QDROphile

I agree that acceptance of a loan asset by rollover needs to be a fixture in the plan. It could already be there by way of interpretation, depending on plan terms, and as long as no loan rollover has been refused before. Amending the plan or loan policy for the first time when the first user will be an HCE is uncomfortable, but not a clear negative. I am very confused by the proposed workaround. Among other things, the plan does not offer loans; that is the problem in the first place. How can the new employee take a loan?

Before plan loans became automated, some thought was supposed to be given to the requirement that there be a reasonable expectation that the loan would be repaid. The requirement for repayment through payroll deduction went a long way toward satisfying the requirement for expectation of repayment. Perhaps the plan terms, or loan policy terms, retain the language of reasonable expectation for repayment as a condition of initiating a loan. If so, the fiduciary would seem to have reason for doubt about the loan repayment under the special facts known to the fiduciary in this case. It all depends on terms of the plan documents, including a loan policy, if any, and the fortitude of the fiduciary, who presumably has the authority to interpret and implement plan terms in its reasonable discretion. The reason for the expectation that the plan will be repaid is to make sure that limits on distribution are not circumvented by plan loans that then go into default.

Bri It is not an end run. Loan origination as a plan feature is philosophically different and serves different purposes than accepting a loan rollover and servicing the loan. The difference might not be appreciated by the employees. I know of work places that would riot if the employees learned that a new eployee had a plan loan when they could not get them. The whys and wherefores would not be a consideration.

There is a difference between a plan not allowing loans (origination) and a plan holding a loan as an asset from a rollover. It is unlikely that a plan that does not originate loans will accept a loan as a rollover because the plan will not have the infrastructure to handle payments, but it is a remote possibility.

This is probably no help because (1) you already know to ask for a plan’s written QDRO procedures, and (2) most QDRO procedures are perfunctory. Well written QDRO procedures provide a guide to drafting. This is particularly true with respect to how the plan would like to see administration of vesting of an account subject to a QDRO. If the QDRO procedures do not specify, I think it is fair to ask the QDRO administrator for an explanation. Unfortunately, I do not know an effective way of laying shame on an administrator for deficient procedures and communication. You could inflict some pain by dragging the plan through claims procedures with the ultimate threat of a lawsuit, but that is cost prohibitive on your clients’ side as well. Under claims procedures, the plan has to give an explanation about its negative decision on qualification (and the interpretation that goes with it).

Paul identifies the issue, but does not connect the dots with respect to ESOPs. The positive aspect of ESOPs for lower income employees is that they typically increase the employee's income via nondiscretionary increments to the ESOP accounts. That works because of the juice that the tax code injects into ESOPs that can improve savings for employees if the owners actually follow the spirit of the law. There are many ESOP success stories. There are also lots of ways to undercut the intent of Mssrs. Kelso and Long. The implementation of an ESOP can be accompanied by a reduction in nonelective retirement plan contributions or in collective bargaining by trading reductions in other income and benefits. The "primary benefit" requirement for ESOPS is quite often just a joke. Then there is the risk of a nondiversified retirement portfolio. There are also lots of ESOP failure stories.

Your illustrated heads-up is great, but but probably not very helpful where/when it would help most, which validates your point about general ignorance about the matters. I doubt that such plans are chosen with the benefit of consideration of the applicability or potential effect of state law. I propose that plans are chosen because of marketing or recommendation by providers (or recommendation by a provider) or colleagues, none of whom have any depth of concern for the personal needs of the sponsors or participants, and without legal advice (because who needs it? and it is an apparently pointless expense). Also, any difference in material outcomes because of state law may be speculative at the time of adoption (what could go wrong?), and would not be much of a factor in decisions among options, if any. Disclaimer: I have very little experience with this segment (non-ERISA small business retirement plans); I am blowing at least some smoke.

Lazing on a sunny afternoon … Does this small plan have a trust? Is the location of the trust or trustee, or choice of law provisions in the trust instrument, relevant to the applicable state law to the trust or the plan?

I now infer that “my” modifies only “legal fees” and not “expert witness fees” I started from a mathematical perspective: a(b+c)=ab+ac

One can appear as a lawyer for a party and be an expert witness in the same proceeding? I am reminded of how certain New York law firm associates bill more than 24 hours in a day, and not by employing the trick of traveling west across time zones to expand the actual number of hours in a “day”, but that sort of double billing is not the same thing. With respect to “actual notice” and “pendancy” of a domestic relations order that might grow up to be a QDRO, I thought that Peter Gulia asked, not too long ago, for any examples of judicial decisions relating to actions taken by plans, or failures to act, based only on notice that a DRO was forthcoming, with no DRO yet submitted to the plan (a DRO is what the statutory language requires to activate the plan)). I recall that a plan can get in trouble for acting, or refusing to act in accordance with usual plan procedures, based on notice (which is a juicy topic in itself) that a DRO was expected (someday?). I recall that no example was given of a plan simply continuing to act, or not act, in accordance with usual plan terms procedures in absence of a DRO based on some other notice that a DRO was expected. You have shared a wealth of citations for various propositions in your posts. Do you have a citation in support of the proposition that a plan that does not provide otherwise in its written QDRO procedures will continue to administer in accordance with its usual terms and procedures unless and until receipt of a domestic relations order? I am aware that the Department of Labor asserts in its QDRO book, among other erroneous interpretations, that some unspecified notice of expectation of a DRO imposes some duty on the plan not to take action contrary to the unspecified interest of a supposed would-be alternate payee, presumably, even when that would compromise the express rights of a participant under the term terms of the plan? If no example can be found, it may be because no administrator/fiduciary would be so bold as to simply proceed without communication to the relevant known persons and establishment of reasonable conditions and times for conforming to applicable standards. That leaves us without measure of where the lines of breach of fiduciary duty are drawn. Fortuna Favet Fortibus.

What do you mean by “determine”? The PA might be able to give a very accurate estimate. The plan can’t determine anything except on the basis of a DRO. Is the settlement agreement the DRO? The plan can advise if the order appears to satisfy the formal requirements for qualification.

“… seem to fail the requirements of Code section 414(p) and ERISA section 206(d)(3) -- at least as to New Plan -- that the DRO must clearly specify "each plan to which such order applies" because the DRO is only directed at Old Plan. The DRO makes no express mention of applying to any successor plans. Thoughts?” I would not plant my flag there. The requirement for properly identifying the plan is for the benefit of the plan administrator and the avoidance of ambiguity. Your presentation of the facts tells me that there is no ambiguity and the plan administrator, or other QDRO fiduciary, knows perfectly well that the order applies to an account under the plan. I see no failure to identify the plan, in fact. The information to identify the plan from the plan identified in the order is within the knowledge of the plan administrator. I would not want to be in front of a federal judge (after the ex spouse exhausts the claims procedure) making that argument for my decision that the order is not qualified and should not be given effect. The better argument is that the delay in submitting the order to the plan makes it impossible for the plan to give effect to the terms of the order as a practical matter and also potentially encroaches on the interest of a plan beneficiary, the subsequent spouse, to whom the plan owes a fiduciary duty.

Just for the fun of it, disregard all of the plan history, adequately recounted or not, except the “fact” that no domestic relations order was ever submitted with respect to the participant until now. The plan receives a domestic relations order that it cannot reasonably implement, largely due to the passage of 30 years. I have been out of law school for more than 30 years, but I think the concept of laches is still valid. There are several ways to go from there, possibly one that would give the ex-spouse a shot at some benefit (almost certain to fail at its inception in state court). Interpleader is not one of the ways to go. The plan has an obligation to process the domestic relations order in accordance with the law and applicable procedures, including its QDRO procedures and claims procedures. In the plan’s disposition of the domestic relations order it might want advice of legal counsel. It surely will not be guided by the superficial consideration of strangers.

Unfortunately, a threat of some personal liability is what is sometimes required for a breakthrough. It often starts with a service provider that is not an ERISA “plan administrator” being reminded/threatened that it becomes an ERISA fiduciary if it steps into activity that is the province of the ERISA plan administrator, such as any discretionary action, which includes interpretation of plan terms (which also includes plan policies). TPAs will readily toss the hot potato to the fiduciary. Beware that the fiduciary (who may have just discovered its role) will be looking for help and the TPA may be willing to advise under the table, so it may take continued pressure to get the fiduciary to really step up to proper performance (e.g. getting advice of legal counsel in any hot or complicated matter).

I am not a big fan of jumping to interpleader. The plan fiduciary has an obligation to interpret plan terms and ancillary plan documentation such as beneficiary designations. Any payment of plan benefits should be a result of a claim for benefits. If the plan fiduciary is uncertain about the identity of the beneficiary, but has identified potential beneficiaries, the plan fiduciary should invite every reasonable suspect to submit a claim for benefits. The plan fiduciary should then determine the claims, issue the determinations, and then allow claimants to follow the plan‘s claims procedures with any appeals that they believe are appropriate. The fiduciary will benefit from the arguments under the claims and the appeals. The fiduciary will then decide the appeals. The plan’s claims procedures will provide that somewhere in the process. The claimant is entitled to examine plan documents, which will include the beneficiary designations. Litigation may follow the decisions on appeal under the claims procedures. Interpleader may be considered at that point.