QDROphile

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.

Other question about plan administrators and state law: I may be mssing the point because I don't see where "conflicts" enter into the relationship between plan administrators and state law. I don't know of any written material directly addressing the subject, but my view is that PAs need to steer clear of state law and have no role in speaking to either the participant or AP. Advisory Opinion 92-17A supports the idea that the PA is not responsible for state law matters. The PA does does not need to question a determination by a state authority on a matter of state law. A PA should stay out of any area for which the PA is not responsible. Dahlgren v U.S. West Direct, 12 EBC 2275 (D Or 1990) shows what happens to PAs when they try to help (not a state law issue). PAs should be reactive to domestic realtions matters. The most they should do in advance of receipt of an order or draft order is hand out the written QDRO Procedures, and perhaps refer people to the DOL QDRO book. The incompetence of PAs with respect to state law (I don't use "incompetence" in a mean way; I am incompetent to advise about state law issues affecting property division despite understanding QDRO law) is one reason aginst preparation of model domestic realtions orders. Is the model compliant with state and local court rules? What about other states? An with respect to conflicts, the PA has to be neutral between participants and alternate payees. Unless a form is so general and vague as to defeat its practical purpose, the form suggests things that benefit one party or another unequally.

I agree that we should not forget ERISA, but my superficial reading of 205(b) (1) leads me to the conclusion that the carve out is the same. Advisory Opinion 2000-09A makes an interesting comment on 203(d)(3)(F), which seems to support limitation of its scope. But then the outcome supports your position on the larger question, with reference to 206(d)(3)(B). It also supports my position that you don't need 414(p)(5) or 203(d)(3)(F) in the first place in most DC plans. By the way, that interpretation of 203(d)(3)(B) is also an argument against Hopkins/ATT. The DOL has an uneven track record on QDRO issues, but I agree with this Advisory Opinion.

SEC Release No.33-6188. Have fun reading it.

I sometimes see orders on DC plans with the surviving spouse provision that you are considering. I don't freak out because I ignore them. I ignore them because I know what they are trying to do and it is unnecessary under the plans I advise (even in Hopkins jurisdictions), consistent with my first response to you. I understand your plight in a Hopkins jurisdiction, but I don't know if you come out any better with the language. Anyway, by its terms, 414(p)(5) won't apply to a lot of DC plans because the plans are not subject to 401(a)(11) or 417. The reason 414(p)(5) relates only to 401(a)(11) is that the trick is unnecessary for a DC plan, consistent with my first response to your post. But I digress and become circular. I can see how unschooled plan administrators would freak out, especially if the provisions are not properly drafted and many are not. Perhaps a very sophisticated and cranky plan administrator won't put up with the terms in a plan not subject to 401(a)(11). Would it help to state that the participant's death will not affect the AP's interest to the extent that the plan's surviving spouse benefit is sufficient to cover the amount awarded to the AP? I think that satisfies the requirement in 414(p)(5) for purposes of getting the protection (to the extent that 414(p)(5) applies) without actually calling the AP a surviving spouse, but that may be uncomfortable to a literalist. I also don't know if that language is any less freaky to a plan administrator. I wish I could help more. Your goal is worthy; the path is difficult and uncertain. If everyone would just do things my way we would all be better off. :-)

If the DRO was issued by the court before P's death and the plan did not distribute before it received the DRO, the the AP gets what the DRO provides if the DRO is otherwise qualified. P's demise is not a qualification defect. If the DRO is not qualified, the AP has a reasonable period to cure the defects, including amendment of the order if the state court will allow an amendment after P's death. Same answer to all variations of the question. Courts in some jurisdictions may disagree. I recall that you and I disagree about ATT/Hopkins. However, if the plan document or the written QDRO procedures provide for another way to deal with any situation, the documents might prevail. I don't know why the design would be otherwise except for a misguided general notion about timing of death, perhaps based on confusion with typical defined benefit plan design and concepts.

Please explain the logic of trying to collect only $45 of $100 if you are going to bother to try to collect at all.

To me this sounds like you are trying to set different profit sharing amounts for each partner based on the partner's choice of amount for each year. What happens if an auditor asks each partner how that partner's profit sharing allocation was determined. If the partner were truthful, the answer would be that the partner decided how much the partner wanted to defer that year up to the statutory limit, and the only thing that might change that number is that all the inidvidual partner numbers had to be reconciled for testing purposes (and I bet that none of the numbers would be adjusted upward). The greater the profit sharing contribution, the smaller the current compensation. Does this smell like a CODA? I doubt that you are using 402(g) as the statutory limit. Do you think you have any professional responsibility to tell your clients that this is not within the spirit of the law, even if you think you can get away with it for any number of reasons?

Sounds like Mr. Owner or the bank can hire a lawyer to advise on this issue.

You could choose to disqualify the order because it is ambiguous. You could qualify it and interpret it any reasonable way you wish. If you choose the latter, you should state in the notice of qualification that the determination of qualification is subject to the interpretation and then describe very clearly and carefully how you interpret the order. It would be best to use actual numbers to show the effect of the interpretation. Make sure you send copies to the lawyers. I am assuming you have procedures in place to delay implementation for a reasonable period so either party can object to the interpretation. The ability to object and correct your "mistake" is the key to the more aggressive approach to qualification. If either objects, but they are in dispute over the "real" meaning, then you simply disqualify and let them work it out in state court. That is why the qualification is conditioned on your interpretation. If you are wrong and can't comfortably correct yourself, they are back to the disqualification that you could have imposed from the beginning. One possible interpretation is that you adjust for neither earnings nor losses. The dollar amoount is simply brought forward. The problem with that interpretation is that if they wanted a set dollar amount without any adjustment, they would not need to say anything about the "Determination Date." But lawyers are stuck on words and forms, especially when they don't know what they are doing (as shown in your order), so don't give them too much credit for sophisticated drafting. Make susre you are behaving consistently with the plan document and the plan's written QDRO procedures, and don't rely on the Message Boards for advice.

I write them. I am sure that your law firm would like to consider suggestions for improvement of plan documents. I like constructive observations and my documents benefit from them over time. Start with "Your documents suck" to put them into a receptive frame of mind.

Well, JanetM, my plan documents directly address distributions after rehire, both defined benefit plans and defined contribution plans.

Yes, but check the regulations under 401(a)(4) relating to imputed service.

What about 403(b)(12)(A)(ii)?

OK if you can handle the accounting properly to meet the requirements of the order. Setting up a subaccount is usually a lot cleaner and is easier to explain if you ever have to defend.

The ERISA 404© regulations require disclosure to participants if they do not get to exercise shareholder rights such as voting. The requirement applies to all stock not covered by the special rules applicable to employer securities. Most mutual funds are included under this requirement. The Department of Labor maintains that it is a breach of fiduciary duty for a fiduciary who has voting power to fail to vote in the best interests of plan participants.

Plan administrators should never sign the orders, even if they like them. The notice of qualification can disclaim any garbage that is in the order. That allows the plan administrator to qualify the order rather than disqualify over unimportant matters and prolong the painful process. On the other hand, I can see some pleasure in disquailfication to punish the lawyer who drafted the offensive order. But why hurt everyone? Plan administrators should stipulate to things only if they are involved in the proceedings as a party. I hope that never happens to you.

Now I know how to get attention. Back to the point. I favor plan provisions that prevent a distribution after rehire until subsequent termination. Blinky suggested a way to that result via interpretation of plan terms that are inadequate, or otherwise suck. Special attention is required if the participant has started distributions before rehire in the form of installments.

Your plan document sucks if it does not address this issue.

Look at section 414(p)(3)© of the Internal Revenue Code.