QDROphile

The plan will have to report a known prohibited transaction on Form 5300, which raises odds of audit. See ERISA reg. section 2550.404©-1(d)(2)(ii) for the exceptions to the 404© protection for fiduciaries. The exceptions include transactions not in accordance with plan documents and transactions with affiliates.

Nowhere in 414(p) (1)(B) do you see the words "court" or "judge". The words "judgment" and "decree" certainly imply a court proceeding, but many agencies issue "orders" and no court is involved. It depends on what the state "domestic relations law" encompasses and permits. To me, child support is in the general category of domestic relations. The DOL has issued an advisory opinion about agency orders as domestic relations orders, specifically to point out that the term is not limited to court proceedings.

Who suggested that signature by a judge is a requirement for a QDRO? Your refinement about child support collections law is well taken. However, the plan has to be careful to act properly in accordance with the requirements, and my experience is that the agencies are terribly sloppy in their communication. Add to that the federal law that is also terribly sloppy (for example, the law refers almost exclusively to employers and incorrectly presumes that the employer is providing retirement benefit payments) and the state law that is probably even worse, and my conlusion is that the plan has to be careful in its interpretation of what is required. I have looked at the collection law as a domestic relations law and applied the QDRO requirements accordingly, including not reading into the law (ERISA) a requirement for signature by a judge (or even a court document) when no such requirement was ever there in the first place.

I think someone needs to beat some sense into the plan sponsor. And someone needs to talk to you about issues involved in trying to humor idiots. Either allow hardship withdrawals or don't. It is shortsighted to the point of blindness to consider the sorts of things you mention.

Unless the participant directs the plan to pay a portion of a distribution to the participant instead to someone else, the plan should not do so unless the payment is pursuant to a qualified domestic relations order. The entire distribution is treated as a distribution to the participant. The plan administrator should not suggest that the particpant provide such a direction, and it is questionable policy for a plan to send distribution amounts to others at the direction of the particpant, even as a courtesy.

Why would anyone want to do any of those things?

A QMCSO can require the enrollment of the employee in order to provide for the coverage of the child and can require payroll deduction to cover the cost. This is rather sensitive and the DA's office may not be particularly adept at getting the right information and preparing a good order. You should get some competent professional help. The QMCSO probably will apply directly only to the health plan. The law allows mid-year election change under a cafeteria plan to accommodate a QMCSO, and if the cafeteria plan is the only avenue for enrollment and payment under the health plan, the cafeteria plan had better have provisions to accommodate.

For an example, look at the thread started by John A on August 9, 2001 relating to domestic relations orders.

Shame and pity.

The amendment scheme also violates section 401(a)(4).

JanetM: While your point about no reduction to retirement benefits is usually true, it is a matter of plan design and not all plans include salary reduction amounts in the defintion of compensation for determining benefits based on compensation. "Recent" law changes allow plans to neutralize salary reductions, but do not require it. As with so many other things that people take for granted, it depends.

How do you mean "designated"? It could happen for purposes of 401(a) (9).

Have you read 403(b) (12) lately? Or is this a government plan? If it is a government plan, state and local law will apply.

Plan administrators have a duty to deliver benefits in accordance with the plan terms. If the plan says that the participant is the person who requests a distribution, the plan adminstrator has the duty to make sure it is not someone else and has the inherent power to carry out its duty, subject to express terms of the plan. In extreme cases, the plan administrator must disregard plan terms if plan terms are inconsistent with ERISA. The plan administrator can take extraordinary protective action based on reasonable belief.

I am ignorant about any authority, but more facts may help. Is the plan with an institution and the individual is trying to decide to move other money to the institution? How will the "savings" be allocated? Seems pretty difficult to allocate it to a particulatr account under the plan. Also consider that the ERISA 404© regulations may protect everyone but the individual participant, so you may be able to let the participant take the risk. However, the plan needs to consider reporting requirements and whether or not it will need to report a prohibited transaction and the portential consequences to the plan of reporting, such as increased risk of audit.

The Code sections do not conflict; they layer. Not all arrrangements are subject to 105 and not all are subject to 125. When they are subject to both (such as typical health FSAs), you have to test under both regimes. EBIA publishes materials on cafeteria plans with extensive coverage of testing, including testin under section 105.

The plan sponsor can't do anything about loans other than establish or amend plan terms. The plan administrator has responsibility for loans and must respect plan terms. If the the plan sponsor is the plan administrator, shame and pity.

I am shocked that you would consider your last two sentences in the context of advising a plan administator about the appropriate way to handle a matter. We are talking about what is right, not what you can get away with. Besides, when the alternate payee wins, she can probably get attorney's fees and I have a different view of the prospects of winning. I have stared down several union plans that took unacceptable views of QDROs and were used to getting away with bully tactics until someone showed a willingness to go to court. Although I don't quite understand all of your other responses (election of remedies doctrine?), I think they are misplaced and I don't care to engage any more on the issue. I stand by my position. Your best point is that the state court may be unwilling to reopen the matter to change approach.

I am shocked that you would consider your last two sentences in advising a plan administator about the appropriate way to handle a matter. We are talking about what is right, not what you can get away with. Although I don't quite understand all of you other responses (election of remedies doctrine?), I think they are misplaced and I don't care to engage you any more on the issue. I stand by my position.

mjb: Forget the controversy over the survivor annuity, that has been hashed out to no resolution in other posts. But I would love to see some authority or even a plausible unsupported explanation of why a domestic relations order would not qualify if it split the participant's monthly check for some period, not to exceed the particpant's life. While one can assert that the form of benefit is an annuity for the life of another, and therefore is not one of the plan's offerings, that is too hypertechnical in a post retirement environment (it is OK in a pre-retirment environment) because it would effectively either (i) essentially prevent QDROs in a post-retirment environment, or (ii) require a plan to reform the benefit and provide separate annuities. Option (ii) would do far more violence to the plan and create a terrific opportunity for adverse selection.

The AP has a right to go back and change the order to get the shared payments if the order fails to qualify because its original terms no longer work. The AP has a reasonable time to do so after notice of disqualificaton and some of the participant's payments may have to be suspended while the AP is working on a new order. Whether or not the AP can get a new order will depend on state law.

The plan can be designed to require spouse consent for distribution, but no federal law requires it. Usually spouse consent is required only with respect to form of distribution or designation of anther beneficiary, but I am not aware of anything that prevents a more restrictive design. Who is responsible for the design and why the design was chosen may be hard to determine, not that it matters. Theoretically, the employer decides on design but governmental plans are often legislated and managment has no say. And it could be those greedy fund managers in conspiracy with those miserly spouses.

Both of your colleagues are wrong for one reason or another. Nothing about the age itself is an issue. However, the order is evaluated at the time that it is submitted to the plan. The plan, the law (or understanding of the law) and other circumstances may have changed since the order was drafted and the changed circumstances can have a profound effect on the outcome, including the disqualfication of an order that may have been qualified if it had been submitted years ago.

Go to the securities law forum and look at the discussion that begins on April 28, 2005.

As much as I like cynical and cryptic responses, it is only fair to warn readers that the comment about board action is oversimplified, but not wrong.