QDROphile

Nothing in the QDRO rules says that a domestic relations order has to come from a court. Government agencies are more and more involved in domestic relations proceedings. One interesting issue is how to define domestic relations law when looking at the authority of the agency to act. You have to be careful when paying a benefit to/for an alternate payee who is not a spouse or former spouse. The income is attributed to the particpant and it is not an eligible rollover distribution. You have to deal with other withholding rules. Figuring how withholding should apply is lots of fun. Is the amount to be delivered under the order to be net of withholding, if any? Or do you deliver the stated amount and increase the distribution to cover the withholding, if any?

Here's one on the subtle end: Madison v. Resources for Human Development, 39 F Supp 2d 542 (ED Pa. 1999)

vebaguru: For inquiring minds, could explain in greater detail why you would have a single employer arrangement when the benefits are provided to persons other than employees of the employer? For various purposes under ERISA plans, benefits under an employer plan can be provided only to employees and their beneficiaries, so it would be nice to understand how to distinguish.

A plan administrator especially would not want to be advising anyone about "arrangements" for purposes of using plan benefits to deal with a matter that has nothing to do with the plan. That applies to a TPA, who is an agent of the plan administrator. Embezzlement by an employee of employer money does not concern the plan. If the administrator is presented with an irregular request that arises out of arrangements between the employer and the employee, the administrator will have to evaluate whether or not to comply with the request. A request for distribution to the participant or a direct rollover is not an irregular request.

Form 11-K for a plan is the equivalent of a Form 10-K for a company that is subject to reporting requirements. The plan would be subject to reporting requirements if stock and plan interests were registered for purposes of the plan. Stock and plan interests would be required to be registered if the plan would be treated as offering employer securities. This is a bit of an oversimplification, but the plan would be treated as offering employer securities if plan participants could choose to have elective deferral amounts invested in employer stock. Any plan in this situation needs compentent legal advice. In fact, any plan that uses employer securities should get competent legal advice about the securities law implications, even if registration is not required.

I am concerned with people not understanding limits of what they know and the implications of dabbling in what they do not know. I fear that giving someone an "answer" on this board is sometimes giving them the rope to hang themselves or someone else. A significant part of my work involves correcting the effects of mistaken action or advice of TPAs who do not have the breadth or depth of knowledge to either adequately understand or address the issues. They try to do too much in response to pressure from their clients to go beyond what they are competent to do. You did not pose your question as a newbie who was struggling with inadequate training or supervision, so you did not get an answer that was appropriate for your situation. Therein lies the problem. It is very difficult to ask a general question on this board and get an answer that is the proper fit for the question because all of the aspects of the question were not expressed. The person who asks the question might not understand the bad fit. So in your case, you and the client evidently have protection because of review by a supervisor who is experienced and knolwedgable. Good. I wish you well in your career development.

Rev. Proc 2003-44 is an important cite. The the site at which you can find the material cited can be reached throught Benefitslink or at the IRS website, among others. I composed and deleted several messages about asking anonymous strangers to help you with a matter in which you are evidently completely inexperienced in order to allow you to provide advice and services to your client when your client presumes that you have the knowledge and experience to get the job done and is paying accordingly I gave up because any comments are pointless. The sad fact is that even if you don't get it right, either this time or the next time you are out of your element, your client will be none the wiser and no one will get caught.

I second papogi, including conclusions from the authority cited. I will go one further. I think the TPA is so wrong headed that I would not want the TPA working for me because of fear of the TPA's position on other matters. I would reconsider if the TPA's postion started with an explanation like "this is really out there, but you might think about ... ." Also, I don't see why names should be withheld, as long as you are absolutely sure about what you attribute, and describe accurately. Public exposure can help drive out knaves and incompetents. The knaves of deferred compensation got us all a new section 409(A).

I agree with others that from the perspective of the plan, the only thing that will affect your benefits will be a QDRO. However, some plans will restrict payments to you if the plan administrator becomes aware of a domestic relations proceeding that involved division of your benefits, even if the proceeding concluded six or seven years ago. The restriction may last until there is some satisfactory resolution, although there is an outside time limit. All plans will restrict your benefit upon receipt of a domestic relations order, even if the order is not qualified. Your settlement was probably within some document that a plan would treat as a domestic relations order. If the plan is not aware of any domestic relations proceeding that involved division of benefits, the plan will pay your benefits as provided under the terms of the plan. The consequences of not providing your former spouse with a share of benefits before the benefits are distributed to you is a matter for state law. It is likely that there would be adverse consequences to you, but I don't think anyone can tell you what they are without knowing all of the details of your situation. Subject to that caution, unless you think neither your former spouse nor her heirs will ever come after you or the money, it is probably going to be a lot easier and cheaper to take care of the matter before you apply for your benefits. Among other things, if you get the money from the plan before you reach resolution, you may get taxed on her portion instead of her.

OK, they elect to receive installments of deferred compensation. But they are also receving regular compensation while they are receiving the installments. So why bother with any issues about deferring amounts out of deferred compensation when they can defer out or regular compensation and not cause questions? Is regular compensation insufficient to sustain maxuimum deferrals at that time? I must be missing something.

The terms of the husband's plan and its QDRO procedures are important. Since it is a governmental plan, you can't easily predict what you will find. Also, what do you mean by "installments"? Is it a fixed period or some sort of life annuity? I don't think alternate payees can have certain types of life annuity payments unless the participant is the contingent annuitant. Do the installments prevent the the distributions from being eligible for rollover anyway? They would if the term is 10 years or more or based on life or life expectancy. For private employer defined contribution plans, I would expect to find limits on the period of installment payments to a beneficiary (incluing no payment of installments) of an alternate payee with the balance paid in a lump sum. Some people believe that alternate payees cannot have beneficiaries; they probably provide for the balance to be paid to the AP's estate. The lunatic fringe would not allow any payments after the AP's death. I don't know what happens to the balance.

#3 indicates you really need not bother in most circumstances. A person who is eligible for NQDC is usually quite well paid. Deferrals to a 401(k) plan in a year are limited. Instead of looking to NQDC income for the year, the employee can defer the maximum from regular pay for the year. What is to gain? Dollars offset dollars.

Please vote for Candidly Critical. It is always my first impulse and it saves a lot of time.

E as in ERISA is being too kind. I was being sarcastic about the quality of plan documents and related administrative documents and procedures. This is an issue that someone should have seen coming and prepared in advance. It is still a document interpretation question, it's just that the job is more difficult now. Someone is going to have to decide the implicit ordering. At one extreme, the plan adminstrator may decide that the election form should be interpreted to mean that if the full election could not be honored, then there should be no deferral. Probably the best approach is set priotities and allow the biggest deferral from what is left when you get done covering higher priority items. For example, legal requirements, such as payroll taxes, come first. Welfare benefits through a cafeteria plan probably come next, especially health benefits. Other health benefits, such as after-tax LTD are probably next. What do you do about other savings programs such as stock purchase plans? What about other elective payroll deductions? Not easy, but you have to decide. When you decide, you should then amend plan documents or adopt and disclose formal plan procedures to apply next time. Above all, you have to real all documents, e.g. election forms, an all employee communications about payroll deduction carefully. Consider asking the individual before you set policy (although the policy cannot be that the individual gets to say each time it happens). Is this a total aberration that is going to cause the individual to miss a mortgage or rent payment or is it a systematic because they elected too big? Don't forget to seek legal advice!

With the advent of catch up contributions most plans increased or eliminated deferral limits. The persons who designed the plan amendments were smart and foresighted enough to provide in the plan that the election is subject to ordering based on availability of amounts after taking care of other necessary reductions of pay.

The IRS is does not set that rate based on the commerical rates for loans such as plan loans. I would not use the rate because the fundamentals don't satisify the requirements. I don't care if at one time or another the rate happens to be correct because of coincidence. However, the plan fiduciary is charged with determining the rate. If the plan fiduciary is instructing you, the most you can do is make a polite inquiry, suggestion, or protest to prevent any implication that you were somehow responsible. If the rate is outrageious, more radical action may be required. A TPA is always in danger of being determined to be a fiduciary.

The inevitable first question: What does the plan say? It is permissible under tax rules to credit sevice while on leave of absence. It is mandatory under most circumstances if the employee is being paid for the time. If you are exploring what is permissible or mandatory rather than trying to answer a question under a particualr plan, you may find different answers depending on whether the school is public or private. Public entities are subject different tax rules, are not subject to ERISA, but have to comply with state law.

We identify those requests in our response and say that that we are not responding to requests outside the scope of the convention.

Fiduciaries are required to be reasonable. That does not mean throwing good money after bad, but it means that the costs and benefits have to be weighed intelligently.

Payments equal to the amount that was treated as taxable will create basis in the participant's account. Otherwise, loan payments are treated the same as if no tax event. They are not contributions, if that is what you are asking. The loan did not go away for accounting purposes.

Count me with Pensions in Paradise. Maintaining accounts involves expenses. Expenses may be charged to accounts on a reasonable basis. It is unlikely that it costs more per capita to maintain the account of a participant that is not an employee than for a participant that is an employee. Per capita is not the only way of allocating expenses, but let's keep the discussion simple. The employer can cover some or all expenses of accounts of employees and not cover expenses of accounts of former employees. From the perspective of the participant, accounts of former employees are charged per capita while accounts of employees are not charged, but that does not allow the expenses of accounts to be allocated differently to former emplyees. The difference is that the employer picks up the expense, not that there is a different expense.

Locust: Read Flaherty's Arden Bowl v. Commissioner. You may find its conclusion odd and overly technical.

EBIA correctly says that COBRA premiums cannot be paid or reimbursed from an FSA. It may be possible to allow salary reduction under a cafeteria plan to provide for payment of COBRA premiums, but not through the FSA. A reduction in the employee's hours that causes loss of coverage is a qualifying event for COBRA. Is a change to the health plan to increase the number hours for eligiblity the same thing? If the coverage is provided under an insurance policy, you had better check to make sure the insurance company will provide coverage.

Don't forget to read Flaherty's Arden Bowl v. Commissioner (tax court case, affirmed by circuit court).

If a regular IRA has basis, the portion of the withdrawal that is basis is not subject to further taxation. That is a general rule that has nothing to do with what the money is used for.