QDROphile

Your retirement does not change the nature or terms of the plan.

As with other apparently bone-headed positions of the DOL in the QDRO area, I don't really know what the DOL means by what is says (and I doubt that the DOL knows what the DOL means sometimes). I was hoping that you or someone would elucidate. For example, does the DOL simply mean that the plan's claims procedures do not substiture for QDRO procedures? Does it mean that the exhaustion of remedies and standard of judical review features of regular ERISA claims procedures do not apply? Does it mean that any connection in any context with the plan's claims procedures is improper?

Why are you asking these questions? Are the bank and other clients relying on you to advise them concerning ERISA and securities law requirements? If so, you need some very sophisticated advice that you will not get in enough detail in this forum. Actually, they need the sophisticted advice directly, not through an intermediary.

It isn't your money. The money belongs to your employer. You simply have your employer's promise to pay you some amount, if the employer can do so at the appointed time. It is nice to know that your employer is saving money now for the purpose of paying you later. The employer can keep its money wherever it wants. If the employer created a grantor trust to hold the funds, any transfer of of funds would be subject to the terms of the trust. It is unlikely that you have any rights except to receive the amount that is promised under plan terms. However, plan terms might say how the earnings factor of the benefit is to be calculated and how that can be changed.

We commonly refer to the plan's claims procedures for challenges to the determination of qualification or interpretation of the order. The determination of qualification and interpretation are handled under the written QDRO procedures. The plan's claims procedures provide a convenient and familiar process for dealing with subsequent disagreements or misunderstandings. I don't really understand why the DOL has its knickers twisted about claims procedures. Some administrative dispute resolution procedure is necessary or desirable. If not the plan's claims procedure, then something similar would have to be written into the QDRO procedures. I doubt that the DOL wants evey little issue to go directly to court withot some formal attempt to resolve the issue, and the courts would not like it either. I understand that the plan's claims procedures do not substitute for QDRO procedures, but to preclude use of the plan's claims procedures in the proper context seems to go too far. After all, an alternate payee who believes that he or she is entitled to benefits despite the determination is making a claim for benefits under the plan.

There is no such thing as a transfer from a qualified plan to an IRA. You probably mean a direct rollover. That means that the plan distributed amounts to the participant. You need to come up with a legitimate reason for reversing the distribution, such as the plan allows the participant to designate the distribution date and the administrator disregarded the instruction and distributed prematurely. You might allow the IRA to roll over the amount to the plan if the plan terms allow the rollover. If the distribution was based on termination of employment, the plan probably does not allow a former employee to roll amounts over to the plan. I don't think you can reverse the transactions simply because a better economic result is possible.

The ESOP is a share holder the ESOP gets what a shareholder gets in the disposition of the company. Your description sounds like the ESOP gets cash for its shares. Whether or not the ESOP has to use the sale proceeds immediately to prepay the loan depends on the plan and loan documents. The ESOP has to honor its obligations.

Seems to me that your process is backwards. Your proposal is so fraught with issues involving compensation, tax emption for the entity and the HRA that you should be seeking legal advice up front, not as a formality at the end. A good lawyer will be able to deal with the multiple issues and help come up with an arrangement that best helps accomplish the goals of the organization within the restraints of the law. I don't think you can focus narrowly on a few HRA issues such as the discrimination rules. However, a focus on a few issues might reveal that the HRA proposal is not feasible or at least not desirable. The contributors to this board will probably point out a few specific difficulties with the proposal, such as the discrimination rules and the funding issues. For example, section 105(h) applies and the definition of "highly compensated individual" is not the same as the definition of "highly compensated employee'' that you are contemplating. Also, where will the money live and who will administer? I doubt that a 501© (3) organization can continue to exist for the sole purpose of providing medical benefits to former employees.

See Rev Ruls 2002-22 and 2004-60, Notice 2002-31 and several threads on this board. The tax materials won't address you question about ERISA. The usual answer is that top hat plans are not subject to ERISA section 206(d). I think it is a trifle more complex than that.

Has anyone analyzed whether or not the HCE's pay and apparent attitude toward compensation and resouces are appropriate under 501©(3)? Clue word: "inurement." Big pay is not necessarily a problem, but it needs to be considered in terms of the organization and its activities. The 10 employee number caught my eye. This not a hospital CEO.

I have been through ERISA 101 but maybe I was asleep. Could you specify what part of E's statement is wrong? I find nothing wrong with a plan that allows separate elections for bonus amounts and the IRS has never objected in a review for a determination letter. Also, there are some items that can be included in "compensation" that are not paid in cash and therefore the deferral cannot be charged to that exact item -- the dollars have to come from some other cash source, such as regular wages, or the deferral. Consequently, I don't think you are saying that single deferral percentage must apply across all compensation and be charged to each source of compensation.

I understand that the focus is on prohibited transaction rules, but don't overlook the post about securities law compliance. If the plan is required to register, that will involve not only expense, but disclosure that few small businesses want to give to employees.

If you believe what you say about the underlying theme, then take Belgarth's facts and tell me why it is "necessary" to absolutely prevent the former Mrs. B from showing up with a state court determination that she has an interest under the plan, determined while Mr. B was a participant and before remarriage, and obtaining an appropriate portion of the future payments that would otherwise go to Mrs. R/B? You can say that the former Mrs. B can't obtain more than the plan would pay to Mrs. R/B. You say that the former Mrs. B can't complain about the actions of the plan administrator in starting benefits in the form of a J&S annuity. There are federal court cases that say that the state court determination of the former Mrs. B's interest is effective to define that interest and make it the former Ms. B's property, subject to collection via a QDRO. If the former Mrs. B can't come up with a QDRO, she loses, but the participant's death is not the stopper. State law might be the stopper. So there are many reasons why the Former Mrs. B is more restricted or might lose out under the circumstances, but I am offended if Mrs. R/B gets the full benefit of the former Mrs. B's pension interest, duly and fairly determined in the divorce and effected unde a QDRO, by an unnecessary, overbroad, simplistic rule based on a notion of "vesting" that is not supported by the terms of ERISA. There is a cut off date determined by the circumstances of each case, but I don't think you can say the mechanical cut off date is "necessary." If someone is being cut out of property rights, I would like a more intellectually satisfying reason than Hopkins provides.

You are correct that the Rivers and Dorn cases came out after Bailey in the Fifth Circuit. Interesting that neither mentioned Bailey. Bailey is of questionable precedent in the Fifth Circuit after the later cases followed Hopkins from the Fourth Circuit. I am not aware of any other cases on the subject. Samaroo is correct but is very limited in its holding and not on the subject, so I do not think you can say the 3rd Circuit follows. I don't accept your glib dismissal of the regulation, but I can't say the regulation proves me right. Hopkins has been criticized by respectable commentators, e.g. ERISA Litigation Reporter, April 1997. Other recent federal decisions have allowed QDROs to be submitted after the participant's death and have effect, but I can't say if any of them have been formally published. They do not speak to the validity of Hopkins because they do not involve the survivor annuity, but they do allow QDROs effectively to encroach upon the amount of the death benefit that would otherwise be paid. Do other forms of death benefit "vest"? So it boils down to whether or not you agree with Hopkins. I think Hopkins made itself up. If you agree with Hopkins, you can defend it against all the indications that Hopkins is wrong because Hopkins did not look far outside itself. Perhaps it is not surprising that Rivers and Dorn, in subscribing to Hopkins, did not think it necessary to mention Bailey. If you believe, you believe.

See 457(e) (16) and 402(f)(2)(A). Only government plan distributions are eligible for roll over.

The practical solution is that the divorce decree should be submitted to the plan the moment the ink is dry. That will protect the alternate payee while the "real" domestic relations order is prepared even if the particpant remarries or dies in the mean time (Tise). However, there could still be problems if the divorce decree was not definite enough to support the real QDRO or if the decree did not deal adequately with death contingencies (Samaroo). But who knows what happens in the Fifth Circuit? I think the Fifth Circuit is off on an unprincipled tangent, so I don't know if the filing of the unqualified divorce decree will provide the stopper. Your fact situation shows exactly what is offensive about the Fifth Circuit's bright line approach.

Your entire second paragraph is a misunderstanding or a misstatement of my position, and has blithely skated over the contrary statements in this thread. An alternate payee who is not diligent will lose. An order that violates section 414(p) will not be qualified. But that depends on the facts, not a rule of law. As I already stated, the issues can get difficult and the limitations have to be respected, but the fact that the plan is paying s surviving spouse should not be the end of the question. Treas. Reg. section 401(a)-20 Q&A 25(b)(3) is consistent with allowing a QDRO to reach a survivor benefit. The the regulation repeatedly provides an exception for QDROs. The anti-cutback regulation you cite has nothing to do with QDROs. QDROs are not a cut back, they provide for assignment of benefits to another. If you were correct, all QDROs under all circumstances would violate the regulation because they reduce the particpant's benefit an thereby reduce the benefit of all beneficiaries. Bailey v. New Oreleans Steamship Association, 100 F3d 28 (8th Cir 1996) adopts the position that a QDRO can reach a survivor benefit. Of interest to "vesting" fans, the court held that the first wife "vested" in the pension benefits during the marriage.

I know that is what the Fifth Circuit said. I maintain that the Fifth Circuit is wrong, although particular circumstances may well justify denial to a tardy alternate payee, consistent with the 9th Circuit Tise decision. The "vesting" of a surviving spouse is not a "vesting" that I find in ERISA. I am more inclined to think that ERISA respects community property and other property rights under state law to the extent identified under domestic relations law, and would preserve a community property or other interest beyond the death of the participant unless other ERISA provisions are clearly to the contrary or the facts warrant a different result. The point of QDRO law was to accommodate state domestic relations law and marital property interests protected by state law within the regime of the anti-assignment and preemption provisions of ERISA. The bright line approach of the Fifth Circuit simplifies, but it does not follow that principle. The statute says "benefits payable with respect to a participant" not "payable to a participant." I cited a regulation that at least implies that a QDRO can invade the benefit of the surviving spouse. You have not explained it away, unless your first sentence is meant to be an explanation. You have have mentioned regulations that are more limiting than the statute, but have not identified them. I continue to seek an explanation that is well founded in the statute and based on rigorous analysis. The remarriage/death situation is messy in may ways, but that does not justify a ham fisted solution.

Does a named death beneficiary in a defined contribution plan become "vested" in the account balance in the same way when the particpant dies? By the way, how do you explain Treas. Reg. section 1.401(a)-20 Q&A 25(b)(3)?

I disagree with your conclusion that the spouse has a "vested" benefit. The spouse has only a derivative of the participant's benefit. That is what the Fifth Circuit got wrong. But I agreee that there are some very thorny issues that may cause the state court not to proceed. What if the spouse still has some item in the garage that the state court awarded to the former spouse, or the proceeeds of that item? I think the state court would be willing to allow enforcement of its award notwithstanding that the spouse might resist.

Defined benefit plans are different. Although there is the remote possibility of an unconventional design in another plan, this plan is paying benefits in the form of a joint and survivor annuity. When you get to the survivior, no further designations are allowed. The survivor's life defines the benefits. My answer mixes two concepts, and one could argue about that. Because the benefit is in pay status, I would not allow a life benefit for the alternate payee. The alternate payee can only get some portion of the stream of payments, not a life benefit based on the life of the alternate payee. Then I switch concepts and assert that if either there had been no divorce or if the benefit had been divided before payments started, the wife/alternate payee could not pass anything to a beneficiary. The form of benefit, by design, limits the benefit to the wife/alternate payee, not some futher sucession of persons. In other words the joint and survivor annuity is designed to take care of the participant and the participant's wife, and no one else. Some plans will allow a contingent beneficiary in place of a wife, but they do not allow a succession when the benefit is a life benefit (life and term certain is another matter -- a series of beneficiaries is possible to exhaust the term certain, but most of the plans look to the estate of the designated beneficiary rather than a beneficiary designated by a beneficiary designated by a beneficiary). The alternate payee should not be allowed to extend the benefit beyond the alternate payee's life because the form of benefit is not designed for that purpose -- it is not an estate planning vehicle; it is a spouse support vehicle. You could argue that once we are lookintg at a stream of payments, it is more like a defined contribution plan. While there is a life factor, it is not the life of the alternate payee that determines the potential aggregate payments. Therefore, the alternate payee should be able to be awarded the alternate payee's "share" of the the payments and that share should not be defeated by the alternate payee's death. Either the alternate payee's beneficiary or the alternate payee's estate should get the alternate payee's full due. The subsequent spouse should not get more than the subsequent spouse share of the benefits, as expressed in the survivor annuity after taking away the alternate payee's portion. ERISA says that alternate payees are treated as beneficiaries. So unless the plan allows beneficiaries to designate beneficiaries, the alternate payee has no inherent right to do so. Once the survivor annuity is locked I cannot imagine that the plan has been designed to allow any sort of reformation or has specific provisions from which one could reasonably infer an ability to inject strange beneficiaries. This whole discussion jumps over the important question of how a court state court will decide what is to be awared to the alternate payee. It is tempting to adopt the rules of the Fourth and Fifth Circuits to preclude the difficulties at the expense of the alternate payee who created the mess by waiting too long to notify the plan. I don't know how the state court will proceed, but it will depend in part on on the original division of the retirement benefit. Will the original award be carried through simply by mathematical adjustment to take into account the current situation? Or is the original decision compromised too much by the passing of time and concern for the ability of the adverse subsequent spouse to be heard?

Search using the terms "hardship" and "loan" and you will find some relevant discussions.

This dilemma was addressed in the ENRON case. I believe that the court ruled that the restrictions imposed by the securities laws did not excuse a fiduiciary from taking appropriate action, and discussed options for appropriate action.

You could send a message through the message function of the board, but I probably would not respond and I probably cannot help you with actuarial fine points anyway. To paraphrase what Warren Beatty said about Madonna, if I can't pontificate in public, what would be the point?

AP cannot designate a beneficiary, whether or not the beneficiary could be an AP. The order could designate another alternate payee, but who would that be? It may be possible that under state domestic relations law the the plan participant could be ordered to pay support to another person (e.g. a disabled adult child), but I would not expect that to happen. In certain jurisdictions the federal courts have ruled (incorrectly) that the first spouse cannot get anything from the surviving spouses's payments.