QDROphile

Treas. Reg. section 1.401(a)(9) Q&A(6) should answer #3, will help with the other questions, and suggests that the plan and the written QDRO procedures should have provisions for mandatory distributions to an alternate payee that will assure compliance with 401(a)(9). I go for sure compliance rather than allowing anyone to achieve maximum deferral under the plan, which means the alternate payee must start benefits at the earliest of participant's start of benefits, death or age 70 1/2. If the prototype document does not serve, don't buy it. Oh, I forgot. Prototypes are free. Is your provision for distribution at NRA/62 a provision applicable to former employee participants? If so, I would not apply it to an alternate payee if the participant is still employed. This is one of the best examples of why there is no such thing as a completely separate "separate interest" QDRO.

The relevant SEC releases are cited in various messages on this board. Search the securities section.

A specified dollar amount is OK as long as the account has enough money at the time the amount is withdrawn to pay under the QDRO. Some plans, including all the plans run through evil Fidelity, cannot handle this rather simple task properly. The ability of the plan should be taken into account in its QDRO procedures and, if necessary, the order may have to be disqualified or paid according to a default provision under the QDRO procedures that determine a date for separating the funds and attributing earnings. I never give effect to specific instructions in the order about rollovers. Distributions to an alternate payee must be done according to plan procedures. Then usual plan paperwork must be submitted by the alternate payee (or default procedures must be followed), and the 402(f) notice must be properly delivered. The alternate payee can elect a direct rollover under the plan's usual procedures. I take the "just do it" approach and would not disqualify the order. I would state in the notice of qualification that the plan will disregard the offending provisions about the rollover and state that the alternate payee's may elect istribution in accordance with plan terms. I am not saying that if a QDRO says distribute in a lump sump that the plan may allow the alternate payees to elect installments.

First you have to decide if the plan administrator should have paid the QDRO amount whether or not the AP responded, or should have been more aggressive about pushing the AP to come through with the necessary material. To decide about the plan obligations, you have to interpret the plan and the QDRO (such as the requirement to pay in 2001) and the other facts, such as the AP's apparent lack of interest in a relatively small sum until today. If the plan administrator is guilty, then the correction can involve imputed earnings -- an operational error is buried in there somewhere. Depending on circumstances, the earnings could come from the particpant's account. If the plan administrator is not guilty, I don't see how any earnings would be payable. You said the QDRO provided for a fixed dollar amount. Although the parties can amend the QDRO to take into account the unfortunate history and provide the outcome they want as of today, the plan administrator cannot require the parties to take action to pull the plan administrator out of the fire. If I were the participant, I would not put myself out to solve a problem of the plan administrator and the AP. But I would watch to make sure that my account did not get charged more than the QDRO amount and the actual related earnings.

I am very skeptical about the claim that the FSA is funded immediately, except as a budget function. Even if it is, government plans are not subject to ERISA and the plan asset rules do not apply. I think you are fussing about form over substance when it comes to characterization of the election. As previous posts have indicated, the concern should be whether or not salary is reduced for puposes of other benefits that are measured by salary.

Who is responsible for the securities law compliance?

I agree that you have to interpret the order, but good written QDRO procedures would make up for bad or ignorant drafting. Absent anything to the contrary, the subsidized benefit should be divided if they start at the same time. Different answer if the AP started before the subsidy became effective.

I am not asking about the drafter's mental state. I am asking why one would interpret the same law (all members of controlled group = employer) one way when awarding service credit for the employer, but then apply a different interpretation to termination of employment?

Why would a foreign controlled group affiliate be treated as the same employer on the front end of service and not on the back?

If you "terminate" the 403(b) plan, what would allow distribution? Distribution is necessary for rollover.

The requirement to furnish documents upon written request probably includes written QDRO procedures, so it might be nice to threaten the penalty. See ERISA section 502( c)(1)

I don't think the timing is so sensitive. A domestic relations order can qualify and provide for a former spouse to have an interest "with respect to" any of the particpant's benefits, including derived benefits such as spouse death benefits. Don't read so much into Boggs, and Hopkins vs AT&T is wrongly decided. Orders issued after the participant's death are tricky, but a former spouse can get amounts even from the surviving spouse annuity of the subsequent spouse. Timing can affect form and amount of payment, but a former spouse is not locked out by remarriage. I know some of these statements will inflame mjb. The point has been argued in this forum before and I am not going further with it. A lawyer who puts those blinders on is not serving the client. No comment on how a state court will look at dividing benefits accrued before and after the first marriage. No comment on equitable concerns, such as latches, except to say that plan administrators should leave those concerns to the courts.

Can you refuse to distribute? What does the plan say? Many plans say that if you cannot get the letter, the plan is terminated and contributions are returned. That could be a basis for delay in distribution.

Assume a $49,200 annual pay and election of $1,200 under the health FSA. The coverage is $1,200, beginning on the first day of the plan year. Each month the employee's pay is $4,100 (49,200/12), but the reduction for the month of $100 for the FSA means that the taxable pay is $4000. If the employee has $1200 in expenses in January and quits at the end of the month, the employer has an experience "loss" of $1100. Assume annual pay of $49,200, reduced by $1,200 for the year for the FSA. The coverage is $1,200. The employee's taxable pay is now $4000 per month ($48,000/12). If the employee has $1,200 in expenses in January and quits at the end of the month, how is the effect on the employer or employee any different? You can cut the pay into smaller pay periods, but the result is the same. The employer is obligated for the full amount of the health FSA coverage during the entire coverage period. The employer does not "have" anything up front as long as the employee is only paid for work performed in a pay period.

Are you a math teacher?

How is employer risk eliminated?

Assuming that the elections comply with section 125 (e.g. timing), this sounds like a typical section 125 arrangement. For tax purposes, all section 125 plans work on the basis of employer contributions, so I don't understand any implications of your remark about employer contributions. The more interesting question is whether or not the elected amounts will reduce compensation for purposes of retirement or other benefits. The usual approach is that the reductions do not reduce compensation for retirement plan purposes, but that is a matter of plan design.

No intention to pay death benefits. The assets of the VEBA would be used only to fund medical benefits by paying premiums on a medical insurance policy. Thanks for your attempts to understand and analyze and I welcome further comments.

1. No individual contributions. 2. The arrangement already has a medical insurer. 3. The proposition is that the life insurance will not generate annual unrelated income on the internal earnings. The goal is to accumulate to help offset future increases in medical insurance premiums.

I am interested in VEBAs that provide medical benefits (retiree medical benefits, so much the better) and use life insurance as a funding vehicle. I would like names of providers or consultants that I could contact. I would also welcome general comments on the arrangement.

You might want to read the IRS notice on the subject of automatic rollovers before you reach that conclusion. The notice uses a broad definition of madatorry distribution. Was it intentional? Is it supported by the statute?

There is not an answer that is supported by specific guidance. I would choose to include the reimbursements for the domestic partner in the employee's income. My second choice would be to include all of the FSA amount in the employee's income. Part of the reason is punitive -- the claimant should be certifying that the expenses are eligible. Part of the reason is principle. As you have observed, you cannot know in advance how much of the FSA amount would go to the domestic partner (unlike cost of core health coverage). Therfore, expenses of the the domestic partner could have consumed the entire amount. To enable the domestic partner to have so much covereage, the entire FSA amount could be treated as the cost of coverage. In most FSAs, the cost of coverage is equal to the benefits. If you choose the most gentle approach (my first choice), you are doing nothing to discourage gambles on cheating, which reflects badly on the sponsor and administrator. I vote strongly against the pro rata approach. I don't see any principle behind it. Sounds like an old adage from law school: If we can't be fair or correct, we must be arbitrary.

Section 125 requires that plans be in writing. Self administration is possible.

LRDG's situation was easy. It was impossible for the employee to use the elected benefit, so it was easy to conclude that the election was a mistake. I don't think "belief" in the participant's story is ever enough by itself if the story only relates to intent.

Is he blind, illiterate, or too important to read forms? So far, I'm not convinced. If he elected $5000 of health FSA benefits for the last 5 years and failed to elect any health FSA benefits in the year he first elected $5000 childcare FSA benefits, it would be a better story.