QDROphile

What do you do about the plan provsion, arising out of the ESOP requirments, that says the participants have the right to receive a distribution of company stock?

You need to look at the terms of the plan in light of the definition of "pension plan" under section 2 of ERISA. You also need to consider if the arrangement is a "plan" under ERISA. A single person contract is probably not an ERISA plan, but there are court cases to the contrary. If the arrangement is an ERISA pension plan, it might be exempt from most ERISA requirements as a "top hat" plan. You should also consider compliance with securities laws.

The current income in lieu of match statement is troubling apart from your focus on the election issue. Seems like the irrevocable election would not be an election not to receive a match, even if you could craft it that way. There is more going on beneath the surface that is connected with the election.

There is no exception to prohibited transaction rules against use of IRA asssets for your personal benefit, tangible or intangible. Any time you have an ownership interest in you employer, it raises the prospect that the ownership gets you some goody beyond the investment return to your IRA. The rule is not the employee of the plan sponsor rule, it is the fiduciary of the account rule. You are a fiduciary of your IRA if you are directing the investments.

The highlighted passage applies to the plan that is making the distribution, not the plan that would be receiving the rollover. The primary issue for the recipient plan is interpretation of plan terms. The loan is an asset, in some ways just like cash. But is the recipient prepared to deal with the asset? For example. will the recipient require payroll deduction to service the loan or will it accept other forms of payment? What about the payment that is now overdue because of the transition? On what basis does it impose those conditions or requirments?

The plan adminstrator of the 401(a) plan can give you a document that explains your rollover options and has forms for instructions to the administrator about the rollover. The document is often called a "tax notice." You need to ask the plan administrator of the 401(k) plan if the rollover from the 401(a) plan will be accepted and what the administrator will require. A 401(k) plan is a 401(a) plan.

While it is true that the employer credit would not be an event that would allow a particpant to change a salary reduction election, that has no bearing on whether or not the employer can add or enhance a benefit mid-year. What makes you think an employer cannot increase an employer credit to the FSA or amend an FSA to provide for an employer credit? Another question. What is the employer trying to do? In a perfect world, everyone would have predicted their correct reimbursement needs and elected that amount, subject to the election limit. Now the employer comes around mid-year and throws another $400 into the account. It is $400 the participant does not need unless the election limit was below the participant's needs or the participant was unable to afford to fund the needed amount. The gesture could backfire. It could reward the ants over the grasshoppers.

You don't have to disagree. I did not commit myself. I stated that plans that allow APs to designate beneficiaries usually have a default. That default is usually something like a priority for spouse, children and then estate. Sometimes it cuts immediately to the estate. Even if the plan does not have default terms, the fiduciary should consider that result. The default of reversion is usually found when the plan does not allow APs to designate a beneficiary. In any event, the message is the disappearance of benefits is the last thing that should happen, and only if the plan is clearly designed that way.

That decision is aggressive and had better be backed up by something more than an absence of plan language or QDRO language to the contrary. It is customary to resolve questions in favor of paying accrued benefits, not making them disappear. For example, if the plan did not provide for a prescribed result or a clear priority among the three options, a fiduciary would have to give very serious consideration to reversion to the participant over forfeiture. A plan that allows an alternate payee to designate a beneficiary also usually provides for a default beneficiary, just as it would for a participant. DB plans don't have to allow APs to designate a beneficiary for pre-distribution death, but the usual consequence is reversion to the particpant.

Are you asking about an intent to elect a joint and 100% survivor annuity for a spouse or are you asking about an intent to award 100% of the participant's benefit to a former spouse alterrnate payee? It sounds like the former, but you are on the QDRO message board and you use the term "AP."

The direct rollover is still a rollover and not a transfer. Even though the direct rollover looks like a transfer and may in fact not involve having the participant "touch" the assets, it must still follow a distribution. The direct rollover rules are merely an artifice related to withholding. If a loan is distributed, the participant recieves or controls the loan. The direct rollover is not a transaction between the sending plan and the receiving plan, unlike when your mortgage lender sells the loan to another mortgage lender. When a debtor receives the debtor's loan or effectively controls it, the loan is extinguished. The rules on plan loans as applied to particpant loans from their own accounts are an interesting combination of fabrication with lip service to principle. If there is anything left of principle to loans or rollovers, the loan cannot be rolled over directly or indirectly. The IRS has adopted a practical position based on fabrication and ignored principle. It is not the first time.

Agreed. The distribution or rollover provisions have to allow the distribution or rollover of the loan, either expressly or within some specified asset class other than cash. Also, the plan terms cannot preclude a rollover of the loan.

Sorry, I missed the asset aquisition fact. The Company B plan can accept direct rollover of loans from another qualified plan if the plan document provides for it. At least that is what the IRS says. The IRS is wrong, but no one cares. The Company A plan should provide for in-kind distributions, and many plans provide only for cash distributions.

Why can Company A plan participants roll over to Company B plan?

AndyH: The regulations prescribe the options and the number of hours per period. Neither 2080 hours per year nor a prorated portion of 2080 per period is on the list. In fact, all of the precribed numbers are greater than you would use if you used 2080 per year, so the standard mistaken convention understates the hours. That makes the standard mistake dangerous. I agree with Boilerburm that it will rarely make a difference to a participant. But if the plan is asked to demonstrate compliance because of an audit, a claim, or in due diligence for a merger or acquisition, it becomes a challenge.

As a general matter, your approach looks reasonable, but different circumstances may require different reactions. If it fits, section 414(p)(7) says you can pay the participant amounts that would not be paid to the alternate payee if the order were qualfied.

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.