QDROphile

True. If there is a conflict with what the plan provides and what a non fiduciary service provider is engaged to do, the fiduciary plan administrator is going to be in a real bind, especially if the participant understands the participant's rights and benefits and wishes to exercise them. That is unlikely in the circumstances described. The service provider system driven arrangements will be imposed on the participant, and no one will be the wiser. So ask the service provider what is going to happen (notwithstanding whatever the plan terms are).

1. That depends on the plan terms and the written loan policy terms, if the plan has a separate loan policy. I presume that the actual loan documents are consistent with the plan terms and loan policy terms, but the loan documents also must be considered. I think most plans accelerate the loan when the participant's employment ends because most loans are paid only by payroll deduction. 2. If the participant takes "all the money" the participant takes the loan as well, which should terminate the loan (with resulting taxation for actual distribution, not deemed distribution), leaving nothing to repay. If you mean the participant receives a distribution of the balance other than the loan, see #1. 3. Not always. See #1 and #2. Timing of taxation should be covered by the plan/loan policy terms. Plans may differ in default and acceleration terms, which are also covered by the loan documents. The loan documents usually do not speak to taxation, but the Summary Plan Description or loan disclosure documents should.

Good on ESOP Guy for understanding that the question might relate to holding assets other than employer securities in the plan for the purpose of the ESOP‘s option to repurchase securities, which is otherwise the sponsor‘s obligation. I would not describe this as a sinking fund, although it is effectively similar. It is a decision about what portion of plan assets to hold in other than employer securities, keeping in mind, the requirement that the plan must invest primarily in employer securities. Those assets would be accumulated by contributions over time, which means the ESOP is mature, probably not leveraged, and the employer is also opting not to feed the plan with stock contributions. I doubt that it means the employer is increasing the contribution rate with additional cash contributions.

Setting aside money for repurchase obligations or future contributions is a separate corporate financial matter and relates to corporate accounts. Because it is not an obligation related to the plan, or legally connected with the plan, ERISA and tax qualification rules do not apply, other than standard corporate tax rules having to do with accumulation and disposition of corporate assets. The ESOP’s interest is that of a corporate shareholder. The corporation and its Board of Directors have corporate fiduciary duties to shareholders with respect to operation of the corporation and management of corporate assets. Also, if the corporation is majority or 100% owned by the ESOP, those circumstances are considered in determining the corporate fiduciary to the ESOP as shareholder. Investing in crypto currency may be a breach of corporate fiduciary duty to shareholders — I have no views to share on that point. Your post implies at one point that it is an ESOP trustee that is funding or managing the sinking account for the sake of the ESOP. A sinking fund may be prudent for ESOP maintenance, but it is not a plan asset concern that would be the responsibility of a plan fiduciary. It is a corporate financing concern. The repurchase obligation is a corporate obligation.

If termination were the magic uncancellable ticket that allowed a distribution at any time thereafter, we wouldn’t have all the historical fuss about whether or not a termination is a valid termination because of the prospect of re-employment and whether the prospect of an expected rehire prevents the distribution. The point is that if the participant is employed at the time of distribution (or is expected to be re-employed within some “who knows what time” shortly after the distribution) a distribution can only be made under whatever in-service distribution rules apply. As I suggested in my earlier post, the burden should be on the participant in this situation, not the initial administrative functionary. If the participant is entitled to a distribution, the participant can make the case under the claims procedure with all of the reasoning and legal authority that the participant can muster, spelled out for consideration.

Lest there be doubt about what I posted, I think the distribution should be denied whether or not you are cautious, absent clear written administrative policies to the contrary.

Maybe you are missing a good collection of written administrative policies and procedures, backed up by an SPD, that spell out how and when distributions are effected, such as it all depends on what is submitted in writing and when the writing is received - informal communication is not effective. But you don’t seem to need them so much under these facts as long as you are in a position that is granted discretion. If you were extremely cautious, you would deny the distribution and leave it to another fiduciary to deal with any challenge. You did not report whether or not you have fiduciary authority or responsibility.

The State of Confusion?

An example that brings this in from the theoretical to the practical: A plan document says that the adopting corporate employer is the plan administrator. Under corporate law, that means every member of the board of directors is an ERISA fiduciary, and if the board (or the plan document or ... ) does not formally delegate the fiduciary responsibility to someone else who truly understands and pays attention to the function of plan administrator, it is likely that the board members will not appreciate what they need to be doing, at least by way of oversight, which automatically makes them the "bad fiduciaries" noted above, while some other person actually takes care of plan administrator business. The DOL, and class action plaintiffs, take advantage of this lapse to gain leverage in a claim of fiduciary breach. It is not a nice surprise for a board member to be a named defendant. The best protection from fiduciary liability is to understand when one is a fiduciary, pay attention, and act reasonably. The fear of ERISA fiduciary liability is overblown, but being a fiduciary and not consciously acting in that role is a liability gotcha.

Neither plan sponsors nor employers are fiduciaries as such. Plan documents often make them into fiduciaries by giving them fiduciary functions, such as the power/responsibility to appoint a fiduciary (e.g. a trustee) or designating them as plan administrator. It is a common flaw in plan documents to automatically impose such fiduciary responsibility on plan sponsors, or employers, without provision for, or consideration of, other options that could be preferable.

Were assets “returned” to the sponsor or the plan? How were the funds unclaimed? I realize that my questions are not directly in line to answer your question. The circumstances are quite curious. If plan assets were somehow “unclaimed” it may suggest breach of fiduciary duty at some time. In my limited experience with unclaimed funds bounty hunters (not involving any plan) one should consider an independent search for funds after being first approached by the bounty hunter, but it sounds like that time has passed. Circumstances dictate appropriate responses and the circumstances of unclaimed plan funds is a new one on me. Or maybe I misunderstand what you are describing.

I think in most of those arrangements the company is still the employer and sponsor.

1. A nitpick must be precise to maintain its integrity, authority, and fastidiousness. 2. There was no need to cavil with the statement itself. 3. I am such a bad typist that it was easier to copy and paste than paraphrase.

TPA vs PA vs Employer/Sponsor, one of my favorite nitpicks. The plan has a fiduciary plan administrator (PA) required by ERISA. That PA is appointed by the person specified in the plan/trust document, typically the plan adopter/settlor of the plan's trust, typically the employer/sponsor -- the Employer. As a separate matter, it is not the best idea for a corporate employer/sponsor to be the appointer, but that is an aspect of my nitpick that we will overlook this time. if the settlor does not appoint, the settlor is typically the PA by default. So typically the PA is the Employer. The settlor can appoint, or can authorize the PA to appoint, a special fiduciary for specified purposes, let's say for purposes of administering hardship distributions -- a TPA. The appointing PA can retain express authority to override the TPA, and has the duty to monitor the TPA and step in if the TPA is not performing in accordance with fiduciary standards (which would include operating in accordance with plan terms). If the TPA has been delegated authority and responsibility for hardship distribution administration, the the TPA decides, subject to the override by the PA to the extent provided in the plan documents (including the TPA contract) and ERISA fiduciary standards. All of this is implicit in Bill Presson's comment "The Employer does (absent 3(16)) do it falls on them." but there is a lot to understand and to line up within it. The Employer may or may not have a role.

I also approve of dope slapping, in addition to slapping with a class action lawsuit.

Long ago, a big name, but very aggressive, ESOP consulting/promoting company sold a design (and related services) that provided for terminated employees to keep their share-designated ESOP accounts, but instead of investment results of share ownership, the accounts got a fixed rate of return (I recall something like 3%), which was a way of limiting participation in post-employment appreciation because the company was “sure” of appreciation of 6% or more). The accounting got pretty wacky if your perspective is hidebound by compliance with applicable rules and conventions. The IRS gave determination letters on the plan documents, but the neither the IRS nor the DOL approved the concept in practice (among other things it is inconsistent with the definition of a DC plan) as far as I know and I have seen the operation challenged by the authorities as well as litigants. Never have I seen it vindicated by any agency or court.

Millennium Trust will probably accommodate. No basis for recommendation other than an investment manager I know and respect uses MT for property that is not publicly traded securities. I have little observational experience, but I have seen no problems with transactions or reporting. I know not about valuation questions. I am also not commenting on the idea of holding real estate in an IRA.

If any asset does not have daily valuation and daily liquidity, you probably need a policy that limits the “immediate” distribution to a percentage of the requested amount (e.g. 80 percent, depending on experience and fears regarding market volatility — downward) and a post-valuation true-up. Or you can have special valuations with respect to each special distribution. Management of assets, such as ordering of liquidation you mentioned, is another matter and is dependent on assets and current management. For example, how big is the pool and the cash-equivalent holdings? How many participants are there and what are the general liquidity projections? Beware the fit of any template you may come across — this is not necessarily just a matter of mechanics. Maybe if all assets have daily liquidity and daily valuation.

What have you done already? It starts by contacting the plan administrator to report the error and request correction. If you have done that and not gotten a satisfactory response (action, direction, or explanation), then it gets more interesting. I expect most of the contributors to this site would encourage you to allow enrollment to take effect. People in the business tend to value retirement savings, even though it may be difficult to part with some pay now.

This is no substitute for consultation with a domestic relations lawyer. Typically a divorce decree/judgment (which may include a separate property settlement agreement) will provide the basic economic terms of dividing the retirement assets, regardless of the nature of the account that holds the assets (e.g. plan, IRA, annuity contract). A domestic relations order that wants to become a QDRO usually does not address the economic division of retirement assets for the first time. It usually follows what was provided in the decree/judgment and "merely" supplies the technical provisions necessary for qualification by the plan. As noted above, a QDRO, as such, is inappropriate for dealing with an IRA, so another type of supplemental order is required, but it would look back to the terms of the original decree/judgment for the terms of division. If the original decree/judgment did not address the division of the retirement assets, or deferred the determination of how the assets would be divided to the consideration of the supplement judgment (or, mistakenly, a QDRO-to-be) you are going back to the domestic relations court for consideration. One way or another, you are going back to the domestic relations court concerning the division of the retirement benefits, and you should do that with the assistance of a lawyer.

If there is doubt, ambiguity, contradiction, or vagueness, the plan administrator should have authority to interpret and should do so in a way that is consistent with the law and proper administration.

If you are describing your document terms correctly, the document is unfortunately drafted. I prefer to use “participant” and it variants to mean someone who is eligible to accrue a benefit or has an account under the plan. I am not fond of “active” vs. “inactive” either because of what is included or excluded by implication (perhaps incorrectly). For example, an “inactive” participant may still be able to direct investment of the participant’s account. That sounds kinda active to me if I am not familiar with the definitions.

I have seen government healthcare organizations with 501(c)(3) determination letters. DOL Opinion 2005-07A 1) appears to lean heavily on the "de minimus" position of the DOL, and 2) warns that the opinion does not address any issues under the tax code. I recall from long ago (in the last century, so things may have changed) that the IRS has not adopted the same "de minimus" position with respect to non-governmental employees participating in governmental plans. As Ebplans stated, neither is your situation. Before you read too much between the lines or think the DOL can provide you with comfort, beware that on some evidently parallel provisions in their statutes, the DOL and IRS differ. If you can get the DOL to address the specifics, that may be very helpful, especially if on the negative side. "No" would be an easier way put an end to the question, no matter how the IRS might differ. I hope you are not being asked to validate or deny the status of the plan. All I can conclude is that you have legitimate concerns, whatever your reasons for caring.

Whether or not an entity is governmental for purposes of the low 400s of the federal tax code can be very tricky to determine and in my experience the IRS can be pretty demanding about the criteria because governmental plans are not subject to discrimination rules, among others. Your your penultimate paragraph is a bit simplistic, but is the starting point for the analysis. Your initial skepticism is warranted.

Extralegal question: If she expressly waived her interests, why are you trying to circumvent now?