QDROphile

Even if the participant has a reason that is allowed under the regulations, a change will not be allowed if the plan document does not allow the change. The cafeteria plan is not required to be a flexible as the law. Among other reasons for this, the plan that provides the benefit might not allow the change. I would refer to the plan document rather than the SPD.

What does the law firm say?

I have no quarrel with Kirk Maldonado's approach or the reasons for it, and I have set up QDRO procedures along those lines for various clients. However, if a plan takes this approach it needs detailed QDRO procedures to set the standards, and timely and thoughtful attention to those details in execution. Both of those elements are missing from most plans. I offer one more thought in support of the more active approach. The plan does not need receive an order that looks like it could be a QDRO in order to push over into the clear light of the statute. It only needs a domestic relations order. Then it can sit back and take a reasonable time to determine qualification while complying with the statutory requirements for protection, keeping in mind that an alternate payee is given a reasonable time to cure defects. It should be easy to inspire or threaten the alternate payee to come up with some sort of domestic relations order that meets the minimal standard. Belgarth: I think small employers need to hire $50,000+ per year instituitional fiduciaries to administer their plans. ;-) While there is less reason to have a separate plan administrator when the economic interests of the employer and all the owners/officers are essentially identical, it is still a good mental discipline to have a formal separation to remind the persons involved that they are dealing with separate functions that are subject to different standards and that the interests of the employer can be different than the interests of the plan. It is helpful to have people remember to take the company hat off when dealing with plan administration. It can also be helpful when jousting with the DOL.

A committee of persons who are capable of understanding and doing the job. A typical configuration is the head of HR, the CFO and another person to have an odd number.

Yes.

Receipt of an order requires attention and action with respect to distributions thereafter. The statute says that, so you don't need to resort to legislative history for support, and consistent court decisions are no surprise. Other than Schoonmaker v. Employees Savings Plan of Amoco Corp., 987 F2d 410 (7th Cir. 1993), what court decisions speak to the issue of orders "coming in"? The legislative history quoted in the article says that the administrator "may" act on an anticipated order, not that the administrator must. The Schoonmaker decision makes it risky for a plan administrator to take elective action, especially if the QDRO procedures simply parrot the statute. If a plan adminstrator wants to go out on a limb in anticipation of receipt of an order, the QDRO procedures had better have provisions that permit it and set standards. The article does not say that a plan administrator is responsible for taking extraordinary action in anticipation of receipt of an order, and cautions about Schoonmaker. I am not aware of any solid authority that says a plan administrator has to take into account foreshadowing of possible future receipt of a domestic relations order unless the plan terms or the written QDRO procedures provide otherwise, and some do. Schoonmaker is solid authority that says the plan administrator has no duty before receipt of an order, absent a formal written policy to do otherwise.

The plan has nothing to worry about if it has proper written QDRO procedures and the procedures were followed. The employer has nothing to do with anything unless its advisors are so incompetent that the employer is the plan administrator or other active fiduciary with responsibility for the matter. Evidently that is the case if the employer approved the hardship distribution. Shame. "Proper written QDRO procedures" assumes more than most plans have. The Department of Labor takes the position that the plan administrator or the employer should have taken precautionary action relative to the distribution if it knew or had reason to believe that a domestic relations order was coming. The DOL's position is contrary to law if the plan has proper QDRO procedures, and is probably contrary to law in any event. To illustrate how impractical the DOL position is, would knowledge of the divorce, by itself, be reason to believe an order is coming? How long does one have to believe in a theoretical possibility before the belief can be abandoned?

Contributions to a regular IRA are not always deductible. Read Publication 590 for details.

Somebody needs to be fired.

You are entitled to get more documents than are described above, but you probably would be wasting your time to look at them. The stick is that if the documents are not furnished upon written request within 30 days, a $110 per day penalty can apply.

I would take another look at the plan document. The plan document will refer to and define compensation. Unless a special definition applies (e.g. for purposes of the nonelective contribution, compensation for the 2004 plan year does not include amounts payable on or before June 30), the general definition applies and most general defintions cover the entire year. I doubt section 401(a)(17) has any efect on interpretation unless it is included in some special plan term.

At least we can agree that statutes can be worded better. If the intent was to exempt all distributions to a disabled person, then it should say so, rather than "attributable." If I were to argue your side, I guess you could give meaning to the statute in the situation where the person started installments for a fixed period after termination, then became disabled. The distribution would in no way be attributable to the disability, and would be subject to the penalty. But then what would you do with banking options? Sporadic distributions before disability would be taxable and those afterward would not? Under your interpretation, if a disabled person needs money, then the distribution is "attributable." I can't prove you wrong.

Let me turn the tables on you. What would link distributions to the disability if the participant took a first distribution three years after becoming disabled and then sporadically took distributions? The statutue does not say distributions while disabled are not subject to the tax. I doubt that the intent was to have a scheme of substantiation like spending accounts or hardship distributions (i.e. proof that the disability caused the need for money). How do you give meaning to the words in the statute? I might be less troubled by the distribution options that are in the plan document even if the start date is later than the disability date. But the bank approach does not seem to connect.

And what would corroborate?

The plan administrator cannot have discretion over distributions.

You can amend the plan to allow particpants to use it like a one-way bank. If the participant uses it like a bank, one wonders if the distribution or distributions would be attributable to disability under section 72(t).

Compensation to employees is generally deductible and payment of medical insurance premiums and medical expenses of employees is generally deductible if the applicable rules are followed. Under a cafetera plan, amounts that an employee elects to recieve in cash are treated as compensation and amounts that employees choose not to receive are treated as employer payments of medical premiums or expenses. If you are asking if an employer can get a deduction for both the amount offered as compensation (but not received by the employee in cash) and the amount paid for premiums or medical expenses (because the employee did not receive the amount in cash), the answer is negative. There are other threads on this board that discuss various schemes for double deductions. They don't work.

The posted claims procedures have some rather dangerous provisions and are unhelpful in providing guidance on common issues to the plan administrator or persons who are drafting orders. See, e.g. Dahlgren v. U.S. West Direct, 12 EBC 2275 (D Or 1990).

A large company would probably find it worthwhile to have its legal counsel be involved in establishing or affecting corporate governance. Among other things, someone should consider who is covered by applicable insurance for various functions and how to implement and document the delegation of authority.

Not so fast on the guilt button. We have a ruling that confirms that a match can be a money purchase plan contribution.

It does not work for elective deferrrals unless the participant has attained age 59 1/2.

jsb is correct. See the first sentence in my first response. If you have the proper alignment of tax treatment with definitions, you can have a broader definition of eligibility for benefits than what is eligible for tax favored benefits. When you get mistaken tax treatment or mismatches between what the plan says and what it does, then you have trouble.

Internal Revenue Code sections 105, 106 and 125 and related regulations. ERISA sections 102 and 402 and ERISA regulation section 2520.102-3.

If your plan definition of what or who is eligible is broader than what is eligible under the tax code, amounts that are ineligible for the favorable treatment under the tax code and that are paid under ther terms of the plan will be be taxable. Under certain circumstances, the bad definition could threaten the favorable treatment of other amounts because the document would be noncompliant. If your document has a broader definition than the tax code and by operation you refuse to pay amounts that are allowed by the document but not the tax code, you have ERIAS/contract problems becuase the plan has to pay what the plan says it will pay. So your plan document needs to say what the plan will do, and if your plan will pay ineligible amounts (e.g. benefits for ineligible persons), you will have problems. The SPD must fairly describe material terms of the plan. Eligibility is a material term. If there are limits on eligibility, the SPD should describe them. You would want to do so anyway as a practical matter to avoid disappointment even if the omission did not have legal consequences.

It appears that employees have a choice between medical benefits under the HDHP and cash. That is what section 125 is all about. If you don't offer the arrangement under a section 125 plan, all persons who elect the HDHP will have taxable income to the extent of the amount available if they had not chosen the HDHP coverage, even though they don't get any cash. Of course, all persons who choose no HDHP will be taxed on the cash they receive.