QDROphile

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.

Start thinking about how you are going to deal with a prohibited transaction. Under Treas Reg section 54.4975-7(b)(4) an exempt loan can be used only for limited purposes and payment of benefits is not one of them.

The best one can do with your question is: follow applicable state law and procedure for submitting and documenting the withholding. Perhaps if you identified a state, someone with that knowledge could respond with meaningful detail.

No plan has to be submitted for a determination letter. But be sure to get a picture of the auditor's face when the auditor asks for the determination letter and you tell him the plan does not have one.

I really doubt you will find any authority for that proposition. You might have better luck with authority that the plan terminates for tax purposes when the trust distributes all assets.

When the discussion comes up, I simply tell them that the only benefit that the plan pays if the participant dies is the surviving spouse benefit and that unless the order awards some or all of that benefit to the alternate payee, the alternate payee will receive nothing. I remind them that they may obtain a copy of the SPD, plan document (although they might have to pay for a copy) and the QDRO Procedures. As far as their own legal education and research goes, the plan does not owe them any guidance. If they don't know theri business, they should engage assistance or stay away from it. Various bar association ethics opinions have made that clear expressly in the context of QDROs.

Your approach is reasonable and it is what I do. I do not raise the issue in the review if the provision for AP benefits upon death of the participant is absent. But that means if the participant dies before the AP starts benefits, the AP gets nothing (in most DB plans). The notice that the order is qualified points out that the alternate payee will get nothing under those circumstances. I don't quite see how that approach is paternalistic. It is prudent from the perspective of the plan because it puts the plan in the best position some years later when the unfortunate circumstances make the point real and nothing can be done for the AP, except to get an incorrect judicial decision under the magic "nunc pro tunc" incantation. Court cases are starting get in line with the correct position that it is too late for the AP at that time. It is not effectively paternalistic toward the AP. Although I have seen orders amended after that warning was issued in the notice of determination, amendment is rare. One reason is that the statement is probably overlooked or not understood by the AP. The other reason is that at the end of a divorce proceeding, everyone is exhausted and broke, so going back for another order is too much. The altenate payee is willing to gamble with the angel of death under those conditions. Finally, in my dark view of the world, even if the AP's lawyer reads the notice closely and gets it (two heroic assumptions), the lawyer is probably not going to get paid for the amendment, and will not volunteer. Among other things, it is embarrassing to the lawyer to overlook a fundamental point and ther are many ostriches out there. That brings me to how you ARE being paternalistic. You are saving the lawyers from malpractice claims. It is malpractice for the order to fail to protect the AP in the event of untimely death of the participant, unless for some reason that point was actually negotiated (the participant was looking out for the mistress, soon to be new wife). I doubt that many failures to provide for death are the result of negotiation. They are the result of oversight or failure of the lawyer to understand DB plans. More likely, the lawyer just got his or her hands on the wrong form the first time and perpetuated the omission. By having an express warning in the order that everyone blows off, the lawyer can argue that everyone expected the outcome from the beginning or could see the result and took no remedial action if they did not originally think about it, so how could the omission be malpractice? I am having a bit of fun with the lawyer malpractice statements. I think you are striking the best balance between the correct fiduciary posture of not interfering with or influencing the private division of assets and yet at the same time protecting the plan from later trouble when the awful truth would otherwise first visit the AP. In a perfect world, we would insist on the template that pax suggested. But often we don't get an opportunity to insist in a neutral way that all items be expressly addressed. A plan cannot disqualify an order because of the omission -- the outcome is certain when the provision is not there. I am also uncomfortable with the fiduciary interfering with the negotiations by commenting on an otherwise acceptable draft to the effect of, "Hey, alternate payee, you had better negotiate for death benefits!"

If you are doing this sort of deal, it is crawling with high priced experts who know the facts and should have considered various options. They would be the best resource for open ended questions. If you don't have high priced experts crawling all over the transaction, you should not be trying to evaluate the transaction or options with the assistance of this forum. Despite participation of some very good experts, it is an inadequate resource for the complex task.

So what is deferred?

Yes.

The only sure way for an altrnate payee to invoke protections is to submit a domestic relations order. It does not have to be an order that one expects to qualify, but then the AP has to stay in communication with the plan to let the plan know that the AP intneds to cure any defects within a reasonable time. A plan could afford protection earlier or without receipt of an order, but that depands on plan design, policy and procedures. Just in case you fall into a common misconception, the 18 months does not start to run upon the submission of a domestc relations order.

Let me put it bluntly. Anyone who writes a plan to provide for contributions to be stopped at the time during the year the employee has reached pay of $200,000 or anyone responsible for administering a plan that stops contributions at the time the 200,000th dollar is earned should be fired. There is just no excuse for this fallacy to be floating around any more. You SHOULD have unhappy employees if they have been victimized by this incompetence, unconsciousness, indifference, pure stupidity, or whatever else is at the source of being screwed by such faulty plan design or administration.

401 Chaos: If you have matching contributions in your plan, you should analyze very carefully how your vendor deals with the match and the testing. Under the regulations, catch up contributions are simply elective contributions until they exceed a limit, even if you call them catch up contributions from the outset. The difference between how the law treats the contributions and how your vendor names them can cause a bit of a mess unless people understand what they are doing and recharacterize the contributions as necessary.

Courts have been very forgiving in this regard. I agree with Harwood. Unless there is ambiguity about what plan is covered, don't be a stickler. But the notice of determination should state the full and correct name of the plan and that the order applies to it.

Plan records probably show a spouse of record. In order to change that, what would the fiduciaciry like to see? Keep in mind that the fiduciary owes a duty to beneficiaries and the law requires consent to name one other than the spouse. Now for the interesting part. You say the participant is not subject to a domestic relations order that afects the plan, but how do you know? If the plan receives a copy of the divorce decree, that is a domestic relations order. According to the plan's written QDRO procedures, upon receipt of a domestic relations order, the plan must notify the parties of receipt and make a determination of qualification. Your first impression may be that this is stupid because you don't expect the decree to be a QDRO, but in fact it is brilliant. When the plan notifies the participant and former spouse of the determination, the notice will assert that the former spouse has no interest under the plan. The former spouse will have a reasonable time to correct any misconception on that subject, as provided in the QDRO procedures. Meanwhile, the plan will restrict distributions, as provided in the QDRO procedures. Don't have QDRO procedures that cover those points? Get them. The law requires what I just described anyway, and you have an opportunity to establish procedures and timeframes to handle what the law requires but leaves vague (such as, what is a reasonable time?).

You have to consider if the purchase of stock of your employer is a prohibited transaction. The determination is subject to facts and circumstances. Some would advise never to to do such a thing and some would advise that it is almost never a problem, especially if you are simply a rank and file employee. No comment on the economic wisdom of buying employer securities, public or nonpublic.