QDROphile

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.

It is absolutely necessary "to approach legal" if you expect to get any benefits or compensation for incompetent legal work.

You are wise not to turn money over to the TPA. You did not go into details about what you meant by "turn over," but that is potentially the type of set aside that can cause compliance problems.

The employer has the obligation to pay claims in accordance with the plan terms. How it manages particular dollars is not prescribed and prudent use of employer resources depends on the circumstances. In fact, too much set aside can cause compliance problems. I gave you that last sentence so you can continue your tirade on a new angle, if you like.

So share the joke with all of us. Looks like a perfectly good answer to me. An FSA can be funded through a trust, but usually is not.

No reversal. Yes Form 1099 on the entire distribution. The amount she pays back to restore the unvested portion is after tax. She does not escape the 10%, but that is none of the plan's business.

If you are going to charge anything to the account, are you going to allocate the charge between the participant and the alternate payee? It seems to me that if you are going to charge, you need to figure out when and how you are going to charge, have a published warning (e.g. SPD) that you are going to charge, and have the details available in writing in advance, such as in the written QDRO procedures.

Nothing has changed for federal tax puposes. The marriage is irrelevant. Federal law does not recognize the marriage. The same sex spouse might be a dependent. Code section 152 has been rewritten and that has made a few changes, but not on the fundamental questions about dependency of unrelated persons. At least the relationship won't violate local law!

I assume you have read Field Assistance Bulletin 2003-3. I think you need a good disclosure foundation for charging expeneses to accounts.

30% of zero is zero.

What is your perspective? In other words, why do you care? If you are the plan administrator, you need only determine if the order is qualified and that you can understand the terms to administer it properly. An order can be qualified if it provides for an alternate payee to have an interest in future contributions. It is unusual, and you have to be careful that it makes sense and covers everything properly. For example, when is the alternate payee supposed to get a distribution and how does that relate to contributions that may be made after the distribution? Does the plan allow multiple distributions or only a single lump sum? If multiple distributions are possible, are you able to determine if the distributions are eligible rollover distributions when you may not know if the distribution perion will be more than 10 years?

Regardless of intent or characterizations, he could have violated the contribution limits. Compare to contributing amounts at the contribution limit for the year and then using the contributions to pay for the improvements. Were the improvements more valuable than the amount of contribution could buy? If so, the effective contribution to the assets of the plan were beyond the contribution limit. Now refine the calculation. In addition to the improvements, the plan used its actual contributions for the year for something else, so you don't really compare the theoretical contribution limt. You compare the theoretical limit minus the actual contribution. At least you don't also have an allocation problem in a one particpant plan. Intent and knowledge of the rules don't really mean much when the rules are not followed. Start educating this person wfor the proposition that the plan assets are not his. If he does not get that point, then start preparing him for lots of remedial expenses and penalties over time.

Could be a disguised contribution.

Generally I agree with the outcome you describe, except I have nothing to say about what the individual can do to get relief from the income reported on Form 1099. Taxation of the particpant is not the plan's concern. Proper reporting of distributions is the plan's concern. Compliance with the bankruptcy order is the plan's concern. I still go back to the term "default." Because the debt obligation is reformed, as long as the particpant makes payments on the loan under the reformed schedule, the loan is not in default. Once the payments fail to comply with section 72(p), for example because they fail to pay the loan completely within five years, there is a distribution for tax purposes. The particpant can go on paying the loan and the plan cannot accelerate the obligation. Watch out for basis in the plan because of the later payments. I am surprised that the particpant has not already had a deemed distribution. Usually loan payments are stayed upon filing of the bankruptcy and the loan fails to comply with the quarterly payment requirements before the debt is reorganized.

The changes to the debt payment obligation that can be required under the bankruptcy code can cause the loan to be treated as a deemed or offset distribution for tax purposes. You will not find any authority that says that the bankruptcy reorganization is restrained by 72(p) and you will not find any authority that gives relief from 72(p) because of a bankruptcy reorganization. Both statutory schemes can operate. The tax consequence to the borrower is unfortunate, but that does not mean one scheme has to yield to another. The unfortunate consequence to the borrower is an argument to have the loan treated differently in bankruptcy, but the bankruptcy courts are almost never swayed.

72(p) is absolute. Bankruptcy may be able do whatever it wants with the economic obligation of the borrower to the lender, but tax consequences can't be changed. Perhaps the word "default" is causing confusion.

Failure to follow plan terms will disqualify the plan.

Other employers might consider the tax consequences of providing benefits to persons who may not be dependents of the employee and the related administrative issues. Part of that consideration would be a close look at section 152©(3)(A) and the requirement that child is not a qualifying child in the YEAR the child attains age 19 unless a student and a student is not a qualifying child in the YEAR that the student attains age 24. The child might continue to be a dependent by meeting the requirements of a qualifying relative.

Nothing has changed that would make what you describe less questionable. The employer is taking a risk with this practice but there is an argument that it is permissible.

The heading to section 105(h) of the Internal Revenue Code includes the term "Self-Insured Medical Expense Reimbursement Plan" and that term is defined in the text of section 105(h). The heading also includes the term "Discriminatory" but I think reference to a 105(h) plan generally does not presume that the plan is discriminatory, but instead that is is self insured and subject to 105(h).