QDROphile

If you are considering strategy, and trying to make sense of express claims that seem incongruous (with the facts or the law) remember that the plaintiffs have to frame their claim as a fiduciary breach in order to have coverage under the fiduciary insurance policy and possibly under the corporate D&O policy. It is quite possible the the parties were in discussion about settlement even before the complaint was filed, and both were interested in the insurance pot of money. The prosecution of the claim may have been affected by the testing or refining of different theories to make sure the maximum amount of insurance money was available while soothing some egos.

Does it matter if that "hold" has been triggered under the terms of the QDRO procedures (or plan terms, although not likely to be added there) before the action to amend has been taken?

The plan must follow its QDRO procedures and plan terms even if ill-informed and set standards beyond what the statute requires.

Unless the plan has bad QDRO procedures or bad advisers, the plan is blind to a divorce and needs to take no action out of the ordinary, including proceeding with distributions on termination, until the plan receives a domestic relations order. Finish the distribution and keep quiet and lay low. Don’t seek trouble. Don’t believe the DOL QDRO book.

Thank you for presenting this case. It is fascinating in its parallel to the scare example that Fred Reisch offered when the 404(c) regulations first came out: unsophisticated wary participants on their own would choose the safe money market fund with almost no return over along period and therefore miss a lot of the benefit of a defined contribution plan. He suggested that 404(c) would not (should not? Fred was very sure of his opinions.) protect the fiduciaries. He made his scare story more scary (and sexist) by having the even more unsophisticated victim widow of the unsophisticated participant be the claimant. Apart from the irony, the overlapping point is that the “conservative“ strategy is not prudent for a retirement plan, whether exercised by a fiduciary or by disregard on the part of the fiduciary. I am too lazy to do the work that Bird did, and research the details and evaluate the investment policy and its formulation. From the outside perspective of an uninformed and ignorant critic, with only an inadequate summary, I would say that the fiduciary did not act in good faith in comporting with applicable standards for investment of retirement funds. When I see a case that finds liability (not just a willingness to settle — with how much of the insurer’s funds?) for maintaining a diversified 60/40 fund (a common benchmark for performance), then I will be impressed.

The rear view mirror is a preferred analytic.

Certain visas require that an employer pay the employee a certain (market) rate. Since a retirement contribution is compensation, an exclusion from the plan, especially based on a visa classification, may involve a violation of the compensation rate standards for the visa. This is not my field, so I am not sure that the H-2A visa is subject to the rules. I do not know if retirement plan compensation is part of the compensation under the rules. As noted in another message, these rules are beyond the ERISA realm.

I would say there are no accrued benefits after the effective date in that case. We could quibble about whether or not investment experience is an accrued benefit.

Being old (the document) does not get you a pass for benefits (or the portion thereof) accrued after the effective date.

Austin, I believe you. I had two different clients that adopted QDRO policies to disallow distributions to alternate payee until the participant was eligible. They had unusual experiences with sham divorces (the word got out) and their remedy was to lock up all alternate payees to take the temptation away. I am also aware of the phenomenon of credit junkies and plans that allow multiple loans. The money was borrowed as fast as repayments met the standard for borrowing again.

As Rather be Golfing points out, a (the?) solution is not through reliance on the state laws that deal with consent to payroll deduction and the interpretation and pre-emption arguments, although payroll deduction is a starting-point feature for loan administration works just fine until termination of employment or participant challenge to payment. The payroll deduction should be coupled with an assignment of pay, which is a creditor tool under state Uniform Commercial Codes, which can vary in application and requirements. And Rather Be Golfing is correct about the practical disadvantages.

BTW, your clients will not like better security arrangements, because they are not available off the shelf from the providers. They are not available from providers because they cannot administered with a push of a button, and the general market will not tolerate cost of administrative arrangements that cannot be mechanized.

Then a better security arrangement should be implemented.

No. It is simply a consent to have loan payments deducted from pay, without more to secure the loan. The general view is that state law allows the consents to be revoked. That is another question that has been addressed repeatedly in this forum.

Depends on how the payment provisions are set up. If the participant is still an employee and has merely a consent to withhold from pay to secure the loan (shame on the fiduciary), then there is an argument that the employee may cancel the consent. No comment at this time on the argument. The recipient of the statement has some choices to make about the response. If the recipient believes that the consent may be withdrawn and wishes to assist, the the recipient advises the employee and informs about the consequences of default. If the recipient does not wish to assist, then the recipient (1) refers the employee to the appropriate plan representative, or (2) has to come up with an evasive answer, such as, too bad. Or refer the participant to the SPD or whatever document explains the loan policy, including explanation of procedures (including withdrawal if consent?) and consequences of default. Because the naked payroll deduction represents most arrangements, I am not going to bother with other scenarios unless you ask.

But don't get lost in the fraud forest because of the formal trees. One must have legitimate earned income as a base for qualified plan contributions. This is often addressed when children are involved with a parental desire to to provide for tax deferred savings for the children as part of wealth transfer and tax avoidance/evasion.

Are you sure that the earliest retirement age is not age 55 and 20, or so, years of service? The years of service requirement cannot be disregarded when looking for the age.

An individual can have an account in a plan and be a beneficiary. Beneficiaries may have different rights and be subject to different requirements than participants.

Sure. The plan administrator will not allow it on that theory. It would take a very well-advised and very accommodating plan administrator to facilitate a transfer even pursuant to a QDRO. When I say accommodating, I have in mind IRC 414(p)(3)(A), which any administrator can stand on to disqualify a domestic relations order that provides for such an extraordinary transaction. Plan administrators do not like (or understand) QDRO administration, so they generally keep it as simple as possible.

And this is not a trivial question, because IRC 414(p) (1) says that a QDRO can assign an interest in a participant's account. One position to take is that an alternate payee's account is a subaccount of a participant's account, so the QDRO addressing the AP's account applies to the participant's account.

I am fascinated by the statement that an alternate payee is treated as a participant. Is this mandated and supported by legal authority, or is it just a practical administrative stance taken by plan administrators? ERISA says an alternate payee is treated as a beneficiary.

Plan terms may cover the circumstances with respect to that plan’s treatment of deferral excess arising out of deferrals to two plans, so don’t overlook them.

Yes, but not what most people think.

I am confused by "one investment choice". If there is one investment fund, there is no choice. If that is a claim against a plan (fiduciary, actually), it loses. The question is not what the participant would have done, but whether or not the fiduciary acted prudently. Are you suggesting that the claim was along the lines of "the fiduciary acted imprudently with respect to this participant because the fiduciary did not take into account (in the fiduciary's decision with respect to investing the plan assets) the individual's circumstances'? That is the nut. But I assert that is not an element of the standard the fiduciary would be held to. ERISA was not designed for the current norm in 401(k) plans. ERISA was more inclined toward pension plans. With respect to defined contribution plans, ERISA envisioned a similar model for investing assets -- in a single fund. 404(c) was not the base, it is the exception.

When the 404(c) regulations finally came out long ago, Fred Reish came out and warned that, notwithstanding 404(c), he saw risk of liability in throwing unsophisticated participants to the dogs. Fred loved being out on the forefront, and being a contrarian assured attention, but I am totally with him in spirit -- it is irresponsible to force unsophisiticated persons into a responsibility that ERISA requires of (essentially) a professional, with respect to one of the greatest sources of wealth they will ever have. Employers have an interest in good performance so their employees have enough money to retire, rather than hang on too long (yes, a career is an antiquated notion). After the regs came all the handwringing and complexity and Illusion of providing adequate investment information (but not required education) to deal with the realization that many participants did not want, or even feared, the responsibility of managing money, and were paralyzed. Skip forward more years and know we have target-date funds and lifestyle funds and all sorts of things that essentially come back full circle with products that a participant effectively just chooses a money manager for them, and with very uncertain understanding of what they are doing. And add features, if you will, that provides investment advice (either mechanically or personally) to participants, that is not free. Experience has shown the weakness of the 404(c) approach. Can you point to any evidence that shows a fiduciary who acts responsibly and in good faith (stealing is no fair) has anything to worry about? Yeah, yeah, the young bucks will always complain about the old man's plan. I am immune to that while conceding it is a valid point, but not as sharp as the young bucks think.