QDROphile

The plan must be adopted before it can become effective, but section 125 does not say how the employer must adopt. While action by the Board is conclusive, it is a matter of corporate governance, which involves agency principles. If the officer was indeed authorized, that should suffice. But if the officer was authorized, why did the Board "formally" adopt later? What do you mean by "authorized"?

When are people going to learn to ask rumor mongers to provide the information to support their propositions? How would you like to go on a snipe hunt?

Does the combined amount of the two checks exceed loan limits? If not, are you willing to treat the two checks as disbursement of proceeds of one loan (twice as big as initially requested, but evidently a size that the particpant wants)?

This response assumes that the salary reduction refund was effective. In other words the $500 refund "worked" under the cafeteria plan rules. I am not sure if the attempt worked. There are two $500 amounts. One $500 amount was a payroll refund. That means the employee had salary reduced by $4500. The $500 "refund" is taxable pay -- salary was not reduced by the original $5000. Of the orginal $5000, the employee includes $500 in income and $4500 is not included because of section 125. The other $500 is the amount of childcare assistance that the employer provided to its employee. That $500 is not taxable to the employee if it is provided under the employer's childcare assistance program that qualifies under section 129. You can argue either way, but I would argue that the $500 was not provided under the program because the terms of the program say that the employer would provide the $4500 elected by the employee. Therefore section 129 does not protect the employee from taxation. The employer provided $500 that is deductible as compensation and the employee got $500 of childcare benefits taxable as compensation. And all of this appears to have occurred in the same taxable year of the employee.

Plan terms often follow the rules of section 72 and a bad loan is a prohibited transaction. You could end up with disqualification because of failure to administer the plan in accordance with its terms.

Unless the employer is a government, the plan is unfunded, so there are no contributions in the same sense as a qualified plan. If the employer is a government, contributions can be made to the trust after the end of the year, subject plan terms, state law and Treasury Regulation section 1.457-8(a)(2).

Why do you care?

Thank you for providing the opportunity to claify my intemperate remarks. I was thinking mostly of 457(f) arrangements that do rely on noncompete for the substantial risk of forfeiture. I don't have an opinon about your question in other contexts. It would be interesting to hear arguments about whether or not the risk is or was intended to be a substantial risk. Will people change tune?

Most plans will not change the form of benefit or the beneficiaries once payment starts, no matter what. If the only concern is the survivor annuity, it should be OK without special action such as a QDRO. But it depends on the plan terms. It is remotely possible that a subsequent spouse and a subsequent QDRO could invade the survivior annuity, but that would require a surprising and probably incorrect ruling from a state court and a surprising and probably incorrect ruling from a federal court to sustain such a travesty.

Most noncompete provisions in support of forfeiture are abusive. You don't find them much in responsible "normal" section 83 situations because they are not supposed to be used much, as the regulations state. The IRS probably won't be very aggressive about going after them but I wish they would. A few hammer blows to scumbags would be very satisfying. If not for all of the abusive activity, promoted heavily by accounting and consulting firms, we would not have section 409A to vex us.

See Q&A 23 of Notice 2005-1, effective through 2005.

One of my favorites: distribution rules ("investment in the contract") for after-tax contributions and the special implications for loans.

Yes, a QDRO is different.

It is not simply a matter of the recipients of the cash paying taxes. If you don't do it through a cafeteria plan, everyone who has the choice of taxable income will be treated as receiving the amount as taxable income even if they choose the health benefits. The employees who take the health benefits will rightly be very unhappy about paying taxes on money they did not recieve. So make sure the arrangement becomes part of the cafeteria plan. I do not disagree with Steve72, but expert help is necessary if you are thinking along those lines.

Isn't that a choice between taxable income and nontaxable benefits? That can only be done through a cafeteria plan.

SoCalActuary- I completely disagree with your statement. A domestic relations order is a domestic relations order. Where in the applicable law does it say that the participant has to agree to it before the order can be determined to be qualified? Courts order a lot of things that the litigants don't all agree with. That is one of the main purposes of courts.

And why is the plan administrator questioning the validity under state domestic relations law? I can understand that the administrator might wonder if the order is issued under state domeatic relations law, because that is a valid qualification question. For example, if the order is issued under state probate law, it cannot be a QDRO. That is why I suggeted that the administrator be more demanding and less assuming about the 414(p) requirements. If the order recites that it is issued under state domestic relations law, end of story. If it recites that is is issued under statutes that are cited in the order, maybe is should go to "legal" for confirmation that the statutes are part of the state's domestic relations law. It might even be reasonable to assume that an order that provides for support of a spouse is under domestic relations law (but watch out for probate if someone is dead). If it is issued under state domestic relations law, the administrator should have no concern for whether or not the court had the authority to fashion or approve the particular terms. Once the administrator starts on that slippery slope, where does it stop? Should the administrator be worried about due process? The plan administrator does not get to wear black robes. By the way, the DOL has issued an advisory opinion, 92-17A, that says the administrator does not have to pry into state law. I would never argue against seeking assistance of competent legal counsel. Between the incompetence of the drafters and the deceptive appearance of simplicity of the law, most domestic realtions order need review by a lawyer.

Plan to plan transfer if the terms of both plans allow it.

Plan administrators are not required to question a domestic relations order with respect to state law aspects and it would be foolhardy in almost all instances to even think about it.

Start with your employer's 401(k) plan. Does it allow amounts to be rolled in from an IRA? The law allows it, with some limitation, but the plan does not have to accept rollovers. The summary plan description should say. If it does not, ask the plan administrator.

See ERISA section 3(1) and ERISA regulation section 2510.3-1.

One possibility is tha the plan will be treated as frozen, which will cause full vesting.

Nothing in 414(p) requires a divorce. However, you might be a bit more demanding about the terms of the order to assure that the requirments of 414(p) are met. Perhaps it is sloppy, but an order within or subsequent to a divorce can be presumed to involve marital property rights without specific terms to that effect.

Does the health plan allow the employee to elect to drop coverage mid year? If so, the employee can drop coverage. Then ask the same question about changing the salary reduction election under the 125 plan. Did something happen that allows the employee to change the election and is the change timely? It is possible, but unlikely, that the employee can drop the health coverage but be unable to change the salary reduction. It is unlikely that the employee can make a change under either plan just becuase the employee wants to make a change. Or are you asking about the consequences of allowing violations of the 125 plan terms and rules? If the terms of the plan are knowingly not enforced, then the IRS could treat the entire plan as not meeting the requirements of section 125, with adverse tax effects to everyone.

Tell us more about the successes. Gerlib describes a very high barrier to use of scrivener's error as a means to correct unintended terms. Since ERISA puts so much weight on written plan document terms, it seems that it would be even tougher under ERISA. Before EPCRS we often relied on scrivener's error because we had no viable alternative, but now EPCRS speaks to reforming the document to match what the plan did (or intended?). Does that mean EPCRS is the final word and the only means for dealing with a document mistake that is not plainly erroneous on its face? If EPCRS is the only means, it does not seem that restoring less favorable terms will be treated kindly.