QDROphile

I think the U.S. Court of Appeals for the Fifth Circuit would say that the survivor annuity interest “vests” in the spouse at the time the benefit starts. Where to go from there, or not, is not answered because the circumstances were different. A former spouse of the participant was trying to capture all or a part of the “vested” interest. IRC section 414(p) refers to assigning some or all of the participant’s interest to an alternate payee, not assigning some of a vested spouse interest to the participant or another alternate payee. If the Fifth Circuit meant what it said (c.f. Ninth Circuit’s take on J&S interests vs QDROs), then the now former spouse cannot be divested or deprived in any measure. But the former spouse can be denied any interest in the participant’s stream of payments (effectively the participant’s life annuity).

Maybe it is a panel of lawyers, a council of counsel.

You need legal advice that you cannot get in this forum. First, you need advice about what the deceased former (?) spouse can get under California domestic relations law. That seriously narrows the field of of contributors to this forum and is the starting point for questions about what can be obtained from the pension plan. The assertion of the other side about what is deserved or attainable cannot be trusted either with respect to California law or the pension plan. Unfortunately, expertise about state domestic relations law and QDRO law do not often come in the same package. Whether or not the estate's lawyer or former lawyer committed malpractice is interesting for settlement purposes, but not what might effectively be asserted against your father's property.

Just for fun (what is your interest in the matter?), let's infer (because you don't give enough information to avoid a lot of speculation, which I don't find amusing -- speculating, I mean, because is is not very productive) that the DB plan is paying either a life annuity or a J&S annuity with the deceased former spouse as the contingent annuitant. Although the plan could be designed to accommodate other arrangements, I am going to take the strict approach that I advise for my clients. The benefit is now effectively a life annuity for the participant, and any assignment of benefits is going to be in the form of designated prospective payments from the payment stream, which might be commonly envisioned a "separate payment" approach. I am at a loss to see how the AP (or AP's estate, and I use the term AP even though I don't think there is an AP) can get anything. I would advise the plan that the description of the prospective separate payments (whether or not calculated to capture retroactive payments over some time) could not include a time frame greater than either the participant's or AP's life. The AP is dead, so the separate payments stop before they start. Unfortunately, the DOL soiled its pants in its efforts to comply with the Congressional mandate to provide guidance in the complex circumstances of death of a participant or spouse before a proposed QDRO is qualified. The DOL pretty much left us with nothing. It could have provided some guidance into these difficult and interesting issues that arise under DB plans. Other outcomes may be possible, but I think the plan can refuse to pay because I cannot think of a payment scheme envisioned by the AP that does not require the plan to pay in a manner or form that the plan is not designed to pay, at least as I assume this plan to be designed. You also have to consider, which I am not, whether or not state law is going to look favorably on a deceased party with respect to future qualified retirement benefit payments. The estate might have an interest in payments already made, but that would be against the individual rather than through the plan. And if the state is California, all bets are off from the perspective of ERISA-governed matters because of the travesty of how California domestic relations law tries to strong-arm qualified plans.

From your description, I can’t tell what is going on. If the plan has never been notified of the proceedings and the participant has died, and I were advising the plan, the designated beneficiary would get the benefits, mutatis mutandis if the benefits are in annuity form. A lot depends on what has been communicated to the plan, and what the plans standards are for processing a domestic relations order. State law has a lot to do with this as well with respect to division of marital assets and death of a party before entry of judgment, QDRO law aside. You may never get to the plan.

See IRC section 414(p)(2)(C)

Satisfies. The statement itself is not even necessary in the order, but it is a nice touch.

While ERISA is based in equity, and it may be possible to asset a defense of latches, I suspect the question will be answered in the domestic relations court based on the applicable domestic relations law. If that court issues a domestic relations order, I do not think the plan will entertain any objection because of timeliness. However, if circumstances have changed, the plan will refuse to qualify an order that requires the plan to take an action or provide a benefit that the plan is not designed to do. Sometimes it is impossible to implement the exact original terms because of a change in record keepers or other loss of original relevant data, such as plan balances at the time of the divorce. A domestic relations judge might not look kindly on having to reformulate the order to effect the approximate original terms when the responsible party was dilatory. As a rough approach to the question, I would ask why shouldn’t the original award be implemented, even if 12 years later? What about the settlement and award is now improper or unfair? Many QDROs do not have an actual effect or payment until years after a “timely” entry and qualification.

Who has responsibility for determining whether or not payment reported on Form 1099 is proper for the designated persons, who would not be employees if the Form 1099 reporting is proper? If not you, are you sure you will not be implicated and are you willing to accept the suspicious determination and being at least indirectly involved in the potential troubles and recriminations that may well result? If you sleep with dogs you often get up with fleas. Or, is you inquiry inspired because, as suggested by David Rigby, your lower body motor functions are appropriately inspired?

The custodial agreement should have something relevant to say about it.

Don’t forget that the plan will have to issue Forms 1099 so values will have to be assigned. If it is a direct rollover, the distribution has no tax effect, so the accuracy should not be important to anyone, still … .

You might find that there is not really much tax deferral to be had once you comply with the ERISA rules and amounts vest. So what are you trying to accomplish?

I would want to see all the documents, but I will take a different approach for the sake of argument. I don't know what the "DRO" says, but it appears to carry most of the formalities of section 414(p). The MSA (which is also a "domestic relations order") has the juice, which is the substantive terms of assignment of benefits. The MSA has a bunch of other stuff, too. When a "DRO," that by itself does not want to be a QDRO, is incorporated by reference, but has an essential ingredient for qualification, the plan administrator should identify what is the subject of the qualification and what is not (i.e. disregarded). Many courts have moved toward a simple checklist approach to qualification. If the right stuff is there (and no wrong stuff that that offends the plan design), then the plan has a QDRO. I don't see the provision for the alternate payee to give the participant funds from "the marital portion of Participant's retirement account" as wrong stuff. I look at that provision of the MSA as other MSA stuff like "sell the house, divide the proceeds, and then the husband gets an additional $XX from the wife's portion of the house proceeds." The plan pays no attention to the incorporated provisions that are other MSA stuff that have nothing to do with the assignment of retirement benefits, i.e. the 50% of the marital portion. The plan does not enforce the provisions that are not essential parts of the QDRO, Whether or not the AP asks for a distribution and forks $$ over in compliance with the MSA is a matter for the state court. The plan should be very clear about what the QDRO is, and what is disregarded, and that the plan will not require the AP to take a distribution, and that the plan will pay all proceeds of distribution to the AP. This approach gets the job done at the least cost to the plan and the parties. The bad drafting upsets me, too. I also don't like something that veers close to an unpermitted assignment of part of the AP's benefit, but I think if the plan is not involved with the AP disposition of funds, the plan is not implicated. Also, we just have to get over the sham divorce aspects of "liberating" retirement funds for the participant. That has been settled and is part of the trend to focus on the qualification checklist and the rest of reality (and the domestic relations implications) be damned. I opt for practicality. If a particular lawyer is responsible for this and repeats the crappy drafting for other clients affected by the plan, then I opt for discipline and making for a clean order by denying qualification.

Q1: Yes, but the plan would do well to clarify this in its (1) QDRO procedures, but it will not, or (2) in its conditional determination of qualification, which should include interpretation of that unusual provision. Underlying my response is my conclusion that the interest awarded is shared payments in a series of payments to the extent provided in the order (e.g. adequately identifying the first shared payment and the last). The payments are shared only until they are not. When the last identified shared payment is made, the series continues unless the series is in the form of annuity payments or installment payments and the last payment is the last payment in the series (e.g. the participant dies under an annuity form of benefit). The continued payment must go to the participant because the terms of the order no longer provide for the payments to be divided or redirected -- they are restored to full payment to the participant in accordance with the form of payment in effect. Yes, this is inference (which is why it should be clarified by the plan), but what else are you going to infer? Certainly not forfeiture of parts of the remaining payments in the series. The plan administrator should be very demanding (in writing -- the QDRO Procedures or the interpretation) about the identification of the last payment and how and when it is communicated. For example, the plan should have no liability for payment to the AP after the last identified payment unless the the last payment is timely and properly identified in advance, and by persons and means that do not plunge the plan into a controversy about proof of the occurrence or time of the event. I dare suggest that the plan might refuse to qualify an order that is so indefinite (silent about material information) about identification and communication about the last shared payment. Q2: I don't see how it matters. Whatever the basis is under sate domestic relations law for awarding the retirement benefits with this configuration is no business of the plan. Unsolicited comment #1: This is another example about how lame, and sometimes wrong, the DOL QDRO publication is. The DOL jus' don't know QDROs and fails to provide truly useful guidance -- witness the terrible job by the DOL on post-death QDROs when it was directed to issue regulations.

Lots of factors to rebut the presumption. If I were looking for trouble, I would look at it from the side of the fiduciaries who are receiving the investment advice. Is it prudent to be accepting investment advice from someone with no current credentials and is simply a good-hearted volunteer? How heavily do the fiduciaries plan to rely on the advisor? Do they have enough of their own knowledge to be able to evaluate or even consider the question properly? Is the advisor going to begin the advice with disclaimers? The conventionality of going in to the market and hiring a professional with credentials who is engaged in the business and also engaged by others provides some automatic protection. I am not trying to shoot this down, but you are well aware that up-front consideration of these issues provides a lot of protection against later challenges.

So why is the person doing this? I presume compensation, tangible or intangible.

Interesting question about whether it is an employer or fiduciary function (in the abstract) to determine whether or not to adopt or terminate a loan program. The plan document is relevant.

The optics are not terrible.

One can imagine some restrictions. For example, a loan program cannot be opened for use by HCEs (more likely, the owner), and then terminated. Generally not prohibited.

"But only if the problems are uncovered before the employer gets rid of them." I don't understand what this means. Do you mean that the employer can avoid the consequences of the presumed law violations by simple prospective correction of the ongoing violations - the "them" of "get rid of "them"? Or is the "them" any employee who is a subject of, or would have leverage because of, the violations? "Fixing" the past violations is going to hurt, although not as much as if first caught by the authorities either by routine investigation/audit or by being turned in by someone who is aware of the violations.

If in fact the plan can properly distribute assets in a reasonable time, I think waiting is a reasonable strategy to present a conventional final Form 5500.

Taking your descriptions for granted, and not inquiring into or challenging some interesting propositions, such as "have participants rollover their accounts through in-service distributions to the 403(b) plan", filing a final Form 5500 in any event is a good formality for avoiding inquiry into why the plan quit filing the Form, which could lead to other broader intersting questions, such as the ones overlooked in making this response.

Government plans (Marin County) are not subject to the ERISA-specified requirements for qualification.

No. You may be able to use your wife’s Roth dollars to repay your 401(k) loan, but it would come at a tax cost in all likelihood, and it would be a bad idea.

It is likely that references to "annuity" describe only the form of payment from the plan, not a separate financial instrument. Some plans will distribute an annuity contract (a financial instrument), but I believe that your plan will not, so there is nothing for you to sell. Your interest is a stream of payments from the plan that the plan will not allow you to assign and no one will be willing to buy under the table. As for what to do about your situation, I will not venture into your divorce settlement, which would involve state domestic relations law. It has been my expeerience on the sidelines of state domestic relations law that the courts are very reluctant to revisit or review judgments except in the case of deception (e.g. "your ex-husband hid information).