QDROphile

What does the plan say? You may find that the hardship withdrawal provisons are written to apply to someone who is employed by the plan sponsor. After termination of employment, they do not apply.

If you hold the amount in suspense until the person returns and is qualified, what if the person does not? How do you allocate then and for what year do you allocate? Another way to do it is to allocate all the forfeitures without the missing participant and make up the amount the person would have received if and when the person returns. Yes, it costs the employer something, but the employer makes up all the other employer funded contributions based on imputed service and pay for the period as well. I don't know what is best. It is disappointing that we don't have guidance for these issues. Military service is not that rare.

Mr. Maldonado: After way too much puzzlement, I think I understand now why you responded so negatively to my posts. I did not make clear that I was not saying anything about recovering from the plan any amounts related to overpayment of wages or other ill-gotten gain outside of the plan. I was focused only on the contributions to the plan that were based on the amount of wages that should not have been paid. I did not respond to the full scope of the question and I may not have responded to what the original post was really after. My original post did not suggest removing money from the plan, either. For the sensitivity and complexity of the subject, it was a pithy response. I don't lisp, but some might see it that way, too.

Mr. Maldonado: Thank you for reminding readers of these Message Boards that what they find here is not legal advice nor any kind of advice that they can rely on directly. The contributors here respond without having very many facts, access to plan documents or the opportunity to investigate. The comments on the Boards vary from precise answers with authoritative citations in response to precise questions to "food for thought" that might be helpful as inspriation for other ideas or developed and evaluated further by the recipent, all depending on circumstances. The commentators have different qualifications, abilities, knowledge, experience and perspectives, put different degrees of effort into responses, and communicate with different degrees of skill. Reader beware! Thank you also for illustrating that this medium offers latitude for passion, humor, irony, metaphor, circumlocution and dramatic flair in good faith efforts make reading interesting or to advance ideas or debates. I appreciate your contributions, both in substance and in style.

Mr. Maldonado: Amounts that should not have been contributed to the plan are not reversions. If you don't like that theory, keep the amounts in the plan and credit them against contributions.

The contributions to the plan(s) might be an operational failure. No contribution should have been made to the extent the employee did not earn what what the contribution was based on. The correction is likely to recover quite a bit of the contributions. I am not suggesting "mistake of fact," but others might.

Giovanni, do you understand how plans that allow elective deferrals to everyone right away and employer funded contributions only after a year of sevice must be disaggregated in order for the plan to fit the safe harbor? The disaggregated potion that covers the participants with less than a year of service is not a safe harbor plan and must be tested. But it usually passes automaticlly because it has no HCEs. If you can't disaggregate, none of the plan can be safe harbor. That is what the passage means.

If you had a good plan document, the plan document would have terms to provide for appropriate imputed income and imputed service.

Literally it would be a problem, but the IRS has never made it an issue in the determination letter process even though the issue was in focus as a special amendment in connection with the determination. Our standard plan language also helps us get around the issue. All distributions are subject to delay until the amount can be determined. One can argue that pending a final determination letter, accounts may have to be adjusted to meet any IRS responses. No disagreement with your comment about the need to amend to change loan availability, although there are other ways to address loan restrictions if the plan is designed for it.

A plan can operate normally while waiting for a determination letter unless it has been amended to restrict distributions. In that case, the amendment controls. Distributions during the wait do not adversely affect the status of the plan as terminated. However, the plan does not want to be empty while waiting for the letter, so it is common to restrict distributions if participants otherwise have the right to get distributions, for example because of termination of employment. If most participants are not eligible for distribution pending receipt of the letter, there is no compelling reason to impose special restrictions. Loans are typically restricted, however.

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).