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I've had this discussion over the years with several people and do have some thoughts to share. first, if the plan and/or QDRO procedure provides for a freeze, I think the plan terms control. Of course, if the participant must receive a distribution (e.g., an RMD), the plan can't interfere with those legal limitations or mandates. Of course, the purpose of a freeze for a divorce is to protect the nonparticipant spouse, who is presumed (whether it is accurate or not) to be a nonworking wife, if the participant is dastardly and wants to drain the account before she can get a hold of half his account. While I have all kinds of thoughts about stereotypes, paternalism, and the like, I agree with David Schultz about it not being the plan's place or responsibility to control the participant's behavior. Further, in many (if not all) jurisdictions, when you file for divorce, the court issues a court order requiring the couple not to impair any potential marital assets. So, usually, once the divorce is final, the participant is likely in contempt of court if he or she raids the plan, and there are remedies for that which the court can impose. The former spouse has no rights at all to the participant's plan interest in absence of a QDRO. And, the Supreme Court said in one case that it is inappropriate to use a QDRO to state that the spouse has no rights to the participant's account, as that is the status quo. So, if you do put a hold on the participant's account, when does the hold end? When the participant shows you his/her divorce decree? that requires a sharing of information that is really not the business of the employer/plan administrator. And, if it is decided in the first five minutes of the divorce process that the nonparticipant spouse is not interested in sharing in the participant's benefits, the presumed protection of the nonparticipant spouse is not needed. So, from a practical standpoint, the plan administrator really doesn't have access to or shouldn't have access to enough information to know when the hold should be started and when it should end. For no other reason than the practicality of the hold (or lack thereof), I recommend that they plan only place a hold on the account during the period between the provision of the proposed QDRO to the plan, and the determination by the plan that the QDRO does or does not quality. The nonparticipant spouse should use his or her lawyer and the courts to control the behavior of the participant vis-a-vis their marital assets.

I think the fundamental question is: Is there ANY language in your plan documents that authorizes the Plan Administrator (or any other party) to freeze a participant's account based only on knowledge that a DRO is being discussed? In most states, the filing of a divorce petition results in an automatic stay preventing the parties from unilaterally taking/transferring marital assets. If the participant does something improper - prior to the plan being aware of an actual DRO - then the court can deal with the participant's improper actions. It isn't the plan's place to intervene; the court can do that. The plan's duty is to follow its terms and provide benefits to participants, not to protect either party in a divorce proceeding. My belief is that such freezes are an operational failure (not acting within the plan terms) and potentially a fiduciary breach. I'd tread carefully (or preferably not at all).

Yes.

Also in play are going to be whether or not the plan document is a standardized type that automatically extends plan coverage to all related group members. Depending on full census demographics, the laundry business might be okay not having to adopt the plan, but that would take far more detailed analysis.

fmsnc: While I disagree with your interpretation of some of the authority you cited, and some of your analysis, I don’t disagree with the importance and sensitivity of the subject. I also do not disagree with your assessment of the domestic relations courts and domestic relations bar to be able to deal with retirement benefits properly, which puts retirement plan fiduciaries in a difficult position. I usually work on the plan side, trying to reach a responsible position that protects the plan fiduciary without watching the parties drown in a whirlpool. Unfortunately, most plans do not have the sophistication or desire to put much thought into these matters. You did identify a practical solution that is within the grasp of the average domestic relations lawyer, whether or not the lawyer knows why it is a solution. I alluded to certain solutions earlier in the thread without explaining them. If you sent my plan client the Notice you described, or a California Joinder Order (sorry, I must spit here at that travesty), which has the same function, I would advise the client to send you back a notice of receipt of a domestic relations order with the explanation that the plan will determine whether or not that order is qualified under the plan’s QDRO Procedures. That would have the effect of a “hold” for a reasonable amount of time, with the hope that people will then get busy and send a real domestic relations order that could qualify. The plan would take its time. That the Notice does not really resemble a domestic relations order does not bother me because plans are entitled to be ignorant of state domestic relations law. Unless the participant argues to the plan that the. Notice is not a domestic relations order, everything is cool and froody for a while. This keeps the plan within the statutory QDRO legal framework and its own procedures, so we do not have the fiduciary breaching any plan terms or written policies or procedures of the plan.

N.B. The ability of a court to impose sanctions for contempt requires that the Participant be physically in the state. If the Participant quits his job and takes a taxable distribution of every dime in his 401(k) and moves to a cabin in the hills of Wyoming after first having deposited his 401(k) into a dummy corporation created by his brother in Vancouver, and never returns to the state where the divorce was litigated, I can promise you that the Alternate Payee will NEVER get her share. N.B. Participants regularly wipe out their former spouse's survivor annuity benefits by simple expedient of remarrying and then retiring before the QDRO has been approved by the Plan. Read Hopkins v. AT&T Global Information Solutions, 105 F.3d 153 (USCA 4th Cir. 1997), and Rivers v. Central and South West Corporation, 186 F.3d 681 (United States Court of Appeals, 5th Cir. 1999). N.B. The suggestion the court is going to enter a hurry-up QDRO or an injunction aimed at the Plan - a non-party to the divorce litigation - would only be made by those of you who have not actually practiced on my side of the street. It is true that the law does not provide any immediate methods of protecting a prospective Alternate Payee. So, people like me have had to come up with creative workarounds, some of which include not so subtle threats and use of the phrase "at your peril". I, for one, would be interesting in ways that I can assure that the legitimate intentions of the parties or the court will prevail. If you as a Plan Administrator have "actual notice" that a suit is pending and that a QDRO has been requested by a spouse and you don't protect the rights of the prospective Alternate Payee, you do so at your peril. David

I can only speak from the perspective of an attorney who has been involved in the preparation of pension and retirement orders for the past 37 years. There are a number of factors in play. 1. In most cases the most valuable assets owned by the family unit are the equity in the marital home and their pension and retirement assets. You cannot treat them lightly. An Alternate Payee's loss of benefits can be financially catastrophic. 2. Most lawyers, and I do mean MOST, have no idea of the complexity if this area of law as applied to the vary narrowly focused question: "How to I make sure my Alternate Payee client receives the proper share of the Participant's benefits." They are, for the most part, ineducable. 3. Most of the judges in my State have had minimal experience as family lawyers. They have been prosecutors or criminal defense lawyers, personal injury lawyers, or even real estate, corporate, tax or administrative lawyers. As competent as these lawyers may be, they don't understand family law, and the nuances are entirely lost on them. 4. I advise my attorney colleagues to have the QDRO's prepared, approved by the parties, and ready to initial and sign at the same time they sign the Marital Settlement Agreement ("MSA"), and then present it to the court at the final hearing and get the certified copy in the mail to the Plan Administrator ASAP. Even before that happens, I suggest that at the earliest possible moment they send a "Notice of Adverse Interest/Claim" to every Plan Administration they can identify, the purpose of which is to give them "actual notice" that a QDRO is or will be on the way. 5. Plan Administrators have a fiduciary duty toward both Participants and Alternate Payees. See 29 U.S.C. § 1104. 29 U.S. Code § 1002(8) defines "beneficiary" as follows: "(8)The term “beneficiary” means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder. See 29 USC 1132(c) for penalties imposed upon a Plan Administrator for failure to provide information to a Participant or a Beneficiary. Pursuant to 29 USC 1132(a)(1)(B) a Participant or an Alternate Payee (who is classified as a beneficiary), can sue "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan". 29 USC 1132(e)(1) states that: "(e)Jurisdiction: (1)Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021(f)(1) of this title. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under paragraphs (1)(B) and (7) of subsection (a) of this section." 6. What does all of this mean? If you are a Plan Administrator and receive "actual notice" that a DRO is coming your way, you attorney will counsel you to put a freeze on the Participant's benefits until the matter is resolved by the parties or by the state court. Failing to implement a freeze may get you involved in a lawsuit that you may very well lose. I have seen this happen at least 100 times. Defined benefit plans will not commence the payments of benefits to a retiree. 401(k) plans will not permit loans, or hardship withdrawals, or in-service withdrawals or post termination withdrawals. 7. It is a rare case that a Participant is happy about paying pension or retirement benefits to an Alternate Payee. One of the ways to avoid may some of all of such benefits is to DELAY the entry of the QDRO by any means possible. See attached a Memo I recently prepared recounting the consequences of delay. I would welcome anyone with additional scenarios that I may have missed. DSG CONSEQUENCES OF DELAY 04-15-24.pdf

Ha, let's hope that practitioner weighs in to set us all straight, Kenneth. Agreed, the distributions already made will just be recharacterized as taxable income. Here's an overview of the approaches that I've posted: https://www.newfront.com/blog/the-dependent-care-fsa-average-benefits-test Correcting an ABT Failure Where HCEs Have Already Exceeded the Reduced Limit In some situations, employers will not discover an ABT failure in time to impose a reduced HCE contribution limit prior to HCEs contributing to the dependent care FSA in excess of that limit. For example, suppose the ABT pre-test results show that HCE elections must be reduced by 20%, resulting in HCEs who elected the $5,000 maximum having to drop to $4,000. If those HCEs have already contributed $4,375, there is a $375 excess that must be made taxable income before the last day of the plan year. There are two basic approaches to converting excess HCE dependent care FSA contributions to taxable income: Refund/Return: The employer can distribute the excess contributions back to the HCEs through payroll as taxable income subject to withholding and payroll taxes by the end of the year, thereby reducing the amount available in the HCEs’ dependent care FSA account balance. Note that this approach will not work for HCEs that have already received reimbursement of the excess amount. Recharacterize: The employer can recharacterize the excess contributions as taxable income subject to withholding and payroll taxes without directly refunding the excess to HCEs. The downsides of this approach are that the employer will need to a) take the withholding and payroll taxes from other income, and b) inform the HCEs that they may take a distribution of the excess contributions (which no longer have pre-tax status) from the FSA without the need to submit qualifying dependent care expenses. With either approach, the employer will need to coordinate with the FSA TPA to ensure proper administration of the correction. As always, the employer will need to take action before the end of the year to ensure a passing result as of the last day of the plan year.

Control group issue is simple - the stock ownership attribution rules consider both you and your wife to each own 100% of the laundry, and 100% of your original S-corp, so yes, these businesses are a control group. I'm not an expert on the PEO situation, but here is my understanding: those leased employees are considered your laundry business employees unless they have a 10% money purchase pension from the PEO (I have never seen one). However, any employer contributions they receive from the PEO in a PEO-sponsored plan can be considered provided by you because you ultimately pay for those indirectly. I thought this model changed over the years, though, and PEO's could only sponsor a multiple employer plan and the individual employers had their own participating employer "plan" that covered their leased employees. I'm sure there are more knowledgeable practitioners on this forum who deal with these arrangements and can confirm or correct my understanding or lack thereof. Finally, provided some conditions are met, there are transition rules that allow you to treat each entity as before, not in a control group, for the remainder of the transaction year (2023) and the entire following year (2024) - so you have time to sort this out and hopefully have a competent TPA to assist you.

Short answer: No. The timing requirements for Form M-1 differ from the timing requirements for the 5500, and each form has its own online filing system. See https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/forms/m1-filing-tips.pdf

Sounds correct if it is a retroactive corrective amendment under EPCRS rev proc 2021-30 which does allow correction for early entry via amendment if the correct parameters are met. But there are a lot of ifs there.

Other than asking a good CPA... Perhaps this will help a bit? And I believe you can maybe deduct a theft loss on a Form 4684? But this is way out of my area of knowledge. My deepest sympathy to the poor lady with a loser of a Son. Theft losses A theft is the taking and removal of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent. The amount of your theft loss is generally the adjusted basis of your property because the fair market value of your property immediately after the theft is considered to be zero.

You have to start from the interest awarded to your client in the divorce proceeding. That award is then described in the domestic relations order that is submitted to the plan. If the court defined your client’s interest as a function of months of marriage and months of employment, you might use those terms in the domestic relations order to inform the plan as to the proper division of the benefit. You might simplify the terms and just provide fractions if you know what you are doing. If you don’t know what you were doing, get some help. Understanding division of pension benefits in particular is beyond most lawyers.

Wow, this is really something. Let’s say a clueless (or pretending to be clueless) MD participates in hospital 401k plans and also has a solo 401 from his side-gig. On January 1 he defers full $30,000 as Roth in each plan. He invests both deferrals into the riskiest investment option (or hedging one investment with another one). In plan #1 the investment is worth 3,000 on December 31. In another plan it is worth $300,000. He chooses to treat as excess the first one. Unless I am missing something big, this is a pretty good gambling/hedging/arbitraging option. Please demolish my dirty thoughts.

1. The court could have done something about that while in process of considering and issuing a domestic relations order that wanted to be a QDRO. Lack of imagination and understanding on the part of the lawyers and the court is the problem. 2. That is what preemption is all about, especially when there are state courts means to prevent the undesired action within the ERISA 206(d) framework. The plan is not the appropriate target of disaffection.

A few practical considerations--if a participant is upset with a QDRO hold, the easiest solution for them is to just get the court to sign the QDRO. A state court also may take issue with a plan allowing a participant to drain their account when it was on notice that benefits may shortly become payable to another. I recall one case in which the court did not appreciate a plan making a beneficiary determination and paying death benefits when it knew a former spouse was trying to get a QDRO, notwithstanding the plan's technical compliance with 206(d).

We freeze when we receive a draft DRO from an attorney, or a request from an attorney for a model DRO stating their intention to draft and submit a DRO. We allow participants to exercise all their rights under the plan except for taking a withdrawal. Is this outside what other employers do?

It is fair to recognize that for excess deferrals that are not a 401(a)(30) violation (i.e. the excess is not known to the plan), the participant has the responsibility to report the excess and to choose how much of the excess is in each of the plans. It the participant does not provide this information, neither plan will know about the excess and each plan will not be able to account for the amount of the excess. Each plan doesn't know what the plan doesn't know. If the participant does inform a plan that it holds an excess deferral, then that plan's recordkeeper should ask for information about the amount of the excess and the type of deferral (pre-tax or Roth) that is in that plan. Then recordkeeper should properly account for the excess going forward. Note that the reg says "For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income." If there is no separate accounting, then the first dollars out are a refund of the excess plus earnings and are not eligible for rollover. (This is similar to what is done for RMDs.) As evidence that @Lou S.'s odds on how this is reported are fairly accurate, I observe that I have never seen a conversion data request that asks for the amount of excess deferrals that are in a participant's account.

As long as (a) document defines the compensation that way by source, and (b) the compensation definition isn't discriminatory (414(s) testing) Then this should be fine. Maybe a suggestion to make sure the SPD spells that out well enough so people aren't leaving match money on the table for only doing 6% of the base pay, but otherwise folks just need to think it through and maybe sign up for more than 6% so that they still clear 6% of their entire "match compensation" figure.

Without remarking on what a plan’s procedure should provide or omit: The statute’s regime does not require segregating any portion of a participant’s benefit until the plan has received a court’s order that is a domestic-relations order. From that receipt (if the plan absent a QDRO permits the participant to take a distribution), the segregation period is up to 18 months, but ends when the plan’s administrator decides that the order is not a qualified domestic-relations order. ERISA § 206(d)(3)(G)&(H) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true

Your starting point is ill-considered. There is no statutory authority for interfering with participant rights under the plan prior to the receipt of a DRO. I know that the DOL QDRO book suggests this as a possibility, but if the DOL was confident that it was a good and legitimate idea, it should have issued the guidance in a regulation, which could then serve as protection to a fiduciary who could get sued for fiduciary breach for interfering with participant rights.* The fact that you have so many questions about how to administer a pre-DRO hold illustrates how problematic it is. In any case, why make it a plan problem when the problems lie in the domestic relations proceedings? Although few domestic relations lawyers have figured it out, it is extremely easy to achieve the same early restriction on dispossessing the future alternate payee within the existing framework that requires a domestic relations order before the plan will take any restrictive action. And if the participant is a bad actor, there should be remedy in the state courts. This is a subset of a larger set of problems with both domestic relations law and our legal and court system in general. Paying for competent legal help is beyond the means of many folks who need assistance in navigating the complexities of both the law and the delivery system. The plan should not try to solve that bigger problem by undertaking a mission to make sure everything is fair and square at least with respect to the division of retirement benefits. *A court that imposed liability for disregarding a participant's investment instructions during a pre-DRO "hold" allowed that maybe the plan could restrict if the written QDRO procedures provided for the restriction. Even if the court were correct, we don't know what such terms would have to cover, and how, to protect the fiduciary. You are asking those questions for good reason.

See Reg. 1.402(g)-1(e)(8)(iv): "(iv) Distributions of excess deferrals from a designated Roth account. The rules of paragraph (e)(8)(iii) of this section generally apply to distributions of excess deferrals that are designated Roth contributions and the attributable income. Thus, if a designated Roth account described in section 402A includes any excess deferrals, any distribution of amounts attributable to those excess deferrals are includible in gross income (without adjustment for any return of investment in the contract under section 72(e)(8)). In addition, such distributions cannot be qualified distributions described in section 402A(d)(2) and are not eligible rollover distributions within the meaning of section 402(c)(4). For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income." Short version as I understand it: Excess Roth deferrals and related income are taxable and cannot be rolled over. Shorter version: less like a loophole, more like a snare.

While I did not know Mike personally, I did benefit from exchanges with him. My prayers and condolences go out to his family.

Michael B. Preston, who was an enrolled actuary, was a giant in the pension field. He contributed so much to the employee benefits community. He posted 6,569 messages onto these message boards since he joined in 2001 (!) -- questions, answers and comments that helped to inform and educate hundreds, perhaps thousands, of his peers. They're all still here and on the search engines, so his wisdom and humor will continue long into the future. During the 1990s, Mike was a system operator of the PIX ("Pension Information eXchange") BBS (i.e., a "bulletin board system"). PIX basically was a server running proprietary software on a particular dedicated personal computer that had a dedicated telephone number. Members would use their PC (and a modem) to connect via a long distance phone call, so that the latest discussions could be downloaded for reading and for adding comments. Later, when the World Wide Web became popular and PIX closed, Mike become an active participant and later a "moderator" on these BenefitsLink message boards. An outstanding servant and leader in his profession, Mike was awarded the Edward E. Burrows Distinguished Service Award in 2017 by the ASPPA College of Pension Actuaries, which is "presented annually to a pension actuary who has gone above and beyond in forwarding ethics, education, beneficial legislation or regulations that enhance the private pension system or the professionalism of enrolled actuaries within the private pension system." We will miss him so much!