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Even if the plan document allows a distribution, the distribution could be restricted by the plan's funded status under sec. 436, and if the participant taking the distribution is an HCE, 1.401(a)(4)-5(b). If the participant is at or near their 415 limit (or will be in the future), be aware of issues that can occur when there are multiple annuity starting dates. The distribution taken now still counts against the eventual 415 limit at retirement.

In many BenefitsLink discussions, we present observations grounded on a set of assumed or possible facts. And we might suggest something based on an inference about a hypothetically assumed or possible fact. In this discussion, some of us might have drawn different inferences about some ambiguous, inconsistent, or confusing facts described in Renee H’s originating post and follow-up. As the earlier of my posts said, there are many possibilities. That post expressly recognizes that Renee H’s client might not have accurately or completely described the facts. I imagined at least two possibilities, including that a person described as a nonemployee director might be an employee. My later post assumed the information and descriptions in Renee H’s follow-up, and suggests one of several possible ways to handle a situation if a person is a nonemployee director, if the person desires a retirement plan, and if it is feasible to design a separate plan. We recognize that records or other facts furnished to Renee H might include an inaccurate description the client made following its own decision-making without anyone’s advice, or perhaps with another professional’s advice. We know that a business organization, whether small or big, might misdescribe some facts—sometimes unknowingly, sometimes inadvertently, sometimes ill-advisedly, or even for one or more other reasons or causes. Among the challenges facing a lawyer, accountant, actuary, TPA, or other adviser is that a client might not furnish enough information to get the facts right. Many BenefitsLink discussions proceed from a commenter’s inferences and guesses about facts to be assumed. An originating post often doesn’t fully describe all relevant facts. Often, that’s because the person seeking information or suggestions doesn’t yet know enough to discern fully which facts might be relevant. Often, it’s because the originating poster doesn’t yet have the facts. Still, many of us find help in a neighbor’s analysis of, or observation about, even a hypothesized situation. Often, that helps a questioner consider which facts and other assumptions to ask for, or which modes of analysis or advice-giving to pursue.

...or just give up and have him explain it to the IRS if they ever ask. I'm not sure it can be corrected without making it worse.

The IRS most likely will raise any concerns directly with the participant who will then have to explain what happened. The IRS may do so sooner or later depending upon their schedule. Consider providing the participant and the plan administrator with complete documentation of what happened and along with attempted corrections, if any.

Well, I'll take the other side of the argument. I feel like it is my professional responsibility to refer them to their tax counsel - "Although I can't give you specific tax or legal advice, you might want to discuss this with your tax counsel, as I believe that Revenue Ruling 58-505 covers this issue, and I don't believe true "corporate director's fees" are eligible compensation for plan purposes" or something along those lines. They can take it from there. As you say, they can come back and tell me they misspoke - it is actually W-2, and the census is incorrect, we had "X" hours, or whatever - as long as they are certifying it, not my problem. As to the health insurance, I'm not the one blowing up their health insurance coverage - if their tax counsel tells them it's ok, then it is between them and their tax counsel. It isn't my responsibility to concern myself with other employee benefit issues/problems (about which I'm not qualified to advise them anyway) - I'm hired as a TPA for their qualified plan only, and advise them accordingly. Maybe I'm just being a jerk, I dunno...

I think you can honor the contemplated second QDRO, if a state court is willing to issue it. The QDRO regulations specifically provide that a QDRO does not fail to be a QDRO merely because it alters a prior QDRO to reduce the amount of the benefit that is payable. 29 CFR § 2530.206(b): (b) Subsequent domestic relations orders. (1) Subject to paragraph (d)(1) of this section, a domestic relations order shall not fail to be treated as a qualified domestic relations order solely because the order is issued after, or revises, another domestic relations order or qualified domestic relations order. (2) The rule described in paragraph (b)(1) of this section is illustrated by the following examples: Example (1). Subsequent domestic relations order between the same parties. Participant and Spouse divorce, and the administrator of Participant's 401(k) plan receives a domestic relations order. The administrator determines that the order is a QDRO. The QDRO allocates a portion of Participant's benefits to Spouse as the alternate payee. Subsequently, before benefit payments have commenced, Participant and Spouse seek and receive a second domestic relations order. The second order reduces the portion of Participant's benefits that Spouse was to receive under the QDRO. The second order does not fail to be treated as a QDRO solely because the second order is issued after, and reduces the prior assignment contained in, the first order. The result would be the same if the order were instead to increase the prior assignment contained in the first order. A prior commenter noted that the contemplated DRO may not qualify as a QDRO because it does not technically assign any benefits to the AP. However, even if that is a correct reading of the law, you could effectively get around it by assigning $0.01/m to the AP (and then if you really wanted to get it to zero--which is probably not necessary as a practical matter when you are only worried about a Medicaid income threshold--you could simply have her disclaim the $0.01/m benefit). Or, if benefit payments have already commenced, you could argue that the new QDRO does assign a benefit--it assigns the monthly benefits that are payable through a particular cutoff date. You could also argue that the requirement is satisfied because the second DRO "recognizes" the existence of the AP's rights to any benefits that were previously assigned and which have already been paid, even as it revokes the AP's right to future payments. There are also several arguments you could make for simply recognizing the subsequent DRO directly. Three possible options occur to me: (1) permit the ex-spouse to disclaim her benefits under the QDRO, and take the position that the result is that the benefits are payable to the participant, rather than simply ceasing to be payable altogether (which is not immediately clear to me), (2) treat the new order as a new QDRO and determine whether it satisfies the requirements to be a QDRO, or (3) treat the new order as a modification of the prior QDRO and determine that the modification can be taken into account. Disclaimers of retirement benefits are generally permissible if permitted under plan terms/procedures which are complied with. The result is that the benefit is payable as though the disclaimant died prior to the date the benefit became payable. The original QDRO likely specifies what happens when the AP dies. Take a look at those terms and see if they would provide the desired result if triggered early. As a practical matter, who is going to sue? The parties agree on what they want to happen. It doesn't result in increased benefits payable from the plan. The IRS or DOL could theoretically take an interest on audit, but that seems unlikely. The biggest risk, from my perspective, is that the AP will turn around several years from now and argue that the second DRO was invalid, and thus she is entitled to the benefit payments after all. Given that the plan stopped paying the benefits to her at her express request when they see the complaint, the judge is likely going to raise several eyebrows (however many eyebrows they possess).

We've seen clients exceed that limit and run a carryforward balance deductions, or others pay the excess as W2 and currently deduct rather than contribute. This is where you put your consulting hat on as there are other (welfare) benefits where D-B prevailing wage fringe amounts can be directed. We've also done CB to cover a floor of like the first 5% of pay of D-B PW. One of the complicating issues there is if someone's PW is less than the 5% credit they still get the 5%.

Don't forget they are subject to testing, the same as any other employer contributions. Sometimes folks think that there is a pass on the testing because they are classified as Davis Bacon / Prevailing Wage. Most of the plans I see that allow those types of contributions specifically exclude HCE from that type of contribution.

To confirm Bri's comment, yes they are an Employer Contribution in all respects.

They do indeed on both counts - I've had plans where the D-B amounts caused not only a 415 excess, but also have seen a 404 excess the IRS caught on audit.

The Department of Labor released an Information Letter on 9/7/2022 specifically addressing this question (see attached). There are 3 interesting points. First, the DOL notes the maximum bond for a PEP is $1,000,000. Next, on page 2, the DOL observes the PEP does not have to extend ERISA fiduciary bond coverage to employees of employers participating in a PEP. This conclusion follows comments that the bonding regulations address the point at which contributions to a plan become "funds or other property" of the plan for purposes of the bonding requirements, and this does not occur until the contributions are received by the plan administrator (i.e., the PEP). Immediately after arriving at this conclusion, the DOL comments "that there may be circumstances in which participant contributions are not timely transmitted to the PEP". In other words, the contributions handled by employees of employers are not plan assets until the contributions are received by the PEP, or under some unspecified circumstances, the contributions are late deposits and then they become plan assets in the hands of the employer. Then, at the end of the letter the DOL observes the PEP needs to make sure that an independent contractor administrator or manager who handles plan funds must be properly covered by an ERISA fiduciary bond. To answer your question, it appears that according to this letter, the employees of employers to adopt the PEP do not need their own ERISA bond unless they fail to timely transmit contributions. Gummint logic. DOL Information Letter 09-07-2022.pdf