QDROphile

Read section 72(p) and the related regulations for taxation, section 4975 for prohibited transactions and then consider remedies for disqualification because the plan was not operated in accordance with its terms.

#1 either determines the the order to provide a "separate interest" or presents a problem or you are not telling us everything. I am a simple person. I don't see how you can determine the amount of payment for a "stream of payment " approach from what you have provided, hence your first question. #2 is consistent with #1 as a "separate interest." #3 is determined if #1 and #2 lead you to a separate interest. #5 shows that the term "separate interest" is not such a great term, but I will overlook that point of language. I don't think #5 is incompatible with "separate interest" because "separate interest" has no detailed intrinsic meaning. #6 needs to tell us more. The alternate payee automatically has post retirement survivorship protection under a "separate interest," but cannot have a form of benefit that is not provided under the plan or that could violate 401(a)(9). The old 401(a) (9) regulations were easy to work with. I am not sure I understand how to apply the current regulations. You are correct that the AP could always legally have the participant be the contingent annuitant. In general, it is not a good idea for plan to allow a "stream of payment" approach if the order is qualified before the participant starts benefits. If the plan adopted the right policy, it would simply the analysis.

I observed that the issue of who sponsored the SEP (LLP or the individual "consultant") could be a problem, but that is nothing compared to the mess if anyone provided services to the LLC other than the single individual.

Silly me. I would not have expected a real estate development firm to be able to conduct business without the efforts of the partners or employees. If you are the only person providing services to the firm, you don't have a big mess. You may have questions concerning who is the correct sponser of the SEP. Once another person gets into the picture, the correct characterization of your relationship with the firm and what you are paid from the firm gets more sensitive. Your consulting efforts may be treated for retirement plan purposes such that you and the firm's employees are treated as working for a single employer. Whether or not that happens or can be avoided depends on the particular circumstances and application of the rules is not simple. You need to know your status before you can design the optimal retirement arrangement or arrangements.

What are the other partners doing? For retirement plan purposes, partners are treated as employees under section 401© of the Internal Revenue Code. You could already have a big mess, cowboy.

How about writng the check to the escrow agent/title company? That should be standard practice when the payment is from a hardship distribution.

If you can't get this information from your broker, or you don't feel you can trust what you are told by your broker, you need to change institutions. Almost certainly you will pay, and pay, and pay.

Depends on all the circumstances. Community property states tend to be more formulaic and would tend to award an interest based only on the time of marriage. That would be the starting proposition in any case, but where it comes out depends to some degree on other things, including the interpretation of what was already ordered. A strict interpretation would be that the former spouse interest covers the accrual before the date of marriage, and some courts would not go back to rethink the issue. The court would probably approve anything you agree about. If you want to fight, you take your chances.

Until a domestic relations order is received by the plan, you have all the rights of a spouse and the former spouse has no rights. Unless a domestic relations order is qualified, the former spouse has no rights, except the right to try to cure any qualification defects in the domestic relations order within a reasonable time, which depends on the circumstances. Federal law does not impose an limits on timing of issuance or delivery of domestic relations orders. State law may limit the ability of a party to a divorce to obtain or modify orders after the proceeding closes. In certain jurisdictions, a domestic relations order may be ineffective with respect to the survivior benefit rights of a contingent annuitant under an annuity form of payment if the order is delivered to the plan after the payments start or after the plan participant dies. However, the payments to the participant while the participant is living can be divided even in those jurisdictions. In short, until the participant retires, your interest is in jeopardy. Once the participant retires, you may have have more protection, depending on the jurisdiction. Even if the former spouse obtains an interest under a QDRO, it would be unusual for an alternate payee to be awarded the entire interest or the entire survivor interest. I have seen QDROs that award the entire pre-retirement survivor interest. It is extremely unlikely to see an order that tries to award a survivorship interest in whatever interest is left to the participant after the normal benefit is split with the former spouse. If the benefit is split before retirement in some way between the participant and former spouse, the former spouse almost never gets any survivor interest in the portion of the benefit that remains for the participant. How benefits are split depends primarily on the divorce terms and state law.

Purchase of interest in the property from the plan is a transaction between the plan and a disqualified person. What is the exemption? Even if the son and the plan each bought a 1/2 interest from an unrelated seller, co-investments are dangerous. There is always a way to look at the transaction as a use of plan assets for the benefit of a disqualified person. Why didn't one or the other buy the the entire interest? How was the split decided? Who is getting some part of the deal that was otherwise out of reach? Who gave up something that was otherwise available? Some answer will suggest improper use of plan assets.

I disagree. Suppose son wants to buy the property, but can't cover the entire cost. Daddy Trustee steps in to cover half, thus enabling the transaction (or at least half of it) that otherwise would not have occurred. Plan assets have been used for the personal benefit (outside the plan) of a disqualified person. At best, one may have a facts and circumstances argument in defense.

Sounds like you are trying to be too clever by half.

It won't be subject to ERISA, but it will have to apply ERISA to itself if it incorporates ERISA by its terms. Then you have to look at the terms of ERISA that got actually incorporated. You may find a few paradoxes, such as the ERISA requirement to file Form 5500, but ERISA only requires filing of Form 5500 if the plan is subject to ERISA. One wonders if ERISA permits filing of Form 5500 if the plan is not sbject to ERISA. This should you you busy for a while. Or you can contemplate whether or not the adoption of that plan document by the employer is sufficient employer involvement to cause the plan to be subject to ERISA. I think that is a viable position because adopting an arrangement that that goes beyond being a mere conduit (by imposing ERISA terms) is much more involvement than necessary.

Since plans usually do not allow benefits to be reformed after the benefit starting date, I generally agree with Effen. But I can see an argument that the AP should get more or less than 50% of each payment while the participant is alive, depending on how one values the benefit now. The value of the death benefit that the AP will get (assuming survival) may be a reason why the AP should not get 50% of each payment otherwise scheduled to go to the participant. Perhaps the AP should get less than 50% if you are trying to redivide the value of the benefit to provide 50% of the value of the entire benefit to each while staying within the confines of the form of benefit in place.

A pre-REA domestic relations order may be given effect as a QDRO. How and whether that is done depends on the circumstances.

You may be thinking about what is commonly called a "blackout notice," which does not apply under your circumstances. Unless you try to understand that a 457(b) plan is fundamentally different form a 401(k) plan or 403(b) plan, you are going to find lots of things that seem wrong to you. The fact that you elcted to defer income does not make any difference. The money is not yours or even legally set aside for your benefit. Your employer made a promise to pay certain amounts at certain times. The employer is in control of how it manages its money in a way that you hope will allow it to live up to its promise.

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.