QDROphile

By referring to amounts charged to an account, I was trying to avoid confusion about the reference to "his assets" in the original post. Amounts in a participant's plan account are not the participant's assets. Amounts in the account should be used to pay insurance premiums and real estate taxes relating to real property in the account. From your second post, it appears that insurance premiums have been paid from the account, not the participant's funds. Real estate taxes should be paid the same way.

Insurance premiums and real estate taxes for real property credited to an account should be charged to the account, not paid from the participant's assets.

Although you will probably not prevail, I wish you luck in efforts against Fidelity. In this case, it is not obvious that Fidelity flauted the law, but it does in other respects relating to QDROs and I constantly hope that Fidelity will get its comeuppance. At least do your best to spread the word that Fidelity is a villain when it comes to QDROs. Maybe someday the 900 pound gorilla will become civilized if it gets enough public shaming. The real culprit is your plan administrator, who simply bought into the Fidelity system and did not establish prudent QDRO procedures. A prudent system would delay implementation of the QDRO for a reasonable period after the notice of qualification is issued. 30 days is my standard. However, I don't think you would prevail aginst the plan administrator. Although ERISA fiduciaries are held to the highest standards known under human law (or so some courts say), intelligence does not seem to be the paramount factor. By the way, I disagree that the 11/29 notice provided no basis for action. You should have known whether or not an order was going to court. If Fidelity said it was looking at an order and you did not already know about it, you had reason to start asking questions, not that it would have made any difference in catching the money before it was gone.

Sorry, I am pretty tied up, and I am not inclined to be doing specific work anyway. Others may be more generous. The more sensible solution is to provide for another loan rather than refinance and end up with a single loan that has to satisfy two layers of requirements.

There is another way to skin the cat. You need to look at the regulations.

You must comply with transition rules for vesting. See section 411 and regulations. For example, anyone with 3 years of service by December 31 will have to be 100% vested in post 2006 contributions after 5 years of service, unless we get some regulatory dispensation. Indeed, any IRS guidance would be appreciated.

Looks like it would violate 409A.

Just Me: Please explain how deferred compensation becomes transformed and is no longer deferred compensation simply because payment is immediate upon the payment event.

You must distribute.

When the company offers a good enough deal that the fiduciary thinks justifies the transaction.

You may wish to inquire if the condition is caused by a congenital defect, disease or accident, but I suspect that if it were that easy, you would already have the explanation.

Most 401(k) plans allow distributions after termiantion of employment at any age. You will have to request a distribution. You will probably not be able to use the plan like a bank. Many plans require a lump sum distribution only, many allow installments oan other forms. Be prepared to roll over the amount you do not intend to spend right away. You can use an IRA like a bank, but beware transaction/withdrawal fees when you chose an IRA provider. If you do not roll over, the amounts will be taxable at ordinary income rates and subject to withholding at a rate of 20%, plus an additional penalty tax of 10% because you are under 59 1/2 (subject to some exceptions). When you request your distribution, the plan will provide you with some information about taxes and rollovers before you have to commit to the distribution. The IRS has publications on retirement plan distributions and on IRAs, available at the IRS website.

You have struck out because defining an ESOP by the investment decisions of participants is not legitimate. However, the IRS buys into it and you can find some letter rulings that demonstrate that the IRS is in on the scam. The rulings do not discuss the deduction question. Once you buy into the defintion of ESOP, the deductions follow from the statutue. This has become common with public companies that allow investment in employer securities. I don't understand why you are looking for an answer. The lawyer involved in the design of the plan (and probably the registration of the plan securities) a should be both familiar and comfortable with the arrangement and its implications for deductions.

The escrow puts the plan in a better position to maintain that the funds were not delivered because the condition failed, and therefore there was no distribution. Certainly there is no delivery to the participant. This is based on general legal principles rather some specific authority under section 401.

The employer is providing benefits. Now go look at the regulation. It says the "all the benefits provided for participants who are highly compensated individuals are provided for all other participants" and "any maximum limit ... must be uniform for all participants ... and may not be modified by reason of a participant's age or years of service."

The TPA is correct about effect, but not correct in the description -- at least the description you gave. Under section 125 the employee has a choice between benefits and cash. If the employee chooses benefits, the employee foregoes the cash compensation. The employee does not get the cash compensation and then contribute it. No employee contributions are transformed into employer contributions. The employer provides the benefit with employer funds. ERISA looks at the arrangements differently, but you are dealing with tax code provision in your question, not ERISA. By the way, the same deal applies to 401(k) plans. Elective deferral amounts are employer contributions, not employee contributions.

It would be nice if plan administrators would catch on to the idea of delivering funds in escrow so failure to close does not create the problem in the first place.

Transfer to another member of a controlled group is not a termination of employement for distribution purposes. No one has a right to continued participation in a plan. The sponsor can define eligibility as it chooses as long as the plan passes coverage and discrimination tests.

You have no legal right with respect to how your account assets are invested. If you are not given effective ability to direct your investments, some plan fiduciary is responsible for how your account is invested and is subject to specified standards. A money market rate of return from March to November is not necessarily a breach of duty. You are not entitled to mapping, but if others were mapped and you were not, the plan or plan fiduciary may have some problems. The plan has to follow its terms, so if it says you are supposed to direct investments and you are not given effective ability to do so, the plan has failed to follow it terms. Also the fiduciary may have breached its duty. Assuming the plan was and remains designed to have participants direct investments, you were entitled to a notice about the transition if your ability to direct was suspended for a certain number of days. Penalties attach to violations, but I don't think participants get any cut. Notices may have been issued and you did not get them for some reason that was not the fault of the plan.

How about the idea that even if the "stop" was legitimate in the first place (questionable), it is not appropriate for such a long time. This would be an easy response if the particpant has been eligible for a distribution for 18 months, but that is not a necessary condition. Get some intelligent QDRO procedures (rare) in place, then notify everyone that the plan will distribute the account within 60 days unless the plan is provided with appropriate reasons for postponing the distribution. Other approaches are possible and don't forget to take into account the documents that the plan has (its own and the communications about the account -- especially what caused the stop). The plan administrator may be liable for inappropriate interference with the distribution. See Schoonmaker v. Employee Savings Plan of Amoco Corp., 987 F2d 410 (7th Cir, 1993).

See ERISA regulation section 2510.3-21.

Nope.

There is more to the rules than "yup."

Not true. Usually you can't find cites for rules that don't exist.

I did not say the the TPA's concerns were wrong or that it was wrong to express those concerns. But it is not the TPA's decison and the TPA should follow instructions of the fiduciary with authority over plan information, unless the TPA was hired for this sort of work and given discretion or authority (which would probably make the TPA a fiduciary).