QDROphile

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.

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)?