MoJo

Methinks that since this is being pushed by a "heavy hitter" that there is a link to "commissions" - either on the rollovers or maybe the existing investments won't be allowed under the fiduciary rule. Therefore, logic, or best practices for the plan, are not relevant to the discussion. Yea. We (a bundled service provide with a "commission" product that will no longer be available as of 4/10/17) are seeing a lot of "churn." I can't say I've seen a termination and replacement, but a lot of activity to get the "up front" while it can still be had....

It seems as though this product has "resurfaced" again. Any one have any experience with it? http://www.plansponsor.com/Retirement-Loan-Eraser-Improves-Retirement-Outcomes/?fullstory=true .

Yes, a fiduciary is making a decision when they select defaults for an auto enrollment program, BUT 1) they have legislation that provides guidance and safe harbors; 2) they have regulations that define a QDIA for purposes of a safe harbor for THAT decisions; and 3) they have the BODY OF EXPERIENCE of other PRUDENT EXPERTS who have done it - therefore fulfilling the "what other experts do" part of prudence. I have NEVER seen one make a determination that "you" go Roth and "you" go pre-tax, nor do I see ANY evidence that the one factor they have selected is indeed a KEY factor. Experts have been debating Roth and the decision making process for as long as Roth has been available, and I see NO consistency in approach. Not what "other" prudent experts would do....

Being "allowed" and being "prudent" are two different things. I have no problem with the FIDUCIARY decision being made by a plan fiduciary (just as having a plan fiduciary making all investment decisions and not allowing participant direction is "allowed.") The question still remains as to WHY a fiduciary would want to make that decision? The way I look at it is, if you take into consideration ONE fact or factor, explain to me why you chose THAT particular fact or factor in making your decision, but chose NOT to take into consideration x, y & z facts or factors in making that decision? It's the distinguishing between two groups on the basis of ONE factor that causes me concern - and will be the crux of the fiduciary's defense when sued. Now one could argue that TDF's do the same thing - BUT 1) the industry has recognized that as "more" prudent than virtually all other investment options; 2) the options glide path ensure that the investments change when the one factor considered changes; and 3) there is safety in numbers - prudence is determined by what OTHER experts would do, and many, many other experts use TDF's. I am aware of none that actually make a "tax" decision for employees.

David: Clients may think they don't have a procedure, but in my experience, if a service provider provides ANYTHING other that purely directed "account splitting" services, a plan sponsor signed procedure is required. For the service provider I currently work for (and the two immediately preceding ones) a "required" QDRO procedure is provide and the signed version must be returned prior to any QDRO services being performed (and almost all clients use the QDRO services offered - which may include actual "Q"DRO determination services).

Peter: It would be more than a big lift, but - we are in the process of determining best practices and processes for all concerned (acquirer and acquired books of business) going forward (taking the best of each to achieve (as near as possible) that "best practices" approach) and "QDRO services and processing" is being discussed. When final decisions are made, we will embark on a rollout to all existing customers of all necessary new documentation required (and QDROs are only a part of it).

We've been having an internal debate on this issue for some time. A company (a recordkeeper) that we acquired used a sample "QDRO policy" (universally adopted by their client plan sponsors) that provides that the plan fiduciaries (not the recordkeeper, thank God) would impose a 90 freeze on a participant account upon receipt of credible information that a situation exists which could lead to the issuance of a DRO. Now, many, many problems with this, including the determination of what is "credible" information, and the like, but it raises the fundamental question of the obligations of the plan/fiduciaries when presented with such information. Just for the record, the QDRO procedure was, in fact, blessed by an ERISA niche law firm whose name most would recognize....

There is an "quasi-anonymous" DOL "tip line" that you can make a complaint on (on their website) - and when they contact your employer, they will not mention your name. If they do figure out it was you who filed the complaint and terminate you (for that reason), that would be a problem - an employer CAN NOT fire an employee for exercising their ERISA rights. Proving it, however, may be another matter....

jpod: I agree - if it were $1 million, I'd take extra steps (interpleading being but one of them) - but then again, even without an intervening death, I would take "extra steps" in processing a million dollar distirbution, but you hit the nail on the head when you said "(if it could be stopped)" - implying that the "distribution" had in essence become a "fate acompli" and was an unstoppable train heading towards funding the IRA.... At what point is the distribution LEGALLY stoppable? That is the question (and not when it practically can be stopped) that resolves the issue - and I would take the position that when the final "substantive" act has taken place, it *is* a "distribution" (albeit waiting to be processed). To take it to an extreme, what would be your conclusion if the trustee snail mailed a check to the IRA custodian and it took a week or two to get there? Would you advise that a stop payment be placed on the check?

My 2 Cents: I think this thread has gone afar (and that's not bad). The bottom line is, it depends on what was the nature of the transaction between the participant in using the proceeds of his plan loan to pay business expenses. IF that was structured as a "loan" then the employer paying back the loan (by making payments to the plan to pay the participant loan), then there is no taxable gift or taxable compensation (although, as I suggested previously, there may be an interest component of the loan to the company that the participant would have to claim as interest income on his tax return). IF the paying of business expenses was NOT a loan, then your points are valid (and I would side on the taxable compensation part of it - businesses typically don't make taxable gifts to employees - it gets booked as "compensation"). Keep in mind that a "loan" does NOT have to be in writing (although some would say it is stupid not to have a written document evidencing the loan - myself included - but clients are often "stupid"). In my mind, the fact that the employer made payments on the participant's behalf is EVIDENCE of the fact that the payment of business expenses was intended to be a loan. The fact that the plan loan "contract" specified payroll deduction as the repayment means to me is insignificant. Plan fiduciaries have a DUTY to collect loan payments, and if they come in by pony express delivery, they probably ought to take it (unless clearly the delivery places an unreasonable burden on the plan - like payments all in pennies, and the like).

Covering business expenses or buying a bass boat - what's the difference? If the employer goes out of business, the loan FOR EITHER would probably become due and taxable. Research "ROBS" plans and see what kind of crazy stuff people have found to do with their 401(k) balances..... Good , bad or otherwise, we've given participants the power to determine what they do with plan loan proceeds.

I guess I'm missing something here. If I'm reading it correctly: 1) The "participant" took a plan loan. 2) The participant loaned the same amount to the employer. 3) The employer paid the loan back to the participant, but did so by directly making payments on the participant's loan back to the plan. The participant would have "income" only to the extent of the interest paid by the employer on the loan it received from the participant in step 2 above, with no corresponding deduction for the interest the participant incurred his loan from the plan. While not recommended, I see no problem in the employer satisfying it's obligation to the participant by making payments to the plan in satisfaction of his loan to the plan. It's a "tracing" issue, and I believe the only tax consequence (assuming the participant loan was "compliant") is the interest the employer paid on it's loan, inuring to the benefit of the participant.

jpod: ...and what is it you suspect it says?

I disagree with jpod. Distribution is irrelevant, and due to errors, I've seen the "processing" of distributions take upwards of a year and a half to actually get a check cut.. The question is at what point in time did the participant's request become an obligation of the plan to distribute. How long it takes a service provider (or an employer) to actually process the paperwork (delaying the distribution) is arbitrary, and has no effect on the ERISA right to receive the distribution. At the latest, I would suggest that when the appropriate plan fiduciary "approves" the distribution, the right to receive it is fixed.

Belgarath: Would you rather be shot and die quickly, or die slowly from poisoning? Having an IPS and not following it (without a really good reason) is "fatal" quickly - as you have provided the standard of conduct against which you will be judged. Not having an IPS and "winging it" means you leave it to the judge (never, ever a good idea) to determine the standard by which you will be judged and held to before he or she strings you up based on what they think would be prudent.... Speaking of which, I'm not aware of anything that "specifically" says an IPS is required EXCEPT that one must be a "prudent expert" (with the care, skill, etc.) as a fiduciary, and I can't think of a "prudent" investment manager who would do without one....

In order for a "foreign" DRO to be a QDRO in this country, a party (usually the Alternate Payee) would have to "file" an action in a "domestic" domestic relations court to enforce the terms of the foreign divorce and DRO - then the domestic court would issue it's OWN DRO (which is now a domestic order of a court of competent jurisdiction) that could be given effect against the plan. I can't say I've seen it happen myself, but I know of others who have and while not common, not unheard of either. A similar situation exist if the parties are in different states. An "Ohio" DR court will enforce a "Florida" DR (or other states) order but usually it requires filing an action of some sort "locally" to give the court jurisdiction. Happens ALL THE TIME with respect to child support and/or visitation issues. Same principle, except in the case at hand in this thread, it would be to enforce a foreign court's order - which would need to be turned into a domestic DR court DRO to be given effect.

...due to poor plan design and bad communication from a "service provider". - Well, the "free market" corrects for that by making them a "former" service provider. If the failures on the part of the service provider are a breach of their contract with the sponsor, it may even give rise to a litigate-able claim.

You raise a lot of issues in your post. From the 401(k) (or other qualified retirement plan), you can always INCLUDE anyone, anywhere. indeed, a U.S. citizen working abroad is not a "statutorily" excludible class of participants implying they clearly are "includible." It would require some clear plan language to include only the ex-pats and not the other employees, but it can be done. Now for the can of worms.... What I just said is from the U.S. perspective, concerning U.S. law. What Chilean law says is another matter. Participation in such an extraterritorial (from Chile's perspective) plan may or may not be permitted, and most likely there would be no Chilean income tax advantages to such participation. In addition, in SOME countries, being covered by a private pension arrangement (DB or DC) may have consequences on your ability to earn benefits under the country of residence equivalent to "Social Security" (if they have one). Best to involve benefits experts with international experience on the team to vet ALL of the issues. As far as medical plans go, that is probably even more difficult (due to single payer systems, local control, and even the ability cover someone really, really out of network). Again, seek expertise in international benefits before proceeding. In some cases, at least on the retirement plan side, a non-qual plan in the US covering the ex-pats may be a viable option....

The simple answer is, of course a plan can require that all assets beheld in brokerage accounts under the control of each participant. The rest of the story is that the plan FIDUCIARIES ALWAYS REMAIN LIABLE FOR PLAN INVESTMENTS UNLESS THE PLAN IS 404© COMPLIANT. The question you have to ask is whether or not a plan with unlimited brokerage accounts ONLY can ever be 404© compliant. IMHO, it can not....

...a carefully worded one.... That said, "legally" the only requirement would be an SMM (if it is a plan change) or a notice (if an administrative one). Practically, it's probably going to be perceived as a "take away" at least by some, so justification for the decision should be included (studies show.... best interests of the participants.... fiduciary responsibility....)

RatherBeGolfing: Were those mutual funds or separately managed accounts? I did some research a while back (way back) and under SEC rules a mutual fund cannot not take fees out from the assets held by one investor invested in a share class when it takes fees out from the accounts of the other investors in the same share class (i.e. all investors in a regulated investment company ("mutual fund") MUST pay the same freight (within the same share class). So, the only way that would work would be if there were either in a no-expense share class (not likely) or if they reimbursed the plan after the fact (and I recall an ancient Rev Rul (1980 or so) that indicated that inherent expenses involved in managing assets could not be reimbursed and any such attempt would be considered a contribution to the plan (and too the extent it disproportionately benefited you know who, you had a discrimination problem). Now, if it were a separately managed account (not a mutual fund) and the deal you struck with the money manager allowed for the payment of fees not from the assets, you might be able to do it.... If I can find the research or the Rev Rul, I'll try to post it.

Good, solid, fiduciary judgment - based on the risks of having to pay a benefit twice vs. the ire of a participant in a domestic relations "action" that wants to remove assets from the plan. Fiduciaries do it all the time. If you wait for a "DRO" actually signed and issued by a court, then it's probably "wrong." and will have to be redone (which is why we encourage drafts), so when do actually "freeze" the account? When you get a DRO that may or may not be a QDRO, or when you actually get a QDRO, or some other time. I don't think you can avoid the decision....

This is a matter of "where you draw the line" but I disagree (I think) with ETA. 99% of the time we (as a bundled service provider who provides QDRO services) receive DRAFT orders from an attorney for review PRIOR to getting the court to actually issue the order. The policy "sample" we provide indicates "If the Plan Administrator is on notice (verbal or written) regarding a Participant's pending domestic relations action..." then a "90 day" hold *may* be placed on the participant's account to protect the rights of the potential AP. If after 90 days something more substantial isn't forthcoming (a draft DRO or something else sufficient to cause the PA to protect the rights of the AP) then the hold is released. Sorry, but I don't think this is an area where "hard and fast" rules (eliminating discretion) are necessarily appropriate. Good judgment is a must.

Does the plan offer loans? If it does, would be an easier way to get the money (provided all the "conditions" are satisfied...).

Belgarath: Yes, and that is what I was hoping Mike P. would say - the issue with a revocable opt-out is that it *is* a CODA in the eyes of the IRS, and as it applies to a non-elective contribution by the employer, a "disqualifying" event - which essentially means it is *not* permitted. If there is a non-disqualifying revocable opt-out (other than normal salary deferral choices), I'd like to hear about it.