QDROphile

Yes, if the alternate payee is a spouse or former spouse of the plan participant. But once the amount is rolled over, withdrawal before age 59 1/2 will be subject to the early withdrawal penalty unless an exception applies. Distribution from the plan is not subject to the early withdrawal penalty. Depending on when the alternate payee expects to need spending money, it might not be a good idea to roll over funds from the qualified plan.

Preparation or acceptance of a form is a fiduciary function. The fiduciary cannot be partial to a particiapnt or an alternate payee. It is impossible to prepare a form that is neutral, at least for a defined benefit plan. One way or another, the form will at least suggest to one or the other some idea or advantage that would not have been thought of without the inspiration provided by the form. For example, would the form have a provision for awarding the alternate payee a portion of the survving spouse benefit if the participant dies before the start of benefit payments to the alternate payee? Would the form provide for a proportionate share of early retirement subsidy to the alternate payee in the event that the participant starts benefits later and is entitled to a subsidy? The alternate payee may not have bargained for those benefits unless the form had raised the issues, and any success on the part of the alternate payee could be detrimental to the participant. The other side of the coin is that the plan administrator cannot possibly put everthing in a model that a QDRO can do, such as secure child support obligations or allow partial cashouts of employee contributions in defined benefit plans. Is the administrator at fault for an "incomplete" model or implied limitations? Even worse, the form may be used rather thoughtlessly and may greatly influence the property division. You know darn well that many ignorant lawyers desperately want to fill in the blanks and be done with it rather than give much thought to how the property should be divided. I don't like giving them a loaded gun. In a similar vein, criticism has been leveled against lawers who thoughtlessly influence clients to pass property in a will according to common law presumptions rather than find out what the client really wants in a will. The counter argument is that no one should be shy about having everyone fully informed and making their own decisions and doing their own bargaining. In a perfect Republican world, that would be true, but it does not happen that way. The sophisticated provisions in QDROs are not understood by all the lawyers, let alone the participant and alternate payee. Another problem is that domestic relations orders are creatures of state law. They must comply with state law and court form and procedures. The plan administrator would at least have to put a big disclaimer on the form that the form is not designed to cover any requirements of state law. For example, it is common practice to have a provisions for reservation of jurisdiction over the property division that would otherwise end upon the divorce. But that is purely a state law concern and the plan administrator is out of place by adding it to the form. Or could the plan administrator be criticized for not adding it? What if the availability of the form sugggested to the individuals that they they could do it themselves without legal counsel? Would the plan administrator have any problem other than dealing with the mess? Would the plan administrator give the form only to lawyers? How detailed will the form be? Will there be alternate provisons for the formulas that are commonly found in community property states? And how does the plan administrator know about all that? The law tends to treat volunteers rather rudely. I am not in favor of the plan administrator volunteering a form of domestic relations order, but many people will conclude that the convenience, control and expediency of a form outweighs my theoretical concens. There is something to be said for that. The conclusions might need to be reevaluated now that the DOL has changed its position against charging the participants benefits for the costs of QDRO administration.

Medical benefits provided by third party insurance do not run afoul of section 105(h) of the Internal Revenue Code.

Provide the lawyer with a copy of the plan's written QDRO procedures. Good QDRO procedures will cover all the requirements and serve as a guide for drafting an order. Don't be embarrassed by lack of a "form" order. Plans really shouldn't have them, though they are popular. The plan does not owe anyone any technical assistance in drafting orders and can actually incur liability if it venures too far. The reference given by pax is appropriate.

Are the benefits provided under an insurance policy or are they covered from the employer's assets?

All claims for benefits have to be pursued first through the plan's claims procedures. The DOL might get interested in the claim, but I doubt that it would take the lead if the claimant had not at least started on the right track. Probably the DOL would sit back and see how the claim was handled. The IRS does not care about claims of individuals. The IRS might get interested for purposes of plan qualification (not very likely given that the IRS has been stripped of enforcement budget), but that will not do the individual any good except as a threat to report to the IRS if the plan does not do the right thing. The individual cannot get into court without having gone through the claims procedure of the plan.

If the terms of both plans and the policies allow it. The first thing you need to do is be more precise about whether you mean a direct rollover or a plan to plan transfer. There is a difference and the difference may show up in plan terms. Apart from that, be sure that the receiving plan wants to have life insurance policies. They are not a good idea. I am sure that others will not share that opinion, even some who are not insurance purveyors.

How are you going to handle withhholding if the participant specifies 100 percent in-kind distribution? How about direct rollovers? I bet some participants won't check to see if the recipient eligible plan will accept in-kind rollovers. Will you allow a split between in-kind and cash? It is a lot more complication, and for what? The participant can take the cash and buy the investment the participant wants.

What if you achieve the floor price by the design of conversion features of convertible preferred stock?

Depends on how the plan was designed and who was given authority to do what. Who does what should be in the plan document, although it might be in ancillary documentation. The assigment of powers and responsibilities should be given careful consideration because of all the points mentioned.

404© is a section under ERISA and ERISA does not govern governmental plans.

Possibly. You need professional advice.

I guess I will stick to my guns and say it matters what nancy means by "has never been used." The simplest illustration is a prototype plan in which only the employer discretionary contribution feature is elected in the adoption agreement. The plan document has a CODA feature written into it, but the mid year change to the adoption agreement "adds" the CODA feature within the meaning of Notice 2000-3 even though the words were in the document all along. That is different from a discretionary match in which the employer exercised discretion in a year to contribute $0. The analogy for a CODA would be an active CODA feature under which no participant elected to defer even though they could. That would amount to "never been used" but it has a very different meaning from the prototype feature that had "never been used" because the feature was not active and could not be used because of the limited terms selected in the adoption agreement. This a matter of interpretation and you are entitled to be conservative. I think Notice 2003 was meant to expand on earlier guidance rather than restrict.

Agreed.

So anyone with a prototype that has an option for a CODA cannot start a safe harbor mid year, end of story?

The ESOP Association and the NCEO have nice booklets. You can order from their websites. Houlihan Lokey used to publish a booklet.

So does that mean that every prototype plan document that has a CODA option that is not selected is deemed to have a CODA for the purpose of the safe harbor rules? I think it may depend on what "never been used" really means. Or to paraphrase a former President, it depends on what "is" is.

I find that very difficult to accept in the light of the detailed provisions for equivalencies in the regulations. If you can just peg any number of hours for which a person is paid, you can circumvent the equivalencies. I don't think you can interpret regulations in a way that make the regulations meaningless. The regulations force a choice. For EACH participant, either count hours or use equivalencies. The decison to buy a protoype also forces a choice. For ALL particiapnts, choose either to count hours or to use equivalencies. Automatic use of 40 hours a week is not a choice, no matter what type of plan is used.

As long as the order translates to benefits and provides for a proper divison, it can qualify. It is possible to use assets to define a portion of the particpant's benefits. No particular words are necessary. But Andy H is correct. If the plan administrator can't follow the translation from assets to a measure of benefits, the order won't qualify. Perhaps the original post arose out of doubt about what the AP's benefit really was. It seemed to me from the description that the order was carefully constructed. Even though it is unconventioonal to start by looking at assets, it eventually got to a benefit equivalent. In a one person DB plan, it is not so surprising to focus on assets, because the plan is just a device to set aside assets for the participant. That approach won't work in a DB plan with more participants. But you can still use any number of measuring devices to arrive at a description of the portion of a participant's benefits to award to an alternate payee, subject to the other qualification requirements. For example, you could award an alternate payee the portion of the participant's accrued benefit that has an actuarial equivalent value of $X as long as that value is not more than the value of the accrued benefit. That is how I read the post.

I am a rather simple sort. I look at section 414(p) and see that a QDRO gives an alternate payee the right to all or a portion of BENEFITS payable to a participant. The plan may have a problem with sufficiency of assets to pay accrued benefits, but you can't avoid consequences as manifested in terms of benefits. I can see sizing the alternate payee's interest, as specified in the QDRO or computed in a manner provided in the QDRO, to allow the AP to be paid from an agreed portion of available existing assets. If the plan paid 50% of its assets to the AP, the value of the the assets corresponds to the value of some portion of the participant's accrued benefit (determined in accordance with the plan's actuarial specifications and assumptions), so the particpant would lose that portion of the accrued benefit. You suggest that 50% of the value of the assets would be something like 25% of the value of the particpant's accrued benefit. Hooray! The participant avoided having to give up 50% of the participant's benefit (and all the assets). The remainder of the benefit after subtracting the alternate payee's benefit is the participant's new accrued benefit. In our example, the participant' benefit is now 75% of the original accrued benefit. The plan has 50% of the original assets. The funding got worse.

No, but I wonder about the wisdom of a DB plan (other than a cash balance plan) that allows an alternate payee to name a death beneficiary in the event of death before benefits start. Among other things, the "separate interest" arrangement sets up a great opportunity for adverse selection. Also keep in mind how the plan will comply with the rules under 401(a)(9).

Sorry, if you want a prototype, you have to make a choice and can't have it both ways. If you choose hours, then you have to find a way to record hours for those who do not otherwise report hours for payroll purposes. You can't "deem" a certain number of hours unless you use the equivalencies. Many use 2080 hours per year when they have elected the actual hours option and they are running the plan improperly.

The problem with that explanation is that the need is at the time of the distribution. Once the need is satisfied by the distribution (and the distribution is bigger than the next deferral), why would you assume that the person's economic ability to save from future income would indicate inability to fund the need at the time of distribution? I think the only way to explain it, other than admit it is just a rule, is that it is a penalty for lying about being destitute in order to get a distribution. The penalty was a real one under pre-EGTRRA rule. Now it is just a joke. You can lie and still get full deferral unless you get stuck because of year end timing.

The IRS apparently agrees with this theory. IRS speakers have said so with the usual disclaimers and we have received determination letters on plan terminations that made it clear the the participants of the terminating ABC plan were participating in the DEF plan by virtue of continued employment by C. I am unaware of any authority that you can rely on.

Have you considered the effects of unrelated business income taxes?