QDROphile

Why does it matter in a 401(k) plan? Is the contribution from mid year on really in excess of the compensation from mid year on?

I think you should be careful about sticking your nose into John's business, even if his lawyer is an ass. No good deed goes unpunished. Did someone ask you for infomation relating to QDROs? If so, there is no harm in referring people to government publications without further comment on the value or validity of the publication. Follow Harwood's example.

Lots of confusion here. You need to get help on QDRO administration generally. I will adress only one point. The 18 month period is usually not an issue. It applies only to preserve amounts that would otherwise be paid to someone else pending a determination of qualification. A simple example: After the order is received, the participant terminates employment and is entitiled to a distribution. The participant asks for a lump sum distribution. The plan administrator has to evaluate how much the AP would get if the order is qualifed (which can be tricky, because that determination may be part of the reason for the delay in the first place) and hold back that amount from payment to the participant. The 18 month period starts then because the alternate payee would have received a distribution at the time of the distribution to the participant if the order had been determined at that time to be qualified. When the determination is made later, the amount held back is paid according to the determination. The 18 months is NOT a lot of things, including the measure of a "reasonable period" under IRC section 414(p)(6)(A)(ii).

The 401(a)(17) limit effectively says that you cannot take into account amounts in excess of the limit to allocate contributions. The regulations also require proration for periods of less than one year. Workin from those principles (not necesarily perfect application), I start from the proposition that you would prorate $200,000 to fit your compensation periods. Any amount in excess of the prorated amount for the period would be disregarded. That would apply first to the deferral election for the period and then to the match. Example: 26 periods with a limit of $7692 per period. If I elect deferral at a 4% rate, my deferral for the period is $308 and the match is then figured on that deferral amount and compensation of $7692. But $308 times 26 only gets me to $8008 rather than $12,000 so I need to elect more than 4% to get me to the maximum deferral for the year. Your pattern violates my proposition, so I would have to think much harder than I I am able right now if I were to try to give you an answer other than the system used by the TPA was faulty from the beginning. I am not saying that the system was faulty. I simply am not trying to apply what actually happened when what happened did not fit a design that I can understand and support. Perhaps other designs could work. I also think that pay period by pay period matches without an annual true up are rife with problems that people don't anticipate and I never recommend them. You have illustrated yet anouther way that the arrangement might result in an unsuspecting participant inadvertently failing to get the maximum match allowed by law despite making the maximum deferral.

You can provide for in service distributions of the profit sharing amounts in accordance with the rules for profit sharing plans, disregarding the special rules for elective deferrals under section 401(k). We have some guidance about the acceptable standards and you appear to be familiar with the guidance (e.g. the 2 year seasoning rule). I have seen age 40 approved by determination letter, but I would be uncomfortable with an attempt to get around the standard 2 year seasoning rule with the alternative of age 25 or or the alternative of vesting. If vesting does not occur until after 2 years, that would probably work, but special accelerated vesting is too aggressive for me. You could try something aggressive and see if you can get a letter. You are trying awfully hard to accomplish what seems to be an unimportant goal.

Not at the level of sophistication that is latent in the question. That is why I invited some consideration of what the question is really about. If someone has a simplistic concern that a participant can receive more pay than the 401(a) (17) limit and yet contributions don't stop at that point in the year, I don't want to talk about it and other threads cover the general point. If the question really is about the fine points of the period-by-period calculation, then more information would be very helpful to focus the discussion. That information includes what limit, if any is placed on the deferrral for the period and how it is calculated. By the way, I think there is an interesting question here and I don't think there is any authority to resolve the possible answers.

I assume that the payment arrangement is provided for under the plan and the borrower has been complying with it correctly. In other words, the only mistake is that the funds were not delivered to the trust.

Are you asking about a provision that allows the participants to elect a distribution or a provision that requires the amounts to be distributed?

All the more reason that the borrower is not in default.

I did not check, but think the Department of Labor recently asserted that loan payments are plan assets in the same way that elective deferrals are plan assets. That is good news for the participant because the loan is not in default, or at least you did not say the amounts held by the employer were insufficient to cover paymentsas they becuame due. I don't think that the failure of the trust to receive the assets would, by itself be a default. Some agency or trust theory could be used to conclude that the loan has been covered That is bad news for the employer, who has to deal with a prohibited transaction and possibly an operational error. But the employer was at fault, so the employer should expect some unpleasant consequences.

Until we have some authority that protects plan fiduciaries who disclose, I am willing to flout the DOL infomal position. If the DOL has the courage of its convictions, it can issue a regulation rather than legislate by pamphlet. The DOL has a few queer and unconsiderd notions about QDROs, probably born out of a skewed sample space. I think the DOL mostly sees alternate payees (via complaint and request for assistance) and sees them in the context of plans that are misbehaving. That creates a bias and some blind spots. State law provides ample opportunity for an alternate payee to compel the participant to consent to the disclosure or to otherwise compel the plan to disclose. All it takes is a simple subpoena and the plan administrator is off the hook.

I was only thinking about the usual mistaken, but welcome, advice that everyone gets to set up their own SEPs and contribute as much as they want for themselves without regard for others. If there will be a legitimate plan, all the participating entities need to adopt it. Because of the SEP coverage rules, probably all of the entities with employees will need to adopt it, the sooner the better. Use of one adoption document is convenient and efficient.

The suggestion of separate SEPs for incorporated members of a partnership or LLC is almost always misguided. The affiliated service group rules usually make all of the separate legal entities into a single employer.

When are people going to get that the 401(a)(17) limit is a dollar limit and not a timing rule? We have been through this so many times on this Board that I am amazed to see intelligent and informed persons still trifling with the notion.

I don't understand your question. The regulation you cite is the SPD requirment concerning the claims procedures, whether for pension plans or welfare plans. Guidance for the substance of claims procedures is at ERISA reg section 2560.503-1. There is some uncertainty about whether the SPD regulations require the full articulation of the claims procedures be set forth in the SPD or in a document delivered with the SPD, or simply summarized (compare QDRO procedures, and see 2560.503-1(b)(2)). The safer course is be forthcoming with the entire written procedues in or with the SPD. The regulations do not actually say the all of the claims procedure must be in writing (again, compare QDRO procedures).

I think you best addressed the more imporatant big picture question. What is it about those accounts that motivates efforts to get rid of them? And what about the effects on morale?

I think you are concerned about an issue that is a false issue relating to the timing of compensation rather than the amount of compensation. However, you may be asking a more sophisticated question and not giving enough facts about plan design with respect to limits on deferrals. Read other messages on this subject on these Message Boards and if they don't address your concerns, ask your question again with the relevant plan information. You will know what is relevant once you understand the basics of the false issue from the other messages.

asire2002: How do you read Treas. Reg. section 1.411(a)-(11)(e) to allow what you propose?

If you keep the 401(k) plan, you can't force participants to take the account funds until retirement age. See Treas Reg section 1.411(a)-11(e).

Make sure you understand the rules for imputed cafeteria plans and how they affect terms in the employer's retirment plan.

Thanks for the observation. But what does that mean? At the extreme, that would make the employer responsible for keeping essentially all of the plan records because almost any fact could have a bearing on a participant's benefits. Among the data would be investment returns, testing and actuarial calculations. A few things could be excluded, such as records of proxy voting. And what about beneficiary designations? A beneficiary designation does not determine benefits to an "employee." Or does it mean that the employer has to keep only employment related information such as dates of hire and termination, data from which hours of service can be calculated, pay and pay deduction elections?

The plan has to do what is reasonable. What is reasonable depends on the circumstances. You might also consider how the new DOL position on charging for QDRO work might fit into the scheme. By the way, the "employer" does not do anything with plan records or data. The plan administrator or some other fiduciary has that function.

Does the plan fiduciary wish to rely on ERISA section 404© with respect to investment of the account?

No change in beneficiary without spouse consent. Until the effective date of the divorce, she has a spouse. After effective date, no spouse so change has no contraints except other plan terms. It would be an unusual QDRO that would have anything to do with this point. A QDRO could more or less override the effect of a beneficiary change.

You must first determine that the excess is eligible, which is not automatic even though most people seem to act that way. See Treas. Reg section 1.415-6(b)(6). Your plan document probably has similar terms about conditions for the excess to be eligible for the remedial options.