QDROphile

You might need a Form 5310-A if you have any suspense accounts, such as an account for unallocated forfeitures or a 415 suspense account. The insructions on the form are not perfectly clear and opinions vary about what is a suspense account that would trigger the requirement. It pays to be conservative and file when in doubt. Styles differ, but I like to have a document for the spin-off and merger. The document is a plan document for both plans (spin-off for A and merger for B) and it would state the nature of the spin-off (partial, and identify the part that is transferred), effective date and any other special aspects, such as grandfathering, special eligibility or vesting provisions, transition of investments. Watch for investment blackout, if applicable.

Can the employee switch classification from year to year? If the employee can effectively change from year to year, the argument that the employee has simply negotiated into a class of employees that are entitled to a different compensation package is pretty flimsy. If the employee is essentially stuck in the class, then the argument might fly, but there is still risk. You would also want the payroll system and other employment features and labels to be consistent with and support the class system, which might not be good for the culture.

What does the plan document say? If the plan makes only full lump sum distributions, then the entire balance should be distributed at the required distribution date. Rather than return the "minimum,' the plan should simply be distributing the remaining balance. Assuming no unusual plan features, the amount that is required to be distributed by 401(a) (9) for the year is not rollable, but the remainder of the distribution is rollable (keeping in mind the rules for minimum distribution for the next distribution year and rollovers).

Failure to follow terms of the plan is a qualification error. Look into EPCRS again.

The IRS has taken the position that commissions on stock transactions cannot be paid or reimbused by the employer. The payment of the commission by the employer would be treated as a contribution. However, you may have a different situation where the employer has changed plan design and the sale of stock was not really and investment transaction (which is administrative) as much as a settlor function because it was done soleley to to effect the plan design change.

The transactions involving the personal business of the real estate agent subsequent to the plan loan sound prohibited to me. I assume that the agent is a fiduciary of the plan. The transaction with the plan sets him up for personal business outside the plan. Therfore, the fiduciary would be using plan assets for the fiduciary's personal account.

Appleby: I was embellishing mbozek's comments about IRAs. If there were a QDRO, you would not have to talk about IRAs because the QDRO would provide for distribution to the AP and the AP could roll over to her IRA. My point was that you don't even get to talk about using IRAs in lieu of a QDRO unless the participant is eligible for a distribution so the participant can start the process with a distribution that is rolled to his IRA. Then you have to go to mbozek's comment about the requirements for transfers from one IRA to another. By the way, I have yet to see a plan that made a QDRO a distribution event for a participant. Although possible under unusual circumstances, it would make the unusual even more odd.

Would you have a determinable allocation formula if you left it up to year by year discretion? I agree that you can have an ordering priority that includes all the options.

Also, the husband can't roll anything over to his IRA for subsequent transfer to her IRA pursuant to court order unless the husband can get a rollable distribution from the plan.

When I don't know otherwise, I fall back on the general principle that you can't do with a QDRO something that you can't do absent a QDRO except for those special things that are expressly allowed for QDRO transactions, such as distributions to the AP before the participant is eligible and avoidance of early distribution taxes. We don't have much authority on how to handle loans, so I am very conservative about doing extraordinary things with them under a QDRO.

A loan is a contract that can be modifed by the parties, although certain modifications may have tax consequences. A lender can agree to accept partial prepayment, but need not unless the loan terms give the debtor the right to make partial prepayment. The parties will have to determine the effect on the remainder of the payments. It is possible that under applicable law loan terms that are silent about prepayment will allow the debtor to prepay. Once the plan allows prepayments, it may have to accomodate them in the future, so it pays to think through the policy carefully.

Please explain how you can extinguish part of a loan within the plan. You can make partial prepayments on a loan if the loan terms allow, but those payments come from outside the plan. A participant cannot wake up one day and decide to pay part of the loan from other funds in the account. A loan can be fully extinguished by offset distribution, but I have explained my discomfort with this in the context of a distribution to the alternate payee. Loans are supposed to be paid and the fiduciary should not do anything extraordinary to facilitate nonpayment. There are ways to split the loan economically, but I am loathe to do anything that changes the nature of the loan, especially if it means nonpayment or payment in a way that is not anticipated by the loan and plan terms. A domestic relations order that tries should be disqualified. The domestic relations order could provide for a distribution of $50,000 to the AP and order the AP to pay $20,000 on behalf of the participant to prepay part of the loan, if the loan allows partial prepayment. The AP would have to devote more than $20,000 of the distribution to the effort in order to pay $20,000 after taxes, or come up with $20,000 elswhere. The plan would not enforce the $20,000 payment. Enforcement would have to be through state court.

Where do you find the statment that the plan can't charge for all costs? I interpreted your inquiry about scaring them with charges to relate only to the bad apples, not all orders, so I offered a suggestion to fit your question. Look at the second sentence of the second paragraph. I do suggest that the plan can't charge only for the orders you don't like while charging nothing for your favorites. By the way, most of the mutual fund providers can bring down investment earnings on a portion of an account from a specified date, or at least they purport to do it. If yours can't, I think it is unreasonable for a domestic relations order to require hand calculation. The plan has no other need for such capacity or calculation, so I don't think you have to do it to for the QDRO. You can develop a reasonable (but not perfectly accurate) method for estimation of subsequent earnings without tracing each transaction by hand. If they don't like your method, they can figure it exactly themselves from the raw data you povide. You might not even be able to provide all the raw data necessary for the perfect answer.

I now think that by "assignment" you were describing an attempt to substitute a new debtor. I am not sure about the use of the word, but I agree with you that this cannot be forced on the plan, no matter what the note says. I cannot imagine that the note would expressly allow the substitution. The plan should not agree to it, either.

Model domestic relations orders should be used only after assessing the risks and propriety. I have explained some of the concerns in another thread.

I am not aware of any supporting authority, but I think it is a matter of degree. In the extreme, the order would fail under section 414(p)(3)(A) because it requires the plan to do something that the plan is not designed or equipped to do. Example: if the plan has to obtain or derive data that is not necessary for operations of the plan and that the plan does not otherwise have reasonably available to it. But I don't think this would cover reasonable mathematical operations on data that the plan has available to it. You and I might differ on what we think is reasonable. I suppose the plan could charge reasonable amounts for the extra efforts to deal with the unusually exotic divisions, but you will have a hard time defining them and drawing the line. As you know, the plan can charge for all processing to avoid having to choose which orders qualify for the deterrent charges. Perhaps you can set a base amount of processing cost that will not be passed on and then charge for costs to the extent they exceed the base. I think a plan should report to the participant and alternate payee the numerical results of the calculations prescibed by the order and a description of any interpretations made as part of the calculations. The results and interpreations should be included in the notice that the order is qualified, if possible. Upon request, the workup should be provided to the parties. If the parties don't like the result, they can appeal under the appropriate claims procedures. The plan should be rather intolerant of bickering. If the parties present a reasonable and united interpretation and recalculation of th result, the plan should probably accept it and "correct" its interpretation or calculation. However, if the parties want to fight about the elements and methodology, the plan should rule that the order is ambiguous and determine that the plan is therefore not qualified unless the plan is persuaded that it was wrong in its initial interpretation or calculation. If the plan decides it was wrong, then it should come up with a new answer and stick with it. Fights over methodology and elements should be conducted in the state court as a matter of fixing the terms of the order. I don't think the plan can require a simple "fill in the blanks" with a number or percentage. The law allows more flexibility with respect to instructions about how to calculate the division. However, I have had some success with refusing to do crazy calculations by dumping the relevant raw data on the parties and telling them to come up with a satisfactory number in the order. For example, if the instructions would require some sort of interpolation that is outside what the plan would do for regular benefit calculations, I would have the parties do it. They can fight over the number in court before presenting the order for qualification. But if the plan does not have the data or cannot understand what data would be needed, it can just refuse. I have not seen this tested, but I don't think a court would make a plan jump through crazy complex hoops to achieve a down-to-the penny division of benefits. I think a court would put the burden on the parties to come up with a number if they wanted some unusual or difficult division. The plan might have to provide reasonably available data to the parties to enable them to produce a reasonable instruction to the plan.

I think you misunderstand the nature of the relationship of the trustee and the nature of the note. The note says "P will pay to T the sum of $100." The note is an asset allocated to P's account. It is held by T for the benefit of P. But that is a function of the plan, not the note. If the QDRO awards P's account to AP, T can honor the order without assigning the note. T is still the payee. In an assignment, somebody other than the original payee is entitled to receive the loan payments. The anti-assignment provision is to prevent the obligor from having to deal with a stranger. T is not a stranger. As far as the note iself is concerned, nothing has happened. The QDRO causes T to hold the note for the benefit of AP, but this does not amount to an assignment of the note. It merely causes T to do something else with the loan payments -- credit them to AP's account rather than P's account. Again, this is a function of the plan, not the note. The AP has no legal rights under the note (an assignee would). The AP has a beneficial interest in the value of the asset (the note) but that asset will transform to something else (loan payments and whatever those payments are invested in) before the AP has the right to receive a distribution related to the note. That is why the note has to sit in the AP's account until paid. If you think the AP can get a distribution of the note and therefore the AP is the "assignee," I beg to differ. And even if that proposition is correct, I would disqualify the order because it would be asking the plan to do something that the plan is not otherwise designed to do -- distribute notes. As a fiduciary concern, I would not allow a distribution of the note because a premise of the loan is that it would be repaid. By allowing a distribution, the fiduciary loses influence over repayment and the situation suggests that repayment becomes less likely, and will certainly not be repaid within the plan as originally expected. If you argue that the plan does allow notes to be distributed because notes can be rolled over directly and a spouse AP can roll over a distribution, then I would sort of agree with you that the AP rollover is not permissible because the plan is designed only to allow the obligor on the note to roll over the note, consistent with other policy behind participant loans and their requirements. But the anti-assigment provisions of the note are not what kills the proposed arrangement, it is the rollover/distribution rules and features of the plan.

A nonassignment provision in the note would not necessarily prevent giving the AP the benefit of 100% of the participant's account. The trust (creditor) is not assigning the note to anyone. Restrictions on the account may be necessary or appropriate, such as no payment or distribution relating to the note until the note is paid or in default and subject to deemed or offset distribution. A lot depends on how the order tries to give the AP the benefit of the note and the trust's willingness or capacity to do it.

Very deep can of worms, but possible. One big issue is repayment. The fiduciary should not allow any change to the debt that makes it less likely that the loan will be repaid. Among other things, a wise fiduciary would require that the participant remain liable and that the repayment continues to be supported by payroll deduction if other payment arrangements don't result in timely installments. Of course, that makes the assignment much less acceptable to the participant. Also, what fiduciary or record keeper wants to accept payment from a potentially unreliable outside source? Most loans are serviced by automatic paroll deduction to avoid the aggravation of monitoring timely payment, overdue notices and the like? Your plan evidently allows outside payment after the employee terminates and the loan remains outstanding, but the spouse is a stranger and may be more trouble than a former employee.

I think section 72(m)(10) is relevant only when the participant has after tax amounts. The tax basis has to be split proportionately to prevent games with differing marginal tax rates between the participant and alternate payee. In other words, the order cannot allocate after tax amounts between the participant and alternate payee in a screwy way compared to the division of the economic value of the benefit. Otherwise section 72(m)(10) has nothing to do with investment gains and losses relative to purchase price of any assets credited to a participant's account. Unless the plan is an ESOP or something very unusual is going on, tax basis is independent of investments anyway, so it sounds like your record keeper doesn't get it and is making a mess.

Naive question: If it is a very poorly written document, why still have it?

You had better check the rules for universal availability of deferrals if you think you can run a 403(b) plan without including everyone.

You have an initial question under state law. You have to get a DRO before you can think about qualification or its effects on the plan, and the death of the alternate payee may preclude any futher state court action under domestic relations law. After that, it depends on the circumstances, the proposed change, the plan terms, the QDRO procedures which federal circuit court has jurisdiction. You are not going to get a very well-formed answer here. But anything is possible in Texas.

Has the participant notified law enforcement authorities of the missing person? How is the person missing? What is necessary to prove missing depends on the circumstances.

Hopkins is wrongly decided and more recent decisions in other circuits are not following it. Hopkins is so wrong I would consider not following it in its own circuit, but that is a tough call for whoever would be paying for the fallout.