QDROphile

Austin, I believe you. I had two different clients that adopted QDRO policies to disallow distributions to alternate payee until the participant was eligible. They had unusual experiences with sham divorces (the word got out) and their remedy was to lock up all alternate payees to take the temptation away. I am also aware of the phenomenon of credit junkies and plans that allow multiple loans. The money was borrowed as fast as repayments met the standard for borrowing again.

As Rather be Golfing points out, a (the?) solution is not through reliance on the state laws that deal with consent to payroll deduction and the interpretation and pre-emption arguments, although payroll deduction is a starting-point feature for loan administration works just fine until termination of employment or participant challenge to payment. The payroll deduction should be coupled with an assignment of pay, which is a creditor tool under state Uniform Commercial Codes, which can vary in application and requirements. And Rather Be Golfing is correct about the practical disadvantages.

BTW, your clients will not like better security arrangements, because they are not available off the shelf from the providers. They are not available from providers because they cannot administered with a push of a button, and the general market will not tolerate cost of administrative arrangements that cannot be mechanized.

Then a better security arrangement should be implemented.

No. It is simply a consent to have loan payments deducted from pay, without more to secure the loan. The general view is that state law allows the consents to be revoked. That is another question that has been addressed repeatedly in this forum.

Depends on how the payment provisions are set up. If the participant is still an employee and has merely a consent to withhold from pay to secure the loan (shame on the fiduciary), then there is an argument that the employee may cancel the consent. No comment at this time on the argument. The recipient of the statement has some choices to make about the response. If the recipient believes that the consent may be withdrawn and wishes to assist, the the recipient advises the employee and informs about the consequences of default. If the recipient does not wish to assist, then the recipient (1) refers the employee to the appropriate plan representative, or (2) has to come up with an evasive answer, such as, too bad. Or refer the participant to the SPD or whatever document explains the loan policy, including explanation of procedures (including withdrawal if consent?) and consequences of default. Because the naked payroll deduction represents most arrangements, I am not going to bother with other scenarios unless you ask.

But don't get lost in the fraud forest because of the formal trees. One must have legitimate earned income as a base for qualified plan contributions. This is often addressed when children are involved with a parental desire to to provide for tax deferred savings for the children as part of wealth transfer and tax avoidance/evasion.

Are you sure that the earliest retirement age is not age 55 and 20, or so, years of service? The years of service requirement cannot be disregarded when looking for the age.

An individual can have an account in a plan and be a beneficiary. Beneficiaries may have different rights and be subject to different requirements than participants.

Sure. The plan administrator will not allow it on that theory. It would take a very well-advised and very accommodating plan administrator to facilitate a transfer even pursuant to a QDRO. When I say accommodating, I have in mind IRC 414(p)(3)(A), which any administrator can stand on to disqualify a domestic relations order that provides for such an extraordinary transaction. Plan administrators do not like (or understand) QDRO administration, so they generally keep it as simple as possible.

And this is not a trivial question, because IRC 414(p) (1) says that a QDRO can assign an interest in a participant's account. One position to take is that an alternate payee's account is a subaccount of a participant's account, so the QDRO addressing the AP's account applies to the participant's account.

I am fascinated by the statement that an alternate payee is treated as a participant. Is this mandated and supported by legal authority, or is it just a practical administrative stance taken by plan administrators? ERISA says an alternate payee is treated as a beneficiary.

Plan terms may cover the circumstances with respect to that plan’s treatment of deferral excess arising out of deferrals to two plans, so don’t overlook them.

Yes, but not what most people think.

I am confused by "one investment choice". If there is one investment fund, there is no choice. If that is a claim against a plan (fiduciary, actually), it loses. The question is not what the participant would have done, but whether or not the fiduciary acted prudently. Are you suggesting that the claim was along the lines of "the fiduciary acted imprudently with respect to this participant because the fiduciary did not take into account (in the fiduciary's decision with respect to investing the plan assets) the individual's circumstances'? That is the nut. But I assert that is not an element of the standard the fiduciary would be held to. ERISA was not designed for the current norm in 401(k) plans. ERISA was more inclined toward pension plans. With respect to defined contribution plans, ERISA envisioned a similar model for investing assets -- in a single fund. 404(c) was not the base, it is the exception.

When the 404(c) regulations finally came out long ago, Fred Reish came out and warned that, notwithstanding 404(c), he saw risk of liability in throwing unsophisticated participants to the dogs. Fred loved being out on the forefront, and being a contrarian assured attention, but I am totally with him in spirit -- it is irresponsible to force unsophisiticated persons into a responsibility that ERISA requires of (essentially) a professional, with respect to one of the greatest sources of wealth they will ever have. Employers have an interest in good performance so their employees have enough money to retire, rather than hang on too long (yes, a career is an antiquated notion). After the regs came all the handwringing and complexity and Illusion of providing adequate investment information (but not required education) to deal with the realization that many participants did not want, or even feared, the responsibility of managing money, and were paralyzed. Skip forward more years and know we have target-date funds and lifestyle funds and all sorts of things that essentially come back full circle with products that a participant effectively just chooses a money manager for them, and with very uncertain understanding of what they are doing. And add features, if you will, that provides investment advice (either mechanically or personally) to participants, that is not free. Experience has shown the weakness of the 404(c) approach. Can you point to any evidence that shows a fiduciary who acts responsibly and in good faith (stealing is no fair) has anything to worry about? Yeah, yeah, the young bucks will always complain about the old man's plan. I am immune to that while conceding it is a valid point, but not as sharp as the young bucks think.

There can be issues with the health insurance providers that set their rates based on anticipated participation. This would be especially true with a single provider. If the participation criteria change (e.g. option to opt out) so that the number of participants in the health plan decline, the actuarial expectations, and therefore the pricing of the coverage, may be frustrated. The contract may have restrictions on changing coverage criteria mid-year, for example. If it does not, the change is likely to be taken into account in the next year's calculation of premiums. In a three provider environment, this may not be an issue because the providers are competing and less able to predict the number of employees that will choose the provider. However, changes that reduce, or may reduce, the total participant pool may affect how the providers approach pricing. And it will not be in a favorable direction.

Your analysis is intelligent and not inconsistent with any authority known to me. As with some other Roth phenomena, the "fairness" in any particular situation is questionable, explained only by some practical considerations. One of those considerations is the ease and clarity of accounting. It is very simple to have a rule that a Roth IRA clock is set at the opening of the Roth account (requiring a deposit), without regard for the character of incoming funds, such as the aging in a Roth 401(k). To look at the incoming funds would be more complicated. A Roth IRA transfer incident to divorce, at least when the transferee does not already have a Roth IRA, requires a new Roth IRA in the name of the transferee, requiring the 5-year clock to start on the new IRA. Another way to approach it (apparently not taken by the law), would be to "split" the IRA and maintain the character of the funds (already matured 5 years) in the "spun-off" account. The IRA owner would still have to qualify by age for tax free distribution. Under the circumstances, this would seem more appropriate (especially when both parties are older than 59 1/2 and the divided Roth IRA is older than 5 years). But a general rule that examines the maturity of the incoming funds rather than the age of the recipient account wold be much more complex and require more record keeping. Thank you for your efforts to determine the mandated outcome and share.

A hardship withdrawal relates to the plan and not the employer. That said, plans vary in visibility to the employer of plan activity. Employers are not legally allowed to take adverse action toward an employee because of exercise of the exercise of rights under the plan, such s taking a hardship distribution. That is an abstract legal proposition that may not be true in practice. You were informed how to interact with the plan and your account. It may be that you directly contact a service provider, such as an insurance company or an investment company (e.g. Fidelity, Vanguard, T.Rowe Price) or another type of administrative services plan, or someone at the employer, typically in HR. If you are clueless, then ask some HR representative how you can connect with your account. You may be referred to information materials that explain it to you, or you may be given a direct answer, such as a name and phone number or a website. You will be asked about the reason for the withdrawal and the amount needed to assure compliance with the hardship withdrawal rules. As mentioned above, your employer may be privy to the information, or not. I am offering no comment on your thinking about loan vs. hardship. You should rethink, preferably with the aid of a plan representative, if that is available. Generally, hardship withdrawal is a last resort (at least in the view of professionals n the industry) and you may not understand the effects of a loan, even facing the prospect of losing your job, and defaulting on the loan. It is probably no worse than the consequences of a hardship distribution. Some plans do not allow hardship withdrawals if a loan is available to cover the need.

Grey divorce (both over 59 1/2 ), Roth IRA has aged 5 years, Roth IRA balance is divided incident to divorce and spouse's "new" Roth IRA is the transferee of the Roth distribution. Does the spouse's Roth IRA start the 5-year clock anew or does it benefit from the 5-year maturity of the source Roth IRA? I am not surprised the the regulations under IRC 408 and IRS publications do not address this, but I do not find much secondary material venturing an answer. One that does appears to go with the spouse Roth having the benefit of the age of the original Roth, drawing from the rules relating to dividing basis in an IRA transfer.

Because the participants are cynical about throwing themselves at the ineptitude (or worse) of the church governance? You might be surprised at the ignorance of the concept of "fiduciary responsibility" in churches. ERISA at least provides a framework for reference.

Please clarify “a selection of a broad range of investment alternatives is a fiduciary requirement.” Investment of plan assets is a fiduciary responsibility. That means that the fiduciary chooses how plan assets are to be invested. Having a selection of investment alternatives is not a requirement, although it is nearly universal to hide behind ERISA 404(c).

This expressed opinion is my own, and will not be well-received, especially by those who have been conditioned by misunderstanding and lax attention and enforcement: The entire concept of a discretionary match is intellectually questionable (my real opinion is "bankrupt") and the IRS is remiss by letting the idea get out of hand to the point it is now normalized and difficult to recapture and restore to the original purpose. If you want to make an ad hominem criticism, I will admit that I could never figure out how discretionary matches were legal, let alone sensible. I suffer from sumpsimus in a mumpsimus world.

Also, a QDRO mentioned in divorce papers or property settlement documents and correspondence does not mean that a QDRO has been entered by the court or accepted by the plan(s). It is too common that the party (usually the spouse of the plan participant -- or the spouse's lawyer, typically) does not follow up after the divorce judgment and prepare and submit the domestic relations order and get it qualified to be a QDRO. If you do not remember this being done, you should RUN to your lawyer to see if in fact there is really a QDRO that provides you with benefits.

The distribution would not be a required distribution, so do not get distracted by aspects of those rules, including amount. Check all distribution provisions. Some plans have some relic distribution provisions relating to age 70 1/2 from when a change was made to the law many years ago.