QDROphile

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.

But who can determine the value? Does it have to be a valuation professional with certain credentials? A person who is involved in the business (e.g. a real estate agent)? An unschooled fiduciary or participant who makes an effort to look at recent comparable sales or otherwise tries to determine value on some reasonable basis and facts? Does it make a difference if the valuation is only for interim reporting purposes (Frome 5500) and does not affect amounts of distributions or amounts reported for taxation purposes (Form 1099)?

See Treas. Reg section 1.72(p)-1 Q&A 20. While there is no limit on the number of times a loan can be refinanced, refinancing is subject to various limitations that will have the effect of limiting the number of refinancings. The complexity of the rules is a good reason for the plan terms or procedures to disallow or substantially restrict refinancing.

The regulations under section 72(p) of the Internal Revenue Code now give a lot more guidance about loan refinancing.

It is a matter of corporate governance. If she is authorized to sign on behalf of the entity, she may sign. Authority can be special or general, express or implied. Authority may be inherent in the position. One would not expect to find inherhent authority in a "manager," but that term has no particular meaning except as the entity gives it meaning. Your question cannot be answered with any certainty in the abstract. Perhaps it may help to ask if any board member (or equivalent if the company is not a corporation) or officer would assert that she should not have signed. If no one would object, that is a clue she has at least implied authority.

j-g: Does your answer apply to FSAs that have employer credits from sources other than salary reductions?

Don't be so hard on yourselves. Appropriate plan terms depend on the circumstances. 401(k) plans are nowhere near welfare and cafeteria plans with respect to annual periods. For example, there is almost never something akin to annual enrollment, so there is no need for express provisions dealing with the annual elections and what happens if an election is not received. As long as the procedures for elections and changes of elections are covered in the plan document and related formal administrative procedures, nothing requires special attention to the turn of the plan year. I still think the SPD should say that the deferrral election and the invesment instruction will stay in effect until changed. However, the plan, together with formal procedures, does have to deal with periodic and extraordinary events, such as bonuses. For example, are bonuses subject to a separate election or will the latest election simply be applied to the bonus? What if no separate bonus election is submitted? Does the last separate bonus election carry forward (dangerous)? Also, note the current interest in ideas such as automatic enrollment and automatic periodic escalation for elective contributions. Implementation of those ideas needs specific plan terms. Welfare plans are much more sensitive to the turn of the plan year. Benefits and costs can change dramatically from year to year, with related enrollment ceremony. The plan terms should be geared to the plan needs and enrollment and elections are much more of a big deal, requiring much more attention. While many persons other than idiots use prototypes, the quality of ..., oh, never mind.

Only idiots will allow plans to fail to have terms that resolve the question or SPDs that fail to cover the point. With respect to elections to receive the benefits, the plan terms or related cafeteria plan terms should determine how to deal with a change to the employee's cost of the benefit, and the terms should be prominently disclosed. Except for an election not to receive benefits, elections that carry forward to a new year are not a good idea, and may be impermissible, for spending accounts.

COBRA rights require a qualifying event. Failure to pay premiums is not on my list of qualifiying events. Anlaysis of how to treat retirees under COBRA is sometimes tricky, so watch out for other angles.

Charges should be applied according to well considered and documented policy that is formally adopted. Appropriate disclosure should be made in the SPD and it would be a good idea to remind participants at termination. Competent professional advice is part of "well considered" and "well documented." Although imprecision in language is tolerable when discussing the matter informally, analytically you start from the position that an account maintenance fee applies to all accounts. Check the Department of Labor release on the subject.