QDROphile

You answered part of you own question. If you can't make the loan fit with plan terms, the plan cannot make the loan. Loans from a plan to participants are permissible even if the participants are not employees or they are on leave, but plans are not usually designed this way because of the administrative difficulties. Don't forget that a loan should not be made without a reasonable expectation of payment. That is a tougher call when you don't have the assurance that payments will made by automatic payroll deduction. Interest rates on loans during military service are subject to special rules.

Go to the topic on this board entitlted "Convert 401(k) to ESOP to get 404(k) Deduction." Look in reverse order to concentrate on your issue because it develops late in the comments. As they ask on TV, now how much would you pay? The best policy is to have the plan document explain exactly how it will conduct the ADP test and get a determination letter.

You don't take hints? Try searching for another thread on this topic. For such spohisticated information you either have to work for it or pay for it.

Wait until the proposed 401(k) regulations are effective so you don't have to disaggregate. Here's a hint for an elegant solution that works until the regulations remove the question. Ask yourself what an ESOP really is instead of believing what the IRS has been snowed into believing. A real real ESOP will have contributions. A real ESOP is not an investment choice. That is not the position you are taking for purposes of gettig those lovely dividend deductions, so the principled reality the may be a bit hard to see.

If the employer has any sense, the employer would refuse to do business with the scoundrel salesman and his companies, so no money would go into the individual plan (the employer has control over where it sends the money). Then the salesman might be able to start a stink among enough employees so that they start agitating for the superior products to replace or supplement what they have now. The employer may be bound by contract not to allow other companies into the realm, and other threads have discussed some of those arrangmenents, and some are based on some legitimate economic concerns. Some arrangements are wide open and allow any individual to be conned by any salesperson that they fall prey to. The employer just sends the money to the insurance company or mutual fund as instructed. Some are closed at the front end, but allow a participant to transfer from one annuity provider to another after the contributions are made to the provider who has the relationship with the employer.

Be careful. A definiton of compensation can be used for various purposes and you need to use the correct definiton depending on the purpose. A comprehensive definiton of compensation does not mean that you will allow deferrals from every source of compensation dollars. You can have plan terms that limit my total deferrals to 15% of compensation, but that does not necessarily mean that I get to defer 15 cents of each dollar that I would otherwise recieve. As usual it would be nice if plan documents had better terms that met these questions head on. Some do. Some do it by implication and you have to struggle with interpretation. Make sure you read plan terms carefully.

I don't think we disagree in this uncertain area. What I am saying is that thoughtful plan documents and appropriate discipline in observing formal arrangements can make a big difference in liability exposure in most cases. But naming the employer as plan administrator or saying that the employer runs the plan wipes out most potential for effectively allocating risk and responsibility. I prefer not to surrender to chaos at the beginning of the process.

It may be the future or just bad facts making for bad decisions, but the recent ENRON decison is out of line with the law and the DOL's position is out of line with the law and other positions that the DOL has taken (although the DOL is prone to find everyone to be a fiduciary). We have to wait and see on ENRON. Failure to dismiss does not mean it won't work out right eventually. First, the company does not have to be the person who designates the fiduciary, so it does not have to be a fiduciary at all. Second, the fiduciary who designates the fiduciary is responsible only for that limited function. The designation of the fiduciary must be reasonable (it is not reasonable to designate ENRON scum to the post). The monitoring of the activities of the designated fiduciary is only for the purpose of assuring that the origianl designation continues to be a reasonable designation. It should not make the designator responsible for any particular thing the designated fiduciary does.

I don't think anyone was commenting directly on the nephew and your observations are correct about who is a party in interest. However, given the personal connection with the nephew, the circumstances could be such that the fiduciary is getting some personal benefit because of the transaction involving the nephew, whether tangible or intangible. That would make the transaction prohibited. The circumstances could be such that the nephew transaction is OK, but it is better not to get into quations about facts and circumstances in the first place. Family members always raise questions, even when they are outside of the defintion.

Shame on them if they set themselves up to be fiduciaries under the functional definiton. That can be avoided, though possibly not by a sole proprietor.

The plan sponsor has nothing to do with day to day administration of the plan and any plan that is designed to have the plan sponsor cover that function is seriously flawed. Sorry to be off point, but this problem and misconception is so widespread that it must be confronted wherever it shows itself. The plan administrator is almost certainly a fiduciary, and as fiduciary has the obligation to operate the plan in accordance with its terms. It does not matter that the plan could have been written without spouse consent to distributions. If the plan terms require consent and the fiduciary has reasonable suspicion that the consent of the spouse hase not been obtained, the fiduciary must take reasonable actions to assure compliance with plan terms. That may require extraordinary measures, such as requiring direct contact with the spouse or use of a notary. The adminstrator should document the issues and actions so the administrator has a full record of the basis for the extraordinary requirements that are being imposed on the participant.

So what do you want us to say? The DOL wants people to understand that demutualization proceeds are not necessarily found money for the plan sponsors, and the DOL is using audit authority as a means to get the idea across. I have found that the facts and issues can be difficult and the DOL does not have any good bright line guidance or even necessarily a consistent position. But I have been impressed with the practical and flexible approach that the auditors have taken once their teeth were in. One technique is for the DOL to get all the policy holder information from the insurance company and then to audit or threaten to audit all the former policy holders. I had good time advising the DOL that one of their audit targets was a government, so they had no jurisdicton. I don't know if they cast such a broad net in the Principal demutualization.

Absolutely a problem. Any time personal investing is mixed with plan investing (essentially joint venturing) you have an issue and almost always you have a prohibited transaction. The fiduciary is using plan assets for personal benefit. If the fiduciary does not have sufficient person assets to buy the property, the fiduciary cannot look to the plan to make up the difference. And I never believe the line that the fiduciary out of goodness just decided to cut the plan in on a really great deal that the fiduciary could have had all to itself or that the fiduciary covered the part of the investment personally that the plan could not afford in full.

If the terms of both plans allow and the PS plan meets the investment standards, you may transfer. If the ESOP has a money purchase plan element, the IRS says you have to resurrect the joint and survivior annuity. If you diversify by distribution and roll the proceeds of the distribution to the PS plan you could scrape of the money purchase baggage.

While what others are charging is a relevant inquiry, don't lose sight of the requirement that the what a plan charges must be based on the expense to the plan. So the first question is what is this process costing the plan? What others charge might be an indirect check on what is reasonable, but you won't necessarily know what the expenses are behind the charges, and expenses will vary from plan to plan and order to order.

Just be sure you aren't associated with the plan in any way before you advise people how to accomplish personal goals -- that is not a plan function. Then ask yourself whether you are adequately trained and licenced to help people with their legal or financial planning. The law is rough on overly helpful volunteers.

Other aspects that should be considered: Life insurance should not be an asset of a qualified plan. But you and the insurance salespersons and related hangers-on may disagree.

bonzo: Your questions was whether or no you need to be concerned about compensation. You seemed to be concerned about compensation when the discussion turned to the 3% safe harbor. You then seem unconcerned about the matching safe harbor, which you realize also measures percentages of compensation. So I now have the same curiosity as oxdougw. What are you responsible for? If your responsibility is data entry, you don't have to be concerned with much. If you are responsible for making sure that some or all contribution amounts or allocations are correct, then you need to be concerned with compensation.

3% of what? 2% of what?

I agree that if the plan pays death benefits only to spouses, the former spouse as undisturbed designated beneficiary would get nothing because of plan terms. A QDRO, if the former spouse can get one, could put the former spouse into the position of a surviving spouse for puposes of the death benefit.

1 and 2. Start with whether you anticpate a domestic relations order or not. If you anticipate a domestic relations order, you have two initial quesions. Assuming that some other divorce papar is not a QDRO, will the state court issue a domestic relations order that can qualify? If not, go no further in this line of thinking. If the state court will issue an order, can that order qualify? An interesting question with different opinions. I think one or more threads have addressed the point, and I personally think the answer is that a post death domestic relations order can qualify if the property settlement was approved by or incorporated into a pre-death domestic relations order and had enough content to suppot the post-death order (but state law still might not permit a post-death order) . If the order can qualify, what does the order say to do? That provides your answers on the retirement plan. Assuming no QDRO at any time, if the former spouse does not get the entire pension, who would? Does the plan have terms that apply to the effect of divorce on beneficiary designations? If not, it looks like you have an undisturbed designation of the former spouse as beneficiary, and the beneficiary should be paid. 3. Go to cases in Texas (where else other than California)? to get really confused about wht the law is. The correct answer should be that the designated beneficiary gets the life insurance benefits. I don't believe in QDROs for welfare benefits, but wiser judges have disagreed. Go to those decisions for even more confusion and a shortcut back to the post-death QDRO issues.

The custody of the stock certificates is almost trivial. Certificates should be held by the trustee. They may be held by another custodian under a custodial agreement between the custodian and the trustee, but that seems like unnecessary work. The issue of who serves as trustee or other fiduciary and how they perform is a very important and much more complex.

Don't fall for the temptation of a sham termination.

Plan disqualification or penalties and/or costs of correction.

Do I dare ask why you are advising the plan trustee in this matter, and where do you stop? Are you advising about potential plan disqualification? The sufficiency of the domestic relations order for qualification? Breach of fiduciary duty? Whether Vanguard did anything wrong and whether there is recourse? Although I you like to help your client, this might be a good time to look at the terms of you engagement and stay within them.