QDROphile

Keep in mind that a plan is not required to allow a change just because it would be eligible under the regulations. Always consult plan terms.

BNA has a porfolio on the subject. You will see a familiar name in it, too!

Mr. Maldonado: Disregard of inapplicable or improprer provisions is based on a philosopy of review of orders. The primary objective is to determine that the order is qualified (which is ususally the goal of both parties as well as the plan). A close second is to do so efficiently. The efficiency criterion requires avoidance of unimportant correspondence. The evlaluation of what constitutes unimportant correspondence is based on a premise, or recognition, that the personsa who draft orders are usually not experts in the subject matter. Put that all together, and mix in some arrogance on my part, and you get a process that is aggressive about interpreting orders in a way that disposes of them in the first round. In other words, we fix mistakes without asking. The process involves a clear articulation of the interpretation of the points that may be controversial or subject to mistaken interpretation. The articulation allow the parties to understand exactly what is going to happen so they can dispute the interpretation if it is mistaken or not what was intended. The determination and interpretation are not final until after a period that allows for dispute, and dispute suspends implementation. I find that disputes are rare, I hope because the outcomes are correct. If there is a dispute, it usually leads to a determination that the order is not qualified and they have to rewrite. Applied to your question, what good would it do to ask? What answer could be given? If they did not intend that the plan enforce the provision, then disregarding was correct and efficient. The plan will not require the AP to elect a rollover, either. If they intended that the plan block the AP's election for a direct rollover in accordance with plan terms, then they could dispute the blatant misinterpretation and the plan administrator would rule that the order fails to qualify under that interpretation. Just about the same amount of work for the plan administrator in the second case and less work in the first. I would take that bet. Belgarth: Would you like a sinister explanation? This could be a variation on another improper provision that it sometimes in the order, a direction to distribute to the alternate payee's lawyer or jointly to the AP and someone else (such as the lawyer). It is a sure source of funds for the lawyer or some other creditor to get paid. Not legally binding, but it can is effective as a pressure tactic against well-intentioned but impecunious litigants. A less sinister explanation is that it is misguided attempt to make the distribution election in the order rather than in accordance with distribution procedures. I get the idea that some drafters of orders think that they need to address the issue, even if only to say that the AP has the option, which is what the plan provides anyway. Now let me slam plan adminstrators just to be even handed with criticism and justify the paranoia of the drafters. Would you believe that some plan administrators do not allow the AP to choose? Ignorant and stupid plan behavior is responsible for both overkill on the part of drafters and misguided informal DOL positions on QDRO issues.

Is your point that a certain volume of noncompliance changes the rule? Or perhaps an insufficient level of enforcement changes the rule?

Perhaps the term "constructive receipt" will sound familiar to you. If your FSA is funded solely with reference to compensation deferral, there is no benefit until there is compensation deferral. There is no compensation deferral until the employee elects it with respect to amount not yet earned. A middle ground is that the coverage can be effective beginning with the pay period in which the salary deferral is submitted, assuming that the salary deferral is effective to reduce pay for that pay period. Some do not agree that the middle ground is legitimate. They believe that the coverage starts with the first pay period after the salary reduction election is delivered -- everything is prospective. Your payroll system should be able to comply with the conservative view. One solution is for the employer to cover the share of the cost for the time before the election. You need to watch the timing so everyone gets the same deal. You don't want to penalize employees who submit promptly. Same thing goes for tax treatment of premiums for the health care if premiums are paid through salary deferral.

Of course you can take actions without full appreciation of the applicable law and without the assistance of someone who does. You can also represent yourself in court and prepare your own will. I guess you can't pilot your own airplane without a license. You have to make choices of risk and reward, all relative to complexity.

On what basis do the shareholders maintain "individual" plans? Does the corporation in which they are shareholders sponsor 5 plans, with each assigned to a different plan, or do they each have other unrelated employment besides the corporation and sponsor the plans for the other employment?

I have seen this before. I disregard the "no rollover" provision, but I expressly say so in the notice of qualification. If they don't like the interpretation, they can appeal, at which time the administrator will rule that order fails to qualify. Rollover rights are stautory (or at least the plan's qualification hinges on them); an order can't take them away. A court can order the AP not to roll, but that is not a matter for the plan administrator to enforce. the AP gets the option as provided in the plan and the law.

See Code section 125(f). "Qualified benefit" for a cafeteria plan does "not include any product which is advertised, marketed, or offered as long-term care insurance." See Code section 106©. Long-term care services are included in gross income if provided through a flexible spending arrangement.

A fiduciary should be very concerned about insisting that the SSN be in the order. As noted above, the SSN is not required for qualification, and the fiduciary could have liability for adverse consequences of insisting. By the way, domestic relations orders generally are public documents and several states and courts have adopted rules to avoid revealing SSNs in those documents.

Employer coverage of the deductible is an employer provided health benefit, not taxable to the employee as long as the arrangement is not discriminatory, see section 105(h) of the Internal Revenue Code. The arrangement is or is part of a group health plan, subject to ERISA, COBRA, HIPAA and all other requirementa applicable to group health plans. Among other things, the terms need to be set forth in a written plan document and disclosure (SPD) must be provided to participants. One should also consider that the premium paid under the cafeteria plan for the core health coverage also buys the deductible coverage.

An employer that asks the question that way should re-examine whether or not it is proper to pay only "via 1099" because if the employer proceeds to exclude all the payees from the retirement plan, the stakes get much higher. The combined use of "employer" and "1099" should give pause. Or, to be simplistic, paying a W-2 employee as though the employee were an independent contractor (via 1099), will cause nothing but trouble when it comes to compliance with retirement plan rules.

Staying within the private employer arena, you don't find many nonqualified plans that don't purport to be top hat plans because the ERISA trust requirement eliminates most of the tax benefits of deferral and securities law compliance can be a significant issue. An example of a nonqualified plan that is not a top hat plan is one that fails to comply with section 401(a) -- therefore not qualifed -- and participation is not limited to a selct group of management employees -- therefore not a top hat plan. ERISA requires the plan to have a "secular" trust. Contributions to the trust are treated as ordinary income to the participants. I am aware of some top hat plans that have secular trusts. I am not privy to the reasons for the arrangements.

"Testing concerns aside" makes your question trivial. If you don't have to comply with the law, anything can be adminstered as a matter of book keeping.

A nonqualified plan that is not a "top hat" plan is subject to the ERISA trust requirements and TIN rules would apply. A rabbi trust would not satisfy the ERISA trust requirements.

What do you mean by "decline the coverage"? A person can be covered but simply not submit claims. However, if they have other coverage, the coordination of benefits may force involvement of the coverage and creditors may eventually foorce th individual to submit claims for unpaid coveredmedical expenses. Is the next step after declining coverage a demand for higher pay in lieu of the employer-paid premium? That causes problems. If the insurance is provided through a group insurance policy, failing to cover all persons does not present problems under ERISA or the tax code unless section 125 is involved, but the terms of the policy may present problems, as noted in the answer above.

You may have a compensation arrangement that is not being treated properly, so what you may be missing is an ability to get at the real problem.

You just confirmed facts that lead to the conclusion that there were prohibited transactions. The same events can be operational defects and prohibited transactions and each problem needs appropriate attention. You don't get a twofer when you address one problem.

Are either the owner or the financial advisor fiduciaries? The financial advisor appears to be one. Did the financial advisor benefit in any way from the event? Be expansive in your imagination, and include intangible benefits. I suspect that the financial advisor had something to gain from the (mis)use of plan assets, perhaps only indirectly. For example, pleasing the owner for the sake of future business might be enough under 4975©(1)(E) or (F).

See section 408(a)(2) of the Internal Revenue Code and Treas. Reg. section 1.408-2(d) and -2(e). Good luck.

See section 125(f). Are the EAP benefits described there?

Please explain why a charity cannot be a designated beneficiary.

Since there is no such thing as a truly "separate interest" QDRO, there is no sure fire way to have ready answers to all of the relevant questions. The answers are determined by the terms of the order, the terms of the plan, the terms of the written QDRO procedures and the law. The law is not settled on various points.

Please clarify what you mean by a non-ERISA plan. Is it is a plan that is not qualified and exempt from most ERISA requirements as a top-hat plan or is it something else? If so, you are left to plan terms and policies adopted by the plan to determine how to process the retirement payments while matters are worked out in the marital settlement and thereafter. If the plan does not have them, now is the time for designing and adopting them. The plan may choose to follow some principles that govern qualified plans, and there are some good reasons to do so. But there are some differences, including tax consequences, that need different treatment.

Consider that a general partner may have unlimited liability. Sounds inappropriate.