MoJo

*If* he is the participant, he *is* entitled to the distribution under ERISA and conditioning that on anything I think would be verboten. And, even if the participant signs it - it would basically b worthless as the plan administrator/fiduciary can not absolve themselves of their responsibility to properly account for hte participant's benefit - regardless of whether he was missing or not.

There are two answers - of course. In our experience with the DOL is that you must go back to the beginning of time (and in one case, that was 12 years). Our advice (after explaining the DOL's position, it to go back at least past the open years (4 years). But if it was "significant", and the DOL get's involved, they may require more. As far as what you do for the client, that's your business decision.

Yes I can say it. The OP said the issue is the inability to roll it over due to the 60 day rule. One doesn't roll over money they need. I'm hanging my hat on prudent fiduciary process and 37 years of preaching it.

Larry: They DON'T need the money per the OP. 'nuff said. Give it a rest. CAUTION is all I'm advocating.

Stop taking this to the extreme, Larry. That's simply stupid. The OP said this WAS an RMD. The participant DID NOT NEED IT and wanted to roll it over. Hmmm. Interesting facts that a prudent fiduciary would consider. Caution is what I advocate when talking about "workarounds" that may not be indicative of reality - especially when the IRS says "unless the employer has actual knowledge." That is the standard. Implementing it? Well, we're working with our clients on a "prudent fiduciary process" to ensure they have done what they can to avoid the IRS' ire. Just as we have done with hardships to buy a boat (I swear, I'm going to live on it!), or have medical expenses (but the employer knows insurance covered most if not all of it).

Like I said, words have effect. Precise words have precise effect. "Workaround means something very different than solution. I'll stand by being "precise" every time. And as far as it is no longer the concern of the employer, I would disagree. The IRS guidance on the issue includes an "unless the employer knows otherwise" condition.

NOw you are playing semantics, Larry, and that itself is unseemly. Read my posts. I CLEARLY indicate that based on the post I was responding to, that it would be inappropriate to suggest something as a way to "get around" an issue. If someone is entitled to a CRD, then that approach is a "solution" and not a "workaround." We as professionals can't simply "suggest" that someone do this in order to avoid that restriction. We can offer, "if you qualify" then here is a solution - but only if..." There is an art to this, and we have to be cognitive of the effect of our words on others - and here as well. Alternative solutions. Fine. "Workarounds" because you can't do a 60 day rollover? Depends - but my caution still stands. Get over it.

I understand - and that's what we are doing. What the post I was replying to suggested was that there was a "workaround" to the problem of the lack of rolloverability for a distribution taken in January. When one says "workaround" to a problem that doesn't relate to the issue, it "screams" inappropriateness. We cannot "suggest" fraud as a "workaround." If someone is a qualified individual (and no, I'm not making that determination), then the solution (not "workaround") is to reclassify as a CRD with all bells and whistles of that. But a "workaround?" It's about "ethics." Understand?

uh, just stating the obvious here (especially since the OP said it was an RMD when made) - have them self-certify *IF* they are a qualified individual - else this would be fraud.....

Has it been submitted to the plan for review? Have they acknowledged receipt of it? Have they provided you with a copy of the plan's QDRO procedures? Not sure what the holdup is with respect to it without more information. Keep in mind, that under ERISA, the plan can take up to 18 months to accept or reject a DRO....

Sound advice for your clients. We've actually posited language to the IRS as part of our restated documents to make the cash out "permissive" and not mandatory. No go. It is an optional provision in our document, but once selected (which is the default), then it must be done. During the restatement, we may change our default....

I've not seen the IRS call out these operational failures, but I have seen the DOL call it a fiduciary breach to not follow the terms of the plan, and a prohibited transaction to asses any fees to the accounts of participants who should have been cashed out - including underlying investment management fees taken by the mutual funds in which the account is invested. They've required the fiduciaries to reimburse the account for all fees, plus earnings, and then process the cash out into a HIGHER FEE IRA.... Shaking my head in disbelief at stuff like this....

Agreed - keep in mind determining "effective" is a fiduciary function. Always wise to be careful when being a "fiduciary."

It's by definition not abusive - because that is EXACTLY what the legislation allows for. If you think it's bad policy, then let's have that discussion - but as written, it isn't abusive to do that which the legislation specifically allows.

The abuse is the three year spread of tax, vs. the immediate taxability of a Roth conversion. Taking a CRD without a need isn't an abuse - the Act specifically does NOT contain a showing of need to obtain one - only that the taker is a "qualified individual." One could argue that nobody needs a lump sum of $100k immediately. Over time, maybe, but the legislation is clear. No need is required.

I think you need to be cautious here. The DOL is looking for "effective" notice - and cautions that the reason a separately assigned "plan" email doesn't work is because it is seldom used, subject to forgotten passwords, and isn't effective for the purpose of notice under the rules. Even if you couple it with a few other things, the fiduciaries have to ascertain that such other purposes for the email are sufficient to be sufficiently used to overcome the potential problems the DOL cites. Frankly, the HR and/or safety notices may not be enough unless one is REQUIRED to read them, they come out frequently enough that employees would be "in" the email often enough to make sure the plan notices are "effectively delivered."

Part of the preamble indicates that an employer can NOT provide an email address solely for the purpose of receiving plan information. Would not giving those who don't regularly use email as part of their job mean, almost by definition, that this practice is doing just what the DOL said in not appropriate?

I'm not so sure I agree. What you have is $100k after tax. Now you are saying you "repay" it by rolling it into a Roth IRA. I get that you can "rollover" the 100k as part of repaying - but that make is a "pretax balance" in the amount repaid - and results in a rebate of the taxes paid. If you do that, then the act of converting to Roth creates a separate taxable event that has taxes due immediately (no 3 year deferral). Now some would say you don't have to claim the abatement of the taxes (as that would be by amending you personal tax return), but in reality, whether you claim it or not, the law makes the taxes abated. Not going to fly, in my book. If you want to actually do this, contribute $100k back to a plan that allows lump sum after tax contributions, and immediately do a MegaRoth or backdoor Roth conversion. This isn't a "rollover" and get's you where you want to be. You still have to pay taxes on the original distribution - over three years if you want.

Might the fact that the legislation specifically indicates that this is NOT an eligible rollover distribution have a bearing on the discussion?

What Larry said. The DOL has publicized their initiative to review the "quality of audit work" and have actually barred a handful of firms from being able to audit plans going forward. It has been a topic of a variety of CPA organizations, as well (as Larry has said). I have friend/professional contacts in that field -and it is something that those with a specialty in have been capitalizing on (taking business from those not so specialized).

Bad idea. The "audit" function audits controls - which may include processes handled by the TPA. It's a quick way to permanently lose your authorization to conduct audit services (and the DOL is looking hard at audit firms right now).

...or, it could be economics. Most recordkeepers I know are not charities, and while "client service" might mandate some fee waivers, mass fee waivers could endanger firms with already very thin margins. We waived fees for CRDs and for "regular" hardships during the relief period. We did not waive fees for CRLs (they go on and on and on and on and require lots more work). Business decision. Did include factors relating to client relationships and PR. Not at all arbitrary.

There is nothing in the Act that limits distribution to the amount of any "need." If you are a "qualified individual" you get what you can get from your account - subject to plan limits. We do have some clients that have implemented limits of less than $100k - specifically as a result of the type of situation you refer to.

I think there is difference between that situation and the one at hand. In the "Delta Divorce" cases, there was, in fact, a state court's judgment that granted the divorce, under state law. The issue with respect to the plan's concern that the divorce was a sham to get money out of the plan was irrelevant, because under state law, the divorce occurred. Anyone care to comment on whether the IRS has the "authority" to actually expand the statutory language by imposing this condition? I worked once with an attorney who went before the SCOTUS with the argument that the "IRS' position is but one interpretation of the law, and not necessarily the correct one." He won that case, and as a result equalized the rules applied to corporate entities and partnerships (O'Neill vs. someone, 1969). I'm not advocating "poking the IRS bear," but the statute isn't ambiguous, or unclear. Same would apply to why they said 12/30 was the last day for CRDs when the statute says "within the taxable year" (and last time I checked, 12/31 was within the taxable year.)

Oh I understand. You are simply not doing it the way the law requires. You're not alone. But that doesn't make it right.