QDROphile

What limit is exceeded by the amount over $7000 and under $10,001? None that I can see if the 25% limit is in effect. I am of the school that respects administrative limits if properly provided for in the plan document and properly effected administratively. The IRS has hedged. In the last round of determination letters, some reviewers took issue with these provisons, most did not. The IRS had to take the position that adminstrative limits are OK because it approved the methodology set forth in the plans that had them (look at the waffle language in the preamble to the catch up regulations). It may be reconsidering its position about the methodology, but the plan is good for now if it has a determination letter. You know and I know that the plan provision was designed to help the plan administrator with compliance with the ADP test and avoidance of distributions of excesses. The catch up rules take quite a bit of pressure off the ADP test. So what if you set the HCE percentage to 17.5%? The entire $10,000 is OK because $7000 is the "regular" deferral and $3000 is the catch up for 2004. I suspect what you are after is a higher ADP limit because of other HCEs. You want only $7000 in the ADP test for the low paid HCE in order to keep the average down and create more room for dollars of the higher paid HCEs. Your low paid HCE doesn't care because she really wants only $10,000. I think the ploy works because I think the administrative limit is just as good as an amount stated in the plan document. But it gets a bit uncomfortable explaining how the limit is set at 17.5%, especially when that number doesn't make so much sense compared to the way we used to set the number for the ADP test, which was the basis for the plan provision with the administrative authority to set the limit. It probably helps a bit if the limit is established as early in the year as possible, or better yet, before the year starts.

The attorney is taking an agressive position about the timing of reimbursements. I would not support that approach, but I cannot say is it is prohibited. I cannot say it is OK either. To have a chance, the plan document and SPD must very clear that the participants are going to be strung out on the timing of reimbusements. It is not very good policy from a participant morale standpoint even if it is legal.

Legal separation is a formal status in most jurisdictions and that status is documented by court order. "Going through divorce" is not legal separation, and is not a basis for avoiding spouse consent, if otherwise required. In fact, it is all the more reason to require spouse consent.

I subscribe to Mike Preston's answer. I tend to like intrepid fiduciaries. The fiduciary should start the process through the claims procedure. If the facts turn out to be easy (e.g. the second "wife" is not forthcoming), then the decision is easy. The fiduciary will have the opportunity to gage what additional assistance and procedures are necessary as the facts are developed. I don't think that the fiduciary has to make an immediate determination of legality of any marriage. If it comes to that because of disputed facts or documents, I doubt that the fiduciary should make the determination at all. The matter will end up in court. I agree that somewhere in between the fiduciary may need legal counsel. The second issue, possible mispayment, can only be decided after the first. I like to jump to conclusions, so my first thought is that the fiduciary will need advice about collectibility if the fiduciary were to try to recover payments that were induced by fraud. The fiduciary has to be prudent. Prudence dictates that good money not be thrown after bad.

Is the plan fiduciary an ignorant wimp, an intrepid soul or something in between?

Ask the expert what would happen to the installment payments if the employee terminated during the year.

And how about this general notice? We have designed our 401(k) plan to provide extra compensation for those employees who are able to save. This is America after all. The more you have, the more you get. We understand that some of our employees may have serious financial obligations, such as caring for children aged parents, and that they may be working just as hard and contributing just as much to the success of the Company as anyone else, but too bad if they can't save part of their pay in order to get the match. Some people might say that the Company is offering the match to encourage savings. America has a bad savings rate and many peoplea re headed for retirement income crisis. But this Company obviously is not trying to encourage or reward those who may choose to stretch for some savings because the savings incentive offered by the Company is an illusion, as shown by the Company's decision not to match this quarter. So how much are you going to stretch your budget to work in some savings now that you know you have no assurance of the apparent reward of the match? We hope that your retirement savings rate is unaffected by the match. Please don't think that the Company is either so paranoid, insensitive or ill advised as to create an apparent incentive that the Company is not committed to live up to. Next year, we are going to give you regular pay on the same basis. We sort of think we will pay you a specified amount, but if we have a rough time we may have to cut back a bit. We are sure you will understand.

See 408(k)(7)

Seems to me that the fiduciary is using plan assets for personal benefit, even if only because it leads to a job with the operating company. She is also using plan assets to acquire the car wash that she might not have been able to have a direct or indirect personal ownership interest in without the use of plan assets.

I suppose property taxes are not an administrative expense of the plan, they relate to and are generated by the asset, not the management of the asset. The IRS had, and may still have, a similar published position on commissions on stock sales. Commissions are inextricably related to the stock (you can't obtain or dispose of the stock without them) so the assets of the plan have to be used to pay the commissions. Look at a typical statement for a sale. The shares are sold and the amount net of commission is delivered. You would have to go to extraordinary lengths to recieve the full sales proceeds and pay the commission separately. Payment of the commissions outside of plan assets is treated as a contribution. However, payment of fees for investment advice is asset management and may be paid outside of the plan as an administrative expense. The plan sponsor cannot pay the property taxes outside the plan any more than the participant can. The plan administrator was a bit asleep when the assets were reduced to real property. The liquidity problem is a classic and the administrator should never have let the plan get in this position even if the participant was short sighted. Either the property has to generate sufficient income at the right times or other assets have to be available to meet the cash needs.

A literal reading of the filing requirement allows you to argue that a second filing is not required, but why not play safe?

The tax bill cannot be paid with personal money. Is he able to roll some cash into the plan from an IRA? Are there any contributions that can to be made to the plan?

The prototype ought to allow you to have a 2003 effective date. Then amend effective January 1, 2004 to add the 401(k) feature. You can probably submit the amendment documents in the same batch of paper as the original adoption documents.

There is nothing wrong with a forcing out the entire account rather than the minimum distribution amount if the plan provides for it. You don't have to apologize for the provision and you do have to follow plan terms.

Don't forget that the plan does not have to allow changes that the law would allow.

Mr. Wiggins: I composed three different responses to your post, but each time concluded that that you can't persuade me and I wasn't likley to persuade you, even if we explore the angles further. I also appreciate being stuck with the decisions of a Circuit. I restate my disagreement with ATT/Hopkins and also state that I am shocked by the injustice of the result that it allows. True, the former spouse could have prevented the outcome by being more on top of the proceedings, but there was no need to put her completely at risk of fairly common delay or fairly common lack of skill or diligence of a lawyer. You did ultimately interpret correctly my assertion that a beneficiary must have a relationship to the participant, even if only by the act of designation. But you disconnected from the point, which was that no "beneficiary" has an indepedent right to a benefit. The beneficiary interest is derived from the participant's interest and therefore is a "benefit payable with respect to a participant." Without the participant, there is no benefit. A domestic relations order can reach "any benefit payable with respect to a participant" if it meets the qualification requirements. ATT/Hopkins rests absolutely on the view that because the particpant had died, there was no benefit payable with respect to the participant. The stuff about "vesting" is sophistry. I agree that no benefit was payable TO the participant, but the benefit payable TO the surviving spouse is still a benefit "with respect to the participant." Where else did it come from? And since a QDRO can make an alternate payee into a surviving spouse, the QDRO can put the alternate payee into the annuity shoes of even the designated (or default) surviving spouse annuitant. The QDRO can do it without making the plan pay a differentt amount or in a different form. Congress expressly allowed for the possibility that a QDRO could cut though other statutory provisions that favor a subsequent actual spouse or surviving spouse. For that and other reasons I do not think that the Boggs decision supports ATT/Hopkins.

If the order means what WDIK suggests, then it should be OK, subject to all the other requirements for qualification. I am always suspicious of "payments" as a synonym for "accrued benefit."

I think it is a good idea to form a belief that the participant will make payments. Usually this is satisfied by a payroll deduction or assignment of pay feature, plus an employed participant. The written plan terms or loan policy should address the issue. Unless there is a reasonable expectation of loan payment, what differentiates the loan from an unpermitted in-service distribution? Illustration: If the plan administrator knows that the particiant will be laid off next week, no loan unless some other information is provided that shows that the participant is likel to be able to pay. What does that say about the current practice of automatic paperless loans? One could argue that, as a practical matter, once a participant is terminated, an loan will have the same effect as the distribution the particpant could have received after termination. But loans are not supposed to be the same as distributions and need to be treated appropriately.

Embellishment on mbozek's good point: The transition rule says that a pre-1985 order does not have to be treated as qualified unless was is in pay status. The rule also says the order can be treated as qualified even though the order does not meet the requirements that the Act established for qualification. I don't think the order can simply be disregarded without any kind of notice. If the order is from before 1985, it would be best to make a formal determination about whether or not the order will be treated as qualified and notify the parties.

The receiving plan has no obligation concerning taxation of amounts distributed from another plan, except to distinguish what amounts are after tax amounts. The notion of making "the rollover whole" is misconceived.

As a matter of federal law, your understanding is incorrect. All benefits can be assigned to an alternate payee, including benefits accrued after the divorce and after the order is determined to be qualified. The trick is defining what the assigned interest is, in accordance with the QDRO rules. Some incorrect court decisions that deal with related issues apply in certain jurisdictions until overruled. State law is another matter, but something that is not allowed under sate law should never be in the order that reaches the plan, and the plan admiinistrator is not responsible for state law issues anyway. If you want to disqualify the order (and I would), use section 414(p)(3)(A). The order provides for a benefit for the alternate payee for the life of another (the participant). I will bet that the plan does not offer a form of annuity that pays one person during the life of another person. If you take this position, you will have to figure out how to reconcile what the plan will do if the participant starts an annuity (e.g. single life) and the plan later receives a domestic relations order that awards the alternate payee a portion of the payments or benefit.

The plan sponsor has no obligation. Administration of domestic relations orders is a fiduciary function. The fiduciary is required to determine qualification of the order within a reasonable time and notify the parties of the determination. Better late than never.

You know what "garbage" means, even as a term of art.

Please don't confuse me with what I say. But seriously, I think the connection is attenuated. I think this thread asks whether the words of the order should unilaterally be read literally and enforced strictly. Sometimes yes, sometimes no. In this situation and with these words, no. It is a matter of judgment. The other thread had more to do with warning a party about consequences of absence of language in the context of a somewhat tricky law/design feature of the plan. To make life more fair and transparent, the notice that the order is determined to be qualified should state that the order is interpreted to allow the alternate payee to begin distributions [insert whatever the order otherwise says, e.g. "immediately" or "when the alternate payee elects"]. If another result was really intended, someone can appeal the determination and the plan can reconsider befoe laucnching people back to court. If the order does not otherwise say anything about when the AP may start, I might be tempted to give effect to the limitation. But I prefer QDRO procedures that have a default that the AP can get funds ASAP in a DC plan, and would use that as a basis for an interpretation to that effect. The plan has its own legitimate interest to interpret the order in a way that is probably what the parties intended and that will minimize the plan's distractions with multiple passes by the parties to get it right. I think it is reasonable to assume that no one wishes to restrict the AP's distribution rights unless the plan makes a definite statement to that effect rather than a questionable indirect disguised statement that is thrown into the document thoughtlessly as part of common but unneccesary lawyer garbage language.

No.