QDROphile

Thank you for using "cite" and "site" properly.

The ERISA regulations specify response times under claims procedures. Section 2560.503-1.

There have been several cases in the last few years. I don't remember details, but none of them give a complete picture. One at hand is Smith v Smith and Dupont, (D. NJ 2003) Civil Action No. 99-5973. I got my copy form the Rutgers law library: http://lawlibrary.rutgers.edu/fed/html/ca99-5973-1.html . Also look at Hogan v Raytheon (ND Iowa 2001) No. C00-0026. That decision may have been appealed. I got my copy from the court's website: www.iand.uscourts.gov. Neither of those cases have a subsequent spouse.

1. If the property settlement document is a domestic relations order, the plan had an obligation to acknowledge receipt and determine qualification within a reasonable time. If it did not, the plan is probably on the hook for the consequences of failure of timely response (disappearance of the would-be alternate poayee) and probably has the duty to find the AP. Because of this complication, the time frame for dealing with the situation is not as simple as literal compliance with the 18 month rule (and be careful, there is a lot of confusion about how that rule works). The AP must be given a reasonable time to cure qualification defects. Because of the passage of time, "reasonable" may be quite a while. If the property settlement agreement is not a domestic relations order, the outcome depends on the plan's procedures for dealing with notice of potential interest of a former spouse. It would be nice if the written QDRO procedures said that receipt of anything but a domestic relations order has no effect. The plan would still be at odds with the DOL, but the DOL is at odds with the law. However, I assume that plan had inadequate procedures for the situation, so you are left with uncertainty about the effect of receipt of the property settlement. In either event, the plan ought to engage competent legal counsel for this one if it does not want to pay both the participant and former spouse. 2. If the plan timely followed it notice and determination obligations, the plan does not have to worry about AWOL alternate payees. If the qualification defect is not cured within a reasonable period, the order is disqualified and the alternate payee has no interest. If the alternate payee gets religion after the distribution, the common law rule of "tough" applies. The AP will have to be consoled with a malpractice action aginst the lawyer. However, if the plan did not have exemplary response behavior, see number 1. Get competent legal counsel anyway.

Let's put it in more dramatic terms. It is either stupid or arrogant to design or administer a plan to have the participant choose the form of death benefit except in connection with the benefit that is payble to the participant. I suspect the administrator is misinterpreting the plan.

No, you need to either find a way to count actual hours or you need to amend the plan document to provide for counting hours of the salaried employees by one of the allowable equivalency methods. See ERISA reg. section 2530-200b-3(a) and ©. Note that the standard payroll practice of crediting 2080 hours per year (pro-rated) is not acceptable. Most employers with prototype documents and salried employess violate the hours counting rules.

Nothwithstanding popular (and DOL) misconceptions, the statute and its counterpart in section 414(p) of the Internal Revenue Code is very narrow and is an exception to the broader rule that alternate payees are entitled to receive any form of benefit that a participant can receive (see the last sentence in Q&A 3-8 of the DOL QDRO book) unless you think section 206(d)(3)(J) trumps other provisions. The DOL seems to have forgotten about (J) when it wrote Q&A 3-8. Read (E) carefully in its entirety. First, it is a provision that says only that a DRO shall not be treated as failing to qualify if it requires the plan to pay benefits at earliest retirement age (as defined) even if the participant is not entitled to a distribution yet. It is an exception to the general rule that a plan can't make a plan pay a benefit that it is otherwise not designed to pay. Now, realizing that we are in an exceptional situation, we find that if the order takes advantage of the exception (early retirment age payment), it must limit itself to forms of benefit available under the plan other than a j&s with the subsequent spouse of the AP as the "s." It does not say that the plan can't ALLOW the AP to have a j&s with a subsequent spouse or anyone else (the plan simply can't disqualify if the conditions are met -- including no j&s for AP and subsequent spouse). It also does NOT say that, in other situations outside the exception, the DRO cannot provide for the AP to have a j&s form of benefit with a subsequent spouse or anyone else. Note that under the old 401(a)(9) rules, the AP could not have a j&s with anyone else (except the participant), so 401(a)(9) effectively created a rule that eveyone mistakenly attributed to ERISA and section 414(p) of the Code. I don't know what the 401(a)(9) rules provide now. If you do, please explain for us all. To respeond to your specific question, I don't think the words are limited to a QJSA, but the whole idea appears in an exceptional context that gives the DRO an unusual statutory right to violate plan distribution terms. It is also a statutory requirement that certain plans offer QJSA distributions, so the two may be related in concept. If so, the drafters did a bad job of getting the point across and I think you can read the statute in plan English/Actuary to conclude that it does not mean only QJSAs.

Ask the person that sold the ESOP to the company. As you say, it must be a common issue and therefore a responsible purveyor would have resolved the issue with the company before the company committed to the ESOP. I am sure that the tax deduction for the stock contribution was a selling point.

I missed the part of your question in the heading about payment ending to an alternate payee if the alternate payee remarries. That is a legitimate concern. The plan should have no responsibility to investigate or determine any facts or marital status concerning the alternate payee. I would disqualify the provision unless it is worded to be purely mechanical, e.g. the alternate payee loses her interest if the participant submits a copy of a marriage license that names the alternate payee and is dated after the date of the QDRO.

Sorry, I don't understand the problem. The order is merely stating that the alternate payee is not to be treated as the surviving spouse under provisions of law or the plan that give a surviving spouse some interest or benefit. The result would be the same if the order did not include that statement, unless the AP remains the spouse of the participant. The person who drafted the order put it in because it is possible to give a former spouse AP some of the rights or interest of a suviving spouse and the statement negates any implication. Are you concerned that they might remarry? What is it that troubles you?

Gee, Blinky, I was trying to be discreet and civilized for a change. But you are right.

Get a decent plan document. That will take care of the problem.

It is so terribly bothersome, expensive and messy to to comply with the law. Who even wants to hear about it?

I don't know the answer to your question. But more important, I don't know what difference it makes. A distribution from a traditional IRA is taxed at ordinary rates, so it does not matter what the basis is of the asset that is liquidated for distribution or distributed in kind. If the IRA has after tax amounts, the tax basis of a distribution is not determined by the cost of the assets that are liquidated for distribution or distributed in kind.

So you think it is better to dump investment responsibility on persons who are not capable of good investment decisions? The result is that the retirement benefits will be smaller than if the investments were managed properly. A company that has a retirment plan probably would like to see larger rather than smaller retirement benefits for its employees. Better that the plan take away participant direction altogether and have the fiduciaries be responsible for investing all the assets.

What does "cost value" mean and what effect does it have? If what you are talking about is basis (after tax amounts) in the qualified plan or the IRA, then I disagree with your premise that the market value of distributed securities has that direct connection with basis. Under certain circumstances there may be an indirect connection.

Everything about ESOPs is strange and artificial.

It can be done. The "increased benefits" relates to what the plan is willing to provide as a benefit. It has nothing to do with what part of it the AP gets.

Section 408(d)(6) of the Internal Revenue Code applies, not section 414(p) (QDROs). The divorce decree may be the document that is used to effect the assignment or it may be another. Same for QDROs.

You should consider if the plan is disqualified either because of failure to follow plan terms or indirectly by violating the proscription on in-service distributions.

If a deferral has to be charged to the bonus one way or another (separate election or application of current election) if the bonus is included in the definition of compensation, does the sam principle apply to all forms of income that may be included in a typically broad definition of compensation, including taxable income that is not paid in cash? Does the limitation on the source of the potential deferral have to be expressed in the plan document? If you exclude bonus (or another item) as a source of deferral, but include bonus as compensation for purposes of testing or limits, is that still a problem? In other words, can the plan require a participant to change the election on regular pay to effectively defer from the bonus amount?

The technique is useful for securing child support payments, too. The surprised tax planners must have been lacking imagination or understanding. In that respect, they may resemble the plan administrators who will resist orders of this sort. The orders have to be drafted correctly. In particular, they have to avoid requiring the plan to do something that the plan is not designed to do or else they will be disqualified under 414(p)(3)(a). For example, if the plan allows only lump sum distributions, the order cannot provide for the payment of amounts to the AP from time to time depending on circumstances. The orders also cannot make the plan administrator investigate or decide when payment is triggered.

Yes. The repayment amounts are after tax and create basis.

Yes.

Making a few assuptions, this situation is the crux of the problem with post-death QDROs. The general rule (which is not the rule in some jurisdictions) is that the divorce decree, before the death, gave the alternate payee the right to an interest under the plan. That interest survives death of the participant. If the participant dies before an interest was awarded, the former spouse is out of luck. However, the divorce decree, which is a domestic relations order, probably fails to qualify. The alternate payee is entitled to a reasonable opportunity to cure the qualfication defect, even after the participant's death. Now comes the fun part. According to some commentators on this Board, some state courts will not issue another order after tha participant's death, so the AP will not be able to cure. Do not pass GO. If the AP can pass GO, you have a difficult issue. The original divorce probably did not expressly award any of the DB death benefit. In many DB plans, only a surviving spouse will be able to get the death benefit. An AP can get all or part of the spouse death benefit if the order awards it to the AP. I think the award must be express and not implied from a general award of an interest under the plan. Remember that if the court did not award an interest to the AP before the participant's death, the AP gets nothing. Is that what happened with the death benefit? Is it OK to go back to court and get some or all of the death benefit that the court did not originally award before the death? Personally, I think not, and the AP's recourse is only a malpractice action against her lawyer. But we do not have solid authority on the subject, except in those jurisdictions that blindly shut the door at death. The plan will need legal advice because the issue is tricky and unsettled and the courts have split on some of the related key issues.