QDROphile

LRDG's response goes beyond the scope of the question, and it is not a good idea for the plan administrator to figure out or propose the options or the "best" solution. The employee must figure out what the court demands of the employee and the plan should react to what is asked of the plan. The questions may eventually come around to the matters LRDG discusses, but they do not seem to be there yet.

PTE 80-26, as amended

What does the plan say?

JSimmons: The new regulation added absolutely nothing to the law. The Department of Labor went through a completely unhelpful exercise simply for the sake of form. In its defense, the statutory mandate was also vacuous, but the Department of Labor made absolutely no effort to address any interesting questions. Mike Preston: I agree that an order would be qualified if drafted as you suggest. That is why I qualified my response. I am still willing to bet that the order is not drafted that way, and the question was whether or not the order be modified. Apart from state law concerns, the order could be modified to provide the remaining 30 payments to the participant. This is a test for those who believe in Hopkins v. AT&T, which I do not.

If "due on transfer" clauses or special security arrangements to meet adequate security requirements were necessary, I am sure your first response would have noted them. Most plans prefer not to have the real property secure the loan, even though commercial lenders do. Loan acceleration is usually a function of the security terms. I think section 72(p)(2)(B)(ii) of the tax code and section 1.72(p)-1 Q&A(6) are helpful, but a plan can be stricter.

Repayment depends on the terms of the loan. Despite mandates, many plan loans do not have the same terms as their commercial counterparts.

If you want a simple answer that is likely to be true even if it disregards relevant questions, the participant is out of luck. The participant cannot retrieve any benefits awarded to the alternate payee if payments have started.

Indeed. The DOL has advised that it definitely depends.

Don't overlook a big catch in flogger's example. If the participant terminates employment before age 65, the participant gets nothing. Also, you are not avoiding 409A. You are providing deferred compensation that is not taxable until a substantial risk of forfeiture lapses, in accordance with 409A. Especially because of the novelty of 409A, this is not a playground for the uninitiated or for the old dogs who refuse to let go of the old tricks.

I would be concerned that expenses incurred in the period prior to effective enrollment would not be eligible for reimbursement. Also, you would not know the amount of coverage until the salary reduction agreement is effective. The employer could provide coverage for the initial period at no cost to the employee, but it would be impossible to match the coverage with the amounts that are actually elected.

Look to the published prohibited transaction exemption for guidance about terms of the agreement.

Locust: You are really going to enjoy a new IRS notice about 457(f).

Treas. Reg. section 1.409A-1(d): An amount is not subject to a substantial risk of fofeiture merely because the right to the amount is conditioned, directly or indirectly, upon refraining from performance of services. Rolling vesting is out, too. A risk that is added afterward is disregarded. The IRS deliberately blocked the dirty tricks under 457(f).

Then they had better get something in place. The plan will have to figure out to whom it will distribute benefits. One thing the plan cannot do is hold the money indefinitely. What do the plan reprsentatives say they will do?

Good on you, RLL.

Correct conclusin. Not the correct reasoning. You tried to come up with logical and consistent reason, which is the wrng tradition when dealing with ESOP rules.

No. You are in the 409A world now.

How much money would you be willing to bet that FIdelity will not act a a trustee unless the employer "signs off as a fiduciary"? I am not sure what you mean by "signs off as a fiduciary" but I interpret it to mean that the employer is the fiduciary that engages or directs Fidelity. I have several files with Fidelity as trustee and the fiduciary that directs Fidelity is not the employer. I explained how to do that in a prior post. The plan document names the CEO as the person with authority to appoint a committee to serve as plan administrator. The plan document says that the administrator is the fiduciary with responsibililt for managing plan assets. The plan administrator engages Fidelity for custodial services, consistent with Fidelity's policies about refusing discretion over plan assets. If the plan sponsor appoints the trustee in its capacity as settlor of the trust, one can assert that the plan sponsor (acting by the person identified in the plan document) is not acting in a fiduciary capacity. Even if it is a fiduciary, as noted in earlier messages that slice of fiduciary responsibility is limited and the risk of breach of duty is small because it is easy to meet the appropriate standard by engaging a responsible instititution. Managing the plan asset, including direction of the trustee, is a much bigger job. Engagement of an investment manger is also bigger job than appointing a directed trustee.

Interest stops accruing when the loan is paid or distributed. A deemed distribution does not affect the loan itself. However, the deemed distribution will cause subsequent loan payments to be counted as after-tax amounts.

Steelerfan, I think you are jumping to an unnecessary conclusion. When an institution, or any other fiduciary, has limited fiduciary functions because of the express scope of the appointment, such as appointment as a directed trustee, that does not mean the rest of the fiduciary responsibilities falls on the sponsor. It means the rest of the fiduciary responsibility remains with some fiduciary. This discussion has been about who that fiduciary should be and how to assign the fiduciary functions to the intended person rather than lose control over who is a fiduciary and leave it up to chance, the Department of Labor, or a plantiff to determine to whom fiduciary responsibiliry attaches. So if you have the Fidelity trust institution as the trustee, you are at the beginning of the question about who is the fidicuary, not at the answer that the plan sponsosr is the fiduciary. The market may dictate that it is too expensive to have an institutional discretionary fiduciary, but that does not mean that plan sponsors are, or should be fiduciaries. And I assure you that in situations other than the "one person has all responsibility for everything about the business" it can make a big difference who the fiduciary is an how well that is established.

I agree that it is not so important if ownership, employer management, and plan administration are concentrated in the same person or same limited number of people, but should be considered when those roles are divided among different persons. The worst position for ERISA liability, besides outright criminal behavior, is being a fiduciary but not recognizing that one is a fiduciary.

Identify individuals by title in the plan document, if that fits. The title is an identifier only, it is not injection of the corporate office into plan adminstration. That concept that is tough for some to understand, and it may not fit over time and change of personnel, even if it starts right. A more generic and flexible alternative is to have the plan document specify that the CEO or some other identified individual appoints the plan administrator, which may be a committee. The CEO will be a fiduciary in that limited capacity, but at least everyone will know exactly who the fiduciaries are and the fiduciaries will know what their responsibilities are so they can carry them out properly. And then when the Department of Labor or a plaintilff's lawyer goes after the Board for leverage, you slam the door in their faces. I can tell you from experience that it is a very satisfying result.

Pre-QDRO, there is no right to plan documents or account information, subject to subpoena. The Department of Labor is wrong and if it were really serious or sincere it would write some helpful regulations to give us guidance and give the fiduciaries some confort . Until then I flout its position. I think a subpoena has a reasonable chance of success and I think it is bad policy to oppose a subpoena. However, I think plans should require a subpoena for personal information. I don't see the point of fighting over a plan document. The divorce court can order the participant to request the documents and statements and turn them over to the other party.

The law does not impose annual elections on a 401(k) plan that is run through a cafeteria plan, but the plan might. As a practical matter, the plan might have to impose an annual election with respect to employer credits available for the 401(k) plan, but not with respect to salary reduction.

What did the election say?