue where an approach conflicted with plan terms or was not administered consistently in similar circumstances. Employers generally have the discretionary authority under ERISA and the terms of the plan to interpret plan terms in a consistent manner. More discussion: https://www.newfront.com/blog/j-and-j-case-practical-considerations-the-core-four-erisa-fiduciary-duties-part-2 Slide summary: 2026 Newfront ERISA for Employers Guide

CB Zeller--> EXACTLY what we are trying to do for them. We simple need to fix the operational failure they currently have. We can do a retro active amendment to allow for an any age in-service distribution for the wife's distribution. She has more than enough vested employer contribution to cover the amount. But she is not age 59.5 and would be subject to the early distribution penalty. The husband has substantial funds in his rollover source in the 401(k) plan, which are available for distribution at any time. I think his money movement is okay and he will not be subject to the early distribution penalty even though he is also under age 59.5. Am I missing anything that might prevent the early distribution penalty for the wife? An early distribution penalty seems contradictory to the penalty's intent since they moved the funds from one investment account to another and didn't actually take any cash.

A recordkeeper offers a new service it designed to help a retirement plan find a participant classified as one likely to be “missing” or unresponsive. In form, the plan’s administrator or other responsible plan fiduciary sets the factors on who is treated as an individual this service applies to. But in practical reality, the plan’s fiduciary does this by adopting the criteria the recordkeeper wants the administrator to instruct. For example, one of those classes is that a participant’s account is more than $200 and has a mail hold. Another is that a distributee did not deposit or negotiate a payment more than $75. From what I’ve read, there is no age condition such as the individual’s applicable age for a § 401(a)(9)-required distribution; Social Security early, normal, or late retirement age; or the plan’s normal or early retirement age. If a plan’s responsible plan fiduciary authorizes the service, the recordkeeper uses a series of steps meant to find the individual, find a good address, and communicate with the individual with a hope of persuading the individual to attend to her account (or accept a payment if a distribution was provided). The fee is $30 a year while the individual is not yet satisfactorily located. The fee is charged against each individual’s account. (Assume that the recordkeeper does not offer another way, or that the employer is unwilling or unable to pay a plan-administration expense.) The recordkeeper requires the plan’s administrator to confirm that this fee is sufficiently disclosed, whether in a rule 404a-5 disclosure or another communication. My worry is that a participant might feel unfairly burdened by a few years’ or even one year’s $30 charge when the individual feels the service is one she did not request, and that the service did not benefit her. How should I think about this? Do you think this $30-a-year charge is fair to a to-be-located participant? If an individual is not yet nearing an involuntary distribution (whether a cash-out, or a § 401(a)(9)-required distribution), should a plan’s fiduciary unburden such a participant from the $30-a-year charge by omitting the individual from the to-be-located class? Should a plan’s fiduciary consider probabilities of success or failure? If an individual’s undistributed account is $300 and the fiduciary believes the probability of causing the individual to add a functional postal or email address to her account is no more than 10%, should a fiduciary not apply the locator service? (Assume the plan has people with small balances because the plan does not provide a $7,000 cash-out.)

The spouse and adult children if they have 500+ hours in 2024 and 2025 (but <1,000) and are age 21, they are LTPT for 2026. The doctor owner wants them to be able to fund maximum elective deferrals as LTPT employees. He knows they will not receive any employer contribution. I just want to make sure these LTPT family members do not come into play for testing whatsoever with this cross-tested plan which only has to provide the minimum gateway for eligible NHCEs at 3.4% to max the doctor. Thank you

I think amendment after year-end to increase the match only for HCEs is problematic, even if it is to simply bring their percentage up to NHCE rate. I think forfeiting amounts allocated in error along with attributable earnings is the proper correction. The design/practice is burdensome, but at the end of the year the payroll provider has sufficient information to identify the following year's HCEs and should be able to implement. Maybe if payroll is weekly the timing is tight, so why not have the employer make deposits monthly? In addition to solving a current problem, put on your consulting hat and help them avoid its recurrence.

I have a new Solo plan client that needs help cleaning up the plan. They had been flipping real estate and we are current investigating the possible errors that are in addition to not filing the 5500-EZ for a few years. My question is does VCP make sense for them and should this be done by an ERISA attorney instead of a TPA firm. I don't have experience with VCP. Thank you!

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I would instruct the payer to make the check payable to Corp IRA FBO Participant, not over think and be done with it. Joe Participant is not going to be cognizant of all those nuances.