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@Coleboy1- you can use the SHNEC in a plan that utilizes new comp (cross-tested) as an allocation formula. You cannot use it in an integrated allocation formula but it can be used to offset the top heavy required contributions for anyone who was not eligible for the integrated PS allocation due to hours requirement

I agree with your take - don't need it if a plan is with a recordkeeper and they are doing tax reporting (1099-Rs,945s). Do need it otherwise.

Pretty sure SHNEC money can't be used to offset integrated contributions. Unless everyone is in their own group (which is at least implied as not the case), then this allocation isn't being done correctly.

I agree that the 503 claim procedures could come into play, though I think it may occur after the QDRO is processed/paid. If the order appears to be a valid QDRO on its face, the participant hasn't presented any reasonable challenge to the order, nor taken any steps to challenge it in court, then I think the fiduciary has a duty to process the order (but should do so in accordance with its QDRO procedures and any notification/right of appeal therein). At that point, I see an argument that the participant could make a claim for benefits, but I'd be wary of such claim holding up payment to the AP where there's no viable challenge, particularly now where COVID has extended claim deadlines. As for interpleader, I agree it should be a rarely used tool, mainly limited to situations where a state court may need to make a factual determination (e.g., a participant challenging fraud, or in the beneficiary context, multiple individuals claiming to be married to a participant, etc.).

Depends on costs and risks, right QDROphile? On the surface of it, it would seem contrary to ERISA and case law in other areas concerning the authority of the administrator that a plan could even interplead, arguably shirking its duty to make all determinations under the plan, as I think your comment implies. But case law is consistent that plans can interplead (although I will admit my experience is in area of beneficiary designations, not QDROs), so if the risk is sufficient to justify the cost of hiring a lawyer to file the interpleader, why not? Just economics, I think.

My skepticism of the DOL's views about QDRO law includes its position on use of the section 503 claims procedures to resolve challenges to the determination of qualification of a domestic relations order. I think a participant can make a claim for benefits asserting that the participant's benefit has been improperly reduced because the DRO is not qualified or that the QDRO fiduciary misinterpreted the terms of the order, such as getting the math wrong or failing to observe terms for awarding gains and losses. The participant is very likely to lose, at least with respect to qualification itself. The participant cannot contest under 503 the substance of the order as determined by the state court (i.e. the domestic relations proceeding or outcome was unfair, wrong, contrary to state law, etc.) and the QDRO fiduciary does not consider complaints about what happened in state court other than an assertion that the DRO presented to the plan is not a bona fide final domestic relations order. The QDRO procedures under 206(d)(3) can (and should) refer to the plan's general claims procedures as the avenue for contesting the QDRO fiduciary's determination of qualification under 206(d)(3) and interpretation of the terms of the order. Everyone makes mistakes and everyone needs due process. I also think that the the proper initiation of interpleader by a QDRO fiduciary should be quite rare (and screw California procedure), and usually represents a failure on the part of the QDRO fiduciary to do its job properly.

How much more did she get as the PS portion? I could see everyone getting their 3% as SH, but the owner getting 3% SH and then up to an additional 3% of excess comp as profit sharing. I believe some plans will say the SH offsets the "step 1" of a four-tier integrated allocation. EDIT: Holy schnikes did I misthink this one out.....

Loans are not a protected benefit, and eliminating the availability of loans is not a prohibited cutback. 1.411(d)-4(d)(4)

EBECatty, I think this or a related issue may have come up earlier on BL, because I remember making the 108(b) point that I make below maybe a year or so ago. As paraphrased in Rev. Proc. 2021-48, the legislation states: Section 276(b) of the COVID Tax Relief Act provides substantially similar guidance with regard to PPP Second Draw Loans, as do §§ 278(a)(1) and (2) with regard to Section 1109 Loans. Specifically, § 7A(i) of the Small Business Act and §§ 276(b) and 278(a) of the COVID Tax Relief Act provide that, for purposes of the Code, no amount is included in the gross income of an eligible recipient or an eligible entity, as appropriate, by reason of the forgiveness of a PPP Loan, and no deduction is denied, no tax attribute is reduced, and no basis increase is denied, by reason of such exclusion from gross income. On the one hand, one could argue that reducing earned income by the amount of wages arguably "allocable to" the forgiveness of indebtedness income is either indirectly denying the higher deduction amount under 404 (somewhat confusingly by requiring an exclusion in a preliminary calculation) or reducing a tax "attribute;" arguably, earned income is a tax attribute. On the other hand, one could argue that disregarding the wages is not denying a deduction, but only appropriately reducing it, and that the "tax attribute[s]" being referred to in the Covid Tax Relief Act are the tax attributes listed in Section 108(b) of the Code that would otherwise get reduced if you are allowed to avoid current tax on forgiven debt by burying the income in your balance sheet. Supporting the latter argument would also be the notion that in 404(c)(2) the Code is trying to give the taxpayer a break by not in effect double counting the expenses incurred to produce excludable income, and now the taxpayer is trying to instead double dip by both taking the exclusion from income but then also taking a larger deductible plan contribution by including the allocable expenses for purposes of the contribution limit. However, the strength of this logic is undercut by the fact that the whole point of the provisions in question of the Covid Tax Relief Act was to require the IRS to stop making the argument that the wages could not be deducted because of a "double dipping" principle. One could even argue, I suppose, that the wages are not really "allocable to" or "chargeable against" the debt forgiveness in the conventional accounting sense that Congress likely had in mind when it enacted 401(c)(2), which I believe was as part of the 1954 Code; rather, one could argue, the wages are only "related" to the loan and its forgiveness, in the way that a dog's stretching out its paw is related to its getting a treat, even the "cause" of getting the treat, but not "allocable to" or "chargeable against" the treat. But on the other other hand, if this were a closely held corporation, the amounts would just be compensation for 415 and wages for 404, and maybe self-employeds should have parity? Without specific IRS guidance, just seems confusing.

You have a number of issues that you need to resolve. I have cut and pasted your posting and set forth my responses in bold type. "I may have made a grievous financial error. Under the terms of my 2013 QDRO, I'm entitled to 100% of the marital share of my ex's pension. The QDRO language says that you are entitled to "100% of the Participant's total vested account balance under the Plan as of June 1, 2012, plus or minus any earnings and investment gains or losses thereon from June 1, 2012, to the date the Alternate Payee's share is segregated into a separate account in the Alternate Payee's name under the Plan." This is not 100% of the marital share - it's 100% of the total account and that would include any pre-marital share earned prior to June 1, 2012. But all of the language of the QDRO is what you would expect to see in a QDRO for a defined contribution plan, a 401(k) Plan for example, not the Employees’ Retirement Plan of the National Education Association, a defined benefit plan. So either: (i) the QDRO was incorrectly drafted; (ii) or the plan involved was actually intended to address the National Education Association 401(K) Retirement Savings Plan. You need to review the Agreement signed by the parties, or, if there was no written Agreement (and you did not dictate an Agreement into the record in open court) you need to see what the Judge ordered in the Judgment of Divorce. So, to state it differently, the QDRO is talking about apples and the Plan is oranges. QUERY: Are you sure there were not two QDROs issued in the case? His plan's administrator in 2013 told me I'd start getting the pension when my ex retired. (That's my recollection. I'm hoping to find this exchange in writing.) This advice from the plan administrator is consistent with what you would expect if the plan was a defined benefit plan AND if you were to receive a "shared interest" in the Participant's benefits. A shared interest is where you "share" a portion of the Participant's benefit if, as and when he enters pay status. The formula to determine your share, referred to as the "time value" or coverture formula, would be to take 50% of the amount of Participant's gross monthly retirement annuity and multiply it by a fraction, the numerator is the total number of months during the marriage (not beyond June 1, 2012, in your case IF that is the date of divorce) of accrued creditable service toward retirement, and the denominator of which is the total number of months of creditable service earned as of the date of retirement. But there is another option for defined benefit plans - a separate interest wherein you get a share of the pension as if you had been an employee and stopped working and were just waiting for your benefits to start. See attached explaining the difference between shared and separate. In a separate interest annuity you can start to draw your share when he reached age 50 AND is eligible to retire regardless of if he retires or not. In a shared interest annuity you must wait until he retires before you start to receive your share. In a separate interest annuity your share lasts for your entire lifetime. In a shared interest annuity your annuity terminates on his death but you then would normally receive a survivor annuity. The language of your QDRO does not mention survivor annuity benefits. QUITE HONESTLY, I DON'T THINK YOU AND THE PLAN ADMINISTRATOR ARE LOOKING AT THE SAME DOCUMENT. No competent plan administrator would look at the QDRO language you posted and conclude that you were entitled to a shared interest in a defined benefit plan. Every word of your QDRO language is inconsistent with a defined benefit plan. The last time I dealt with NEA my contact was: Plan Administrator of Defined Benefit Plan:c/o Jim Groves, Sr. Benefits Specialist, 1201 16th Street, NW, Washington, DC 20036, jgroves@nea.org, Jim Groves Voice - (202) 822-7611, HR Office: Tel: 202-822-7600. I suggest that you hire a lawyer who knows what he is doing and have him/her go to the Courthouse and get copies of the QDRO(s) entered by the Court, the Judgment of Divorce, the written agreement that you and you former husband signed, or the oral agreement read into the record, and try to figure out what is going on. As far as back payments are concerned, that would only apply if the QDRO gave you a separate interest allocation that you could have taken at some prior date that met the "age 50 rule" mentioned above. But if you didn't take it then you haven't actually lost it. I you took you share in the past you would have received a lesser amount then for a longer life expectancy. If you take it now you will receive a larger share for what is now a shorter life expectancy. From an actuarial standpoint the present value of your share will be the same. But you first need to figure out what is going on. My ex is now age 62. He became eligible to retire at age 60, with 20 years of continuous service. I recently asked him about his intended retirement date. He referred me to his retirement plan administrator, who told me I was eligible to start my benefit "at any time." Have I forfeited either 2 or 9 years of pension payments? Is there any possible way for me to get back payment? My QDRO is below, and the retirement plan is attached. Thanks for helping me think this through! Best, Christie QDRO EXCERPT 8. The parties and the Court intend this Order to constitute a "Qualified Domestic Relations Order" as defined in Section 414(p)(l) of the Internal Revenue Code of 1986, as amended (the "Code”), and Section 206(d)(3)(B) of the Employee Retirement Income Security ^ct of 1974, as amended ("ERISA"). 9. This Order is issued pursuant to Section 20-107.3 of the 1950 Code of Virginia, as amended, which relates to the division of marital property rights between spouses and former spouses in actions for divorce. 10. The Alternate Payee is hereby assigned One Hundred Percent (100%) of the Participant’s total vested account balance under the Plan as of June 1, 2012, plus or minus any earnings and investment gains or losses thereon from June 1, 2012, to the date the Alternate Payee's share is segregated into a separate account in the Alternate Payee's name under the Plan. Such "total vested account balance" shall include all amounts which have accumulated under allof the various accounts and/or subaccounts established and maintained under the Plan on the Participant's behalf. There were no loans against the account as of June 1, 2012. The Alternate Payee's share of the benefits as set forth above shall be allocated on a pro rata basis among all of the accounts and/or investment funds maintained on behalf of the Participant under the Plan. If applicable, the Alternate Payee's share shall be paid from the non-loan assets in the Participant's account(s) on the date that the award is distributed from the Participant's account. 11. As soon as administratively feasible following the determination that this Order as a Qualified Domestic Relations Order, the Alternate Payee’s share as awarded hereunder shall dc segregated and separately maintained in an account established on the Alternate Payee's Behalf and shall additionally be credited with any investment earnings or losses attributable :hereon from the segregation date to the date of total distribution to the Alternate Payee. Notwithstanding the foregoing, the Alternate Payee may elect to receive her benefits in any brm or permissible option under the Plan, including, but not limited to, an immediate lump sum cash payment and/or a direct rollover into an IRA or other qualified retirement account in the Alternate Payee's name. 12. The Alternate Payee shall be eligible to receive payment as soon as administratively feasible following determination that this Order is a Qualified Domestic Relations Order. 13. If the Participant predeceases the Alternate Payee prior to payment of the Alternate Payee's assigned benefits under the Plan, payment to the Alternate Payee shall nonetheless be made under the terms of this Order. If the Alternate Payee dies before full payment to Alternate Payee has been made, the amount unpaid shall be made to the beneficiary designated by the Alternate Payee, or if no beneficiary has been so designated, in accordance 14. No benefits have been previously assigned from the Participant's interest to another alternate payee under another order which has been determined to be a QDRO. 15. This transfer is intended to be a trustee-to-trustee transfer and a non-taxable went to either party; however, if the Alternate Payee elects to receive a direct distribution from he Plan, the Alternate Payee shall be treated as the distributee under 26 U.S.C. Sections 72 and 102 of the Internal Revenue Code on Federal, State and local income tax returns for all retirement benefits and distributions that the Alternate Payee receives due to the benefits assigned herein, and, as such, will be required to pay the appropriate Federal, State, and local income taxes on such distributions. 16. The Alternate Payee shall notify the Plan Administrator in writing of any change in her mailing address as set forth above. 17. If the Plan is terminated, the Alternate Payee shall be entitled to receive the portion of the Participant’s benefits as stipulated herein in accordance with the Plan's termination provisions for participants and beneficiaries. 18. This Order does not require (i) the Plan to provide any type or form of benefit option not otherwise provided under the Plan; (ii) the Plan to provide increased benefits (determined on the basis of actuarial value); or (iii) the payment of any benefits to the Alternate with Plan provisions. Payee which are required to be paid to another alternate payee under another order previously determined to be a Qualified Domestic Relations Order. Shared v. Separate - 02-18-2022.pdf

Disregarding the deductions would increase income tax and SE taxes that would not be overcome by additional retirement income deductions. The tax code requires SE income to be reduced by deductions that are allowed or allowable and I don't think a taxpayer has the option to not deduct expenses. If audited, the IRS would make adjustments.

Agree with all comments above, including the termination date and accelerated loan due date, if applicable. If person gets 6 months of severance after termination date, for example, and plan provisions make loan due upon termination of employment, you can't run the loan out 6 months paying from that severance. If plan allows terminated employees to keep repaying their loans, then no issue. Could this be allowed but solely through payroll withholding, i.e., only for employees getting severance? I'd be curious to hear what others think about that. Depending on the company, I could see discrimination in practice/operation if only/predominantly HCEs are ever entitled to severance, but companies with general/generous severance plans, why not?

The source of the loan payment is 100% irrelevant. The agreement to withhold it from payroll is the same as if I direct the employer to direct deposit a portion of my paycheck to a bank account in Clydebank, Scotland. The withholding agreement should remain in force until there is no more payments to process through payroll, it's not subjective to the type of income.

What does your document say? Typically in these situations the documents calls for a refund of deferrals and earnings to the extent possible to correct the 415 excess. A 1099-R is issued with I believe code E for the refund. This is so that the employee is not limited in what employer contribution they receive. Though I think some documents may be worded to limit the allocation of employer contributions instead.

Tom Callahan, Sr. once said, "Of course, I can get a hell of a good look at a t-bone steak by sticking my head up a bull's ass, but I'd rather take the butcher's word for it." CPA generates income values on K-1, as the TPA I'm going to take his word that they're reliable (excepting any prefunded employee allocations).

Since your ex didn't commence his benefits yet, if you start your benefits before his age 65, your full share will be reduced due to an early commencement. His retirement plan administrator should provide you, upon your request, the calculated amounts of your benefits under scenarios of retiring now and retiring 3 years from now (at his age 65), so you can see what is the reduction, and then decide if you would want to take it.

Just to add a thought to Peter's post: it's important to know what an entity requires in its governing documents for action. In a partnership, does the partnership require agreement by all partners? Does the partnership documentation and/or the "resolution" document of the partners (if there is one) authorize someone to act on behalf of the partnership? Perhaps there is a managing partner that has been so authorized? The key issue is that the signor on plan document should be someone who is authorized to act on behalf of the entity, whether it's a corporation or a partnership. (Clearly a sole proprietor can act on behalf of the proprietorship.) If that authorization is in the governing documents for the company, fine. If not, you want to have something signed by the Board or whoever is the governing group/person that delegates the authority for signature to the person signing the plan. (That's why you normally see in a Board resolution some language that says, "Any officer of the Corporation is hereby authorized to adopt such amendment or take such further action as is necessary to carry out these resolutions.") It can also be a matter of state law. Under most states, i believe, any general partner (but NOT a limited partner) is authorized to act on the partnership unless the governing documents provide otherwise.

Looked up SIMPLE documents furnished by IRS and they say "calendar year" in every reference to contributions. IRS.gov...5304 - SIMPLE.

I don't see any particular problem with it. If the loan payments didn't come directly from the severance pay, presumably the former employee would get a direct deposit of the severance pay and use it to make the loan payment. Severance pay shouldn't delay the employee's termination date under the loan default provisions. So if there's a default within, e.g., 30 days of termination, I don't think that should be extended during the severance period, even if loan payments are being made from severance.

"...although not the only acceptable application of those relevant provisions." This is probably the hottest language I've ever seen the IRS produce, ie if you aren't passing you aren't testing. So in short, if your exclusion criteria is somewhere between the Plan's most lax eligibility/entry and the statutory maximum, go ahead!!

Tom, the IRS's position is full year, based on the reference in 408(p)(6)(A) to, essentially, W-2 comp. Also, see the use of term "year" in 408(p)(2)(A). I believe the purpose of the October 1 deadline is merely to give folks a chance to budget whatever contributions they can make over the remainder of year.

You did not necessarily "forfeit" any payment amounts as the plan is required to pay you an actuarially equivalent benefit. If you commenced earlier you would have received smaller amounts as they are expected to be paid over a longer period of time.

That does make more sense. I just looked at a plan document, the SH is supposed to offset step 4 rather than step 1 of a four-tier integrated allocation. I agree, no running the "integrated" piece on top of the 3% safe harbor.

Ha, yeah I didn't really write that out correctly. I meant what you wrote, but I made it sound like a town's match going right into the 457 was suddenly taxable. Rather it counts as more deferral towards the 20,500 maximum.

Agreed on the elective deferrals going into the 457(b) plan, and corresponding matching contributions going into the 401(a) plan, but I'm not sure I follow the rest. Employer and employee amounts deferred under a governmental 457(b) plan are taxed when paid to the participant. See Section 457(a)(1)(A). Separating the match into the 401(a) plan allows the employee to defer the maximum amount under 457(b) without the employer match eating into the limit.

And since contributions to a 457(b) plan by the governmental sponsor, not just the salary deferrals, are included in a participant's gross income for the year, what typically happens is the employee deferrals go in under the 457(b) plan, while a separate plan holds the match and nonelective contributions - hence, the 401(a) label on that one to distinguish it as "the usual type of company plan." (And prevents those ER contributions from counting as current income to the participants.)

Sounds like a problem. If everyone is in their own rate group and you were cross testing and it passed gateway and 401(a)(4) that could make sense. But doesn't make any sense in an integrated allocation where you can't even use the 3% SHNEC as part of the PS base, I'm not sure how you passed testing with only the HCE owner benefiting.

In my experience, yes, it's largely a way to refer to a specific plan type (governmental defined contribution plan qualified under Section 401(a) that holds non-elective contributions, matching contributions, after-tax contributions) even though many other types of plans are qualified under Section 401(a). For reference, the document provider we generally use calls this type of plan a "Governmental Defined Contribution Plan" but it's what you would typically see called a "governmental 401(a) plan."

About what’s required: “Every employee benefit plan shall . . . provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan[.]” ERISA § 402(b)(3), unofficially compiled as 29 U.S.C. § 1102(b)(3). Yet, the Supreme Court holds that stating as little as “[t]he Company” may amend the plan is enough to meet ERISA § 402(b)(3)’s two requirements—that a plan “provide a procedure for amending [the] plan, and [a procedure] for identifying the persons who have authority to amend the plan[.]”). Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 18 Empl. Benefits Cas. (BL) 2841 (Mar. 6, 1995). For a restatement or other amendment, one looks to the governing documents (as they exist just before the restatement one is about to adopt) to find what the documents require for an amendment of them to be effective. An IRS-preapproved document likely allows almost anything as an amendment. About “each partner with their own corp.”, check whether each corporation is a participating employer or a participant. (For situations in which the corporations comprise the partners of the partnership, either configuration is possible.) If a corporation is a participating employer, check that it signs whatever the documents require for an organization to join as a participating employer. Likewise, if the adoption agreement doesn’t name the participating employers, one might add something to show the plan sponsor’s assent. Whether to do something more than what ERISA, the Internal Revenue Code, and the governing documents require is up to the organizations’ business judgment.

I don't see the appeals process taking precedence over the AP's right to benefits under a QDRO. Once the DRO is adjudged a QDRO, the amount payable under the QDRO is no longer a benefit payable to the participant, and that is *not* something that the plan's appeal's process has jurisdiction over. As I said, if s/he has an issue with the DRO, the proper course of action is through the court/agency that issued the order.

Forfeitures are $X Declare a PS contribution of $X. Reduce the amount of contributions to the trust by $X. Allocate $X to participants.

My ERPA designation comes into play maybe once a year, where someone asks if I can be listed on a 2848 ahead of either a VCP application, or as the "official" point of contact for an IRS examination on a plan for someone else in the office. In theory, I'd like to say I'm not needed that often because our clients don't do anything so wrong that anyone "needs" me. Or maybe our plans are too little to be on the IRS's radar as much as others would be.