QDROphile

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.

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.