QDROphile

An alternate payee cannot get anything under a QDRO that the plan can't provide to a participant. QDRO accounts can be adjusted for compliance the same as any other account. The trick is to adjust properly, but it is much easier when the QDRO account is 100%.

If you cancel a deferral, that means there is no deferral and you get full compensation for 2005 -- not a raise or a pay cut. What the employer did with the money while not paying it to the employee in the meantime is irrelevant. If you accelerate payment under the terms of the plan (naughty!) then you might think about earnings credit (positive or negative) related to the deferral amount.

There is no such thing as earnings.

The income from conversion is phantom income; nothing goes into your pocket. The contribution to the SEP is real money that will not go into your pocket, either. Do you think of that as an "offset"?

The answer depends on how you define the plan. If the welfare benefit plan includes the dental reimbursement benefit, one Form 5500. If it does not, then two. My answer does not help because your problem is determining what constitutes the welfare benefit plan and you do not have clear documentation to answer that question. Or you have clear documentation and you don't like the implications. You have to start with determining what constitures the plan document for the welfare benefit plan and then look at its terms. But the plan document for the welfare benefits plan may be composed of separate writings, one of which is a portion of the employee handbook. The most likely easy conclusion is that you have two plans, based on a very simple view of what constitues the welfare benefits plan document. If you want another answer, you need more sophisticated help.

With that comment, you have shown the you are not taking this seriously, so I won't be concerned with the less than thoughtful earlier posts or any further comments from you on the subject. You know better, which is why I always try to explore any apparent difference of opinion with you. To reiterate my point, the plan administrator must recognize that the tax rules are different when the alternate paye is not a spouse or former spouse, and not may people are aware of that. Consequently, either (1) the plan's written QDRO procedures need to deal with the situation, such as providing for a default interpretation (e.g. the amount will be distributed net of withholding elected by the particpant, whatever that may be), or (2) the administrator should not qualify the order unless the order speaks to the issue of withholding. Otherwise, the administrator will risk a dispute over the meaning of the order after the administrator has determined the amount to deliver to the altnernate payee. A dispute does not mean potential liability for the plan or the administrator, but it is generally a good idea to avoid disputes. Having good provisions in the QDRO procedures provides protection, but probably does not do much to avoid such disputes because no one reads QDRO procedures before preparing orders. I think is is best to require that the order speak to the question of withholding.

I agree with Mr. Maldonado. This is too basic to tolerate.

Then what do you say to the District Attorney/alternate payee who says the order requires payment TO THE ALTERNATE PAYEE of $5000 and the plan paid only $4500?

mjb: Enough persiflage, how about a pertinent response? The order says pay the nonspouse alternate payee $5000. What should the plan administrator do? Be specific, no "in accordance with IRS rules."

If the alternate payee is not the spouse or former spouse the participant will be able to elect the amount of withholding. If the QDRO says to pay the alternate payee the alternate payee $5000, the plan administrator will start from the proposition that the plan will distribute $5000. But then the plan administrator will solicit withholding instructions from the participant. If the participant waives withholding, the alternate payee will get $5000. If the particpant elects standard withholding of 10%, the alternate payee will get $4500. I believe (but am not sure) the participant can be allowed to elect withholding that is more than the standard 10%. If so, if the participant elects 20%, the alternate payee gets $4000. What amount is the alternate payee supposed to get? Will a dispute arise when the alternate payee gets $4500 and observes that the QDRO says to pay the altnernate payee $5000? Should the plan administrator have interpreted the QDRO to require a distribution large enough to yield a payment to the alternate payee of $5000? I suspect that an amount specified for child support is intended to deliver the specified amount, not some lesser amount. Where is the withholding going to come from if not the distribution? Even if the participant is employed by the plan sponsor, I am not sure you can cross over to take withholding from regular pay without emplyee consent. So I renew my suggestion that the plan administrator does not want to be in the position of interpreting the order with respect to the application of withholding. The order should specify what the altenate payee should get after taking withholding into account.

Never say never, but this is pretty close. One of the major points of ERISA is to separate the plan from the employer.

You are the plan administrator. The order says pay $5000 to the alternate payee. Is the amount net of withholding or subject to the amount that is elected by the participant to be withheld? My point is simlpy that the plan administrator does not want to be in the position to decide. The plan administrator should require the disposition of withholding to be expressly addressed in the order.

Debt is not the only way an LLC can generate unrelated business income. If the the LLC is a pass through entity, all the operating income (e.g income from making widgets or performing services) is unrelated business income. Only specifically identified income is exempt. I have no idea about the character of the income from the business this LLC will conduct. One line of inquiry about prohibited transactions is whether or not there is some reason for the transaction or indirect benefit to the account owner other than the economic benefit to the account of the investment. b2kates has provided a specific example of a question in this line.

There may be other facts that would cause the transaction to be a prohibited transaction. An LLC investment could result in unrelated business income.

I recall that the proposed regulations say you can't distribute for an emergency to the extent that ceasing deferrals will relieve the need. So it seems that if an individual wants to cease deferrals, the individual must claim an emergency and then show that ceasing deferrals will relieve it. I would not let the individual unilaterally decide about the emergency or the amount of deferral that may be stopped. On the other hand, stopping deferrals may not be necessary. If the participant has an immediate need for $1000 and a monthly deferral of $100, the administrator could decide to distribute $900 and allow deferral to stop for one month stop cover the remaining $100. I don't know if deferrals should/could/must stop for the remainder of the year, but I would worry if that decision were made by the individual.

Different tax rules apply if the AP is not a spouse or former spouse. Beware of subtle withholding issues. The participant is the taxpayer and gets to make the withholding election. What would you do if you were the participant? What would your reaction be if you were the alternate payee and the participant elected 100% withholding? Do you want to be the plan administrator in the middle?

No. There is a big difference between appointing a fiduciary and engaging an agent. The ERISA liability relationships are very different.

Very creative use of section 405, but a bit off. Have you ever tried to appoint a mutual fund company, brokerage or other services provider to be a fiduciary in any context, let alone this one? Also, you can't make someone a fiduciary secretly. I think a more realistic approach is to consider the service provider to be the agent of the fiduciary. Instructions to the agent are instructions to the fiduciary. Fiduciaries don't really handle much administration directly. How many fiduciaries perform an ADP test? Of course, the fiduciary retains responsibility for what the agent does. The agent is not appointed secretly. The agent is doing the job for which the agent is engaged, such as receiving investment orders.

You should really be using Rev. Proc. 2003-44, and it is about to become obsolete..

GBurns raises a good point. If the salary reduction election is subverted, that is a problem. But we don't know if there is any pay that would be subject to the salary reduction agreement. We also don't know if there has been a legitimate change in the election. "Out on disability" could mean different things.

This is from the Internal Revenue Manual: (6) Under Reg. 1.411(d)-4, a section 401(k) plan may not have a “catch-all” hardship category (for example, “and other events which the plan administrator deems to be hardships”) because this would be impermissible employer discretion. The plan may be amended to add or eliminate a hardship category or to change the conditions for receiving a hardship distribution and this will not violate IRC section 411(d)(6). Hardship categories (general or deemed) must be both currently and effectively available to a group of participants that satisfies Reg. 1.401(a)(4)-4.

What part of a cafeteria plan is a voluntary ad hoc decison by the employer to pay health premiums that does not in any way affect salary reduction amounts? The employer is not paying the premium in lieu of the salary reduction by the employee, or so it appears from the original post.

Preventing bankruptycy is a nonspecific catch-all proposition. Give some very serious consideration to whether or not it is a legitimate reason.

Please identify the provisions of ERISA "that basically say that employers should treat all employees of a class the same."

What is the problem? Most DC plans distribute to participants and spouses have nothing to do with it. Why are you not doing that, assuming he is eligible and has asked to be paid? Is J&S the normal form of benefit?