QDROphile

It is a matter of plan design and I have no idea how it breaks down statistically. I don't recommend a true separate interest for DB plans. The design choice has actuarial implications because the AP' life is injected into a portion of the benefits in a way that is adverse to the plan. I have been told by some actuaries that the effect is so small over all that they make no separate adjustment to benefits. I do not know if this is the universal approach, but it probably does not matter because you cannot change it. You can recognize it and adjust the division formula if the terms of property settlement allow. Even if the plan says that the AP's interst is truly separate, it would be a good idea to make sure the terms of the order make it clear that the AP will be paid the assigned portion of the regular benefit without regard for the death of the participant before the AP. The terms of the settlement agreement also raise an interesting question. Does the AP get the pre-retirement and post-retirement survivor annuity of the portion of the participant's benefits that is not awarded as a separate interest to the AP? Literally, that is what the words mean, whether or not that was intended. The alternate payee could start benefits under the AP's share of regular benefits. The participant would have to take benefits in the form of a 50% J&S annuity. If the participant dies first, the AP continues the AP's regular benedfit and the picks up the survivoar annuity payments from the participant's portion whether or not the particpant has remarried and accrued benefits during the second marriage. This gives the AP further incentive to kill the participant, even if other aspects of the divorce were not sufficient in the first place. Because of this potential confusion of terms, I never let a domestic relations order go by with a simple statement that the AP is to be treated as a suviving spouse. Many of its implication are not intended.

So the employees of this particular employer are worse than average health risks? The world is imperfect, and so are rate setting endeavors, but all things being otherwise equal, a greater number of participants in a health plan tends to make the premiums lower and create more opportunities. Perhaps the other employers are subsidizing health insurance costs and the additional volume means more participants to subsidize. One can only imagine what motivates a decison to subsidize. It would be interesting to know if the fears of additional cost to the other employers are well founded.

Tell us more about the uproar and the unfairness aspects.

Do you want to talk about the difference between signing a purchase agreement and closing the transaction?

Your concerns about how the ESOP acquired the stock are well placed, but it could have been done by a loan to the ESOP, with the proceeds used to buy the stock. The loan gets paid out of future dividends or contributions. Perhaps the loan was at the end of the year and no payments are yet due, so no contributions have been made to cover the loan payments.

Company B employees start to accrue service credit for the plan on January 1, 2007 unless action has been taken to impute service for B for purposes of the service requirements under the plan. Imputed service can be granted for some or all purposes. Company B employees were "hired" by the Company A controlled group upon acquisition of Company B.

It is absolutely reasonable to ask for reassurance that the service provider will suffer no adverse consequences from following an extraordinary order. If service providers did not inappropriately hold themselves out as advisors, they would not have to take such actions, but they do implicitly hold themselves out, so they have to cover themselves when it is clear that they are not taking responsibility.

I agree that it would be a daunting task to describe in detail in the order how to compute a cola or subsidy, but I do not think it would be difficult for the plan to provide a reasonable calculation based on a general description once the terms of the COLA or subsidy are known. Generally, the AP's interest will get its actuarial equivalent proportional share, applied to the form of benefit. It can be tricky if the enhancement applies only to or for benefits accrued after a specified date. Depending on how the division of benefits is framed, the AP's interest may not be eligible at all, or may be limited, under the terms of the enhancement because the interest that was divided was all or partlyaccrued before the specified date. Application to so called "marital portion" divisions could be especially controversial.

Lets look at the dark side for a moment. Your boss is unhappy about the experience loss (paying more in benefits than was covered by salary reduction), so now the boss wants some consolation that the former employee will at least feel the pain of taxes. He must be a peach to work for. If your boss would free his mind from his emotional prison for a moment, it might help to understand how FSAs work. As far as the tax code is concerned, the employer does not use the employee's pay to cover medical expenses, so there is no connection between the cost to the employee and the value of the benefit. This view from the tax code is not intuitive, so I have some sympathey for the boss. The employer promises a certain level of health payments. That level is chosed by the employee, subject to the maximum established by the employer in the plan. The employer is functioning like an insurance company -- it promises benefits. In exchange for the benefits, the employee agrees to a salary reduction -- the employee chooses benefits over cash compensation. If the employee terminates before the full amount of salary reduction is collected, that does not affect the employer's promise to pay benefits. Or, you could look at the salary reduction as the employee's premium for the benefits that the employer (as insurance company) provides. Insurance companies don't collect premiums equal to benefits. They have to provide the promised benefits whether or not the value of benefits exceeds the premium. The difference does not make anything taxable. Employer provided health benefits are not taxed. You could have a plan that provides the FSA benefit with no reduction in salary by the employee. Still not taxable. The cost to the employee has nothing to do with the taxability of benefits. I have not checked the penalties for a deliberate misreporting of income, but that is what it would be. Since correct reporting is the heart of the system, I expect that a deliberate misstatement would have adverse consequences. And it would be very easy for the IRS to conclude that the misreporting was deliberate, given the apparent hostility your boss has shown to life under sectons 125 and 105. Also, since the former employee has a great interest in not paying taxes on nontaxable amounts, you have direct and certain oppositon to bring the issue to the attention of the IRS, if only as self defense. How big a deal it becomes is uncertain. At a minimum, you can expect some effort to reconcile the employer's position and the taxpayer's positon. Is it worth the potential follow-up distraction to make one last dig at the former employee?

I side with the AP.

Joel: Please reconcile your statements with Treasury Regulation section 1.457-4( c)(v).

You have two layers of government regulation. Federal regulation is under the tax code. ERISA does not apply to governmental entities. The tax code allows discrimination in governmental plans, with limited exceptions. Without antidiscrimination rules, the employer can give benefits to some and not others and can give different levels of benefits to different employees. Other federal law must be considered to the extent it applies, so I suppose you could run afoul of federal antidiscrimination laws if you were an idiot or a knave. Because ERISA does not apply to preempt state law, you also have to comply with state law. At the state level, you usually start from the proposition that a government entity cannot do anything unless the law authorizes it. For example, local governments may not be able to maintain their own retirement programs; they may be limited to participation in a state system. Once you get into the game, state law may have any number of requirements applicable to a retirement plan, including antidiscrimination requirements. You also have collective bargaining contracts to consider and political concerns that may influence plan design. Are you getting paid for this?

State law will apply to a government 457(b) plan. Just like Forrest Gump's chocolates, you never know what you will get by way of restrictions or requirements under state law. I suspect that most states do not try to deal with substance and the the tax rules will be the only concern for plan design. However, you cannot count on a government entity to have authority under state law to have a 457(b) plan at all. You need to find authorization and the authorization might not expressly mention 457. State law research and interpretation can be difficult. I invite you to engage someone with appropriate professional experience.

You may wish to explore in greater detail what "mistake of fact" means to the IRS. It is a limited concept.

Why are you looking for some outside source of authority to prevent being abused by a vendor? The vendor should tell you everything you want to know, especially about fees, expenses, and the direct and indirect compensation of the vendor. Vendors are supposed to serve. You don't need a book to tell you to quit doing business with vendors who ignore your pertinent questions. What are you going to have to prove to the vendor next?

Whether or not the plan representatives or advisors are savvy, they have to give an answer to the proposal to increase deferrals. Get the answer, then consider a challenge if you don't like the answer. Meanwhile, see section 457(b) (3) and be prepared for disappointment.

You look at severance from the perspective of the entire controlled group, as a single employer. Movement from one corporation to another within the group is not a severance. Plan terms are very important as eligibility and contributions shift with the transitions, and it would be a good idea for the plan terms to confim.

The plan fiduciary then needs to hire competent counsel. The fiduciary will have to interpret the document. ERISA will not provide and answer by itself. If ERISA provided and answer by itself, my guess would be that #2 wins. ERISA says do what the plan documents say (unless the pan documents are contrary to ERISA) and the beneficiary designation is a plan document. ERISA does not care if someone forgets to change a beneficiary designation and does not presume that failure to change is unintentional. Someone may point you to some federal decisions from Texas that try to incorporate state law into federal common law to get around the apparant injustice, but those cases are questionable in light of a Supreme Court decision about state law that tried to affect benficiaries of an ERISA plan.

If you are talking about an individual, the practical answer is negative. You may get a post that goes in to one time election rules that offer certain opportunities, but the arrangements are impractical, as well as unavailalbe to current employees under the proposed regulations. If you are talking about converting amounts for all employees from current compensation to deferred compensation, that can be done, but does everyone want to have those compensation items go into the 403(b) plan? Nonelective contributions are not included in FICA wages.

You have to see what the plan says. While it is true that spouses have certain rights, it is also true that plan procedures prevail, and if the plan provides for payment to a beneficiary, the plan will pay the beneficiary unless spouse rights trump the beneficiary designation. Plan procedures will also also determine if the designation of #2 will weather the interim rights of #3 to become effective again after #3's rights lapse.

This may not apply to you personally, so don't take it personally. It looks like the ESOP setup was not understood or thought out in the first place and it is likely that the testing prior to 2006 was bungled. Your plan document probably suffers the same disabilities and will be of no help, but the plan document could have made all of this very clear and prevented problems both before and after 2006. You need help from someone who understands basic concepts and can see through the ESOP clouds. For example, a contribution is a contribution is a contribution, and a contribution is not an investment. Your comment about "pick the method" is curious, bordering on scary. Take solace in the fact that everyone, including the IRS, has bought into the floating ESOP scam, mostly without thinking through the consequences and issues, so it will be difficult to hold your plan to task for the common shortcomings. That is no excuse for noncompliance now, especially with the relief provided by the new 401(k) regulations.

A fiduciary is generally excused from concerns relating to state law, such as procedural rules. If if the ordered was issued by the court, the fiduciary does not look behind the issuance. The fiduciary takes it at face value.

"What are the options?" is a test of imagination under section 125 because there is no formal guidance for correction. You don't really want a list of options. I suggest that the employer leave the chips as they fell with salary reductions and pay the full amount of benefit elected by the employee to the extent the employee submits timely claims for qualified expenses.

What do investments have to do with ADP testing?

Plans are required to be operated in accordance with their terms. Follow the terms or change them.