QDROphile

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).

You can only roll over a payment that is an eligble rollover distribution. Generally, annuity payments are not eligible rollover distributions. As Cusefan advises, you need to look at exactly what the distribution options are, and it does not look good from the texts you sent. It is part of unfortunate plan document practices that plans include language that simply reflect certain legal requirements, whther or not the language/requirements are actually relelvant to that particular plan and the way it is designed. The language in your QDRO also matters relating to when you can start benefits even if the participant choses not to start. Look in the order to see if it mentions ability to start your benefits at the participant's "earliest retirement age". Frankly, if it is not there, and there is not a specific reason for it not to be there, I think it is malpractice on the part of the lawyer who drafted the provisions of the QDRO.

“Of course, there are details.” An all-purpose caveat and rejoinder. And appropriate.

Well-drafted plan documents will expressly provide for the plan administrator (the fiduciary one) to have authority to interpret the plan. Best practice is for the plan administrator to memorialize the interpretation of the plan terms for administering an elective deferral that exceeds the available amount net of all other deductions and elective reductions from gross compensation, if the plan documents otherwise do not adequately deal with the priority. Make sure to be comprehensive. E.g., determine where elective deferrals stand relative to section 125 elective reductions. If the interpretive authority is not express, it is implicit in the law, and increases the importance of the fiduciary's assertion and memorialization of the authority and the interpretation.

The trustee in bankrupcty is responsible for all claims against the employer and either will know what to do or will have to figure it out. Some fiduciary is responsible for asserting the plan’s claim for contributions.

Beware looking at any legal authority from California. California has a very troublesome approach to QDRO procedures and matters that make what happens in California almost useless in other states and the object of contempt from ERISA practitioners and the DOL. The DOL was unsuccessful in challenging California procedure in a “federal” court in the sovereign nation of CA. But the DOL is really weak in QDRO law generally.

Potential big difference for securities law compliance. If anyone cares. Document providers and TPAs typically don’t care. One wonders if the SEC or state enforcers care. Which is why you are wondering WTF this post is about.

Interesting sidelight for those who know: The [at least at one time] controversy over whether or not the QDRO scheme applies to welfare benefit plans. Some people, including juudges, could not seem to read ERISA 206(d)(1) before interpreting (d)(3).

Which would be a rational way to approach the issues, but I have been unable to find any authority for that outcome. Thinking outside of published authority, I can understand that the “age” of the Roth IRA controls rather than the age of the incoming rollover. It is much less administrative burden on the IRA provider to measure only from the inception of the IRA, which is within the records of the provider. If outside money determines the time compliance of the funds in the IRA, the IRA provider is put in a more difficult position to understand and verify the age of the outside money.

Set up a Roth IRA this year. Worst case, do a minimal (based on the IRA provider requirements) Roth conversion. That will start your 5-year clock. After the 5 year period is acheived, then you can roll over to the Roth IRA. That may not be very appealing, for example, if you are trying to avoid required distributions relating to the 401(k) plan, but you reported that you are age 62. However, it keeps your ripened Roth money available, subject to the distribution options of the 401(k) plan, during the less-than-5-year wait on the conversion IRA.