QDROphile

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.

A domestic relations order may divide a benefit that is in pay status unless the payments are made under an annuity that has been distributed from the plan. If the plan is making the payments, the plan should decide how it will allow the benefit to be divided and put the rules in the QDRO procedures. The example that pax gave is a typical and recommended approach -- the benefit payments are split in some fashion but the form of benefit is not affected. In other words, all the payments will be made according to the original schedule as though no divorce occured. The order will determine who gets what part of each scheduled payment.

And what requirements would those be? I can't see those trees in that forest.

Do the written terms of the plan allow two rates?

Yes, unless the basis for the in-service distribution is financial hardship under the 401(k) rules.

I am not aware of a good answer to your question. I specify in the QDRO procedures that the plan's claims procedures apply. In my last contact with the DOL, the representative said that the DOL does not think that the ERISA claims procedures regulations apply to QDROs (for example, the plan administrator's decision is not entitled to any deference). However, I think a court may look to the reguations at least by analogy. Courts like to have claims resolved outside of court if possible, so would look favorably on an administrative procedure even if the claims procedures under the regulations do not control QDRO qualification calims. Some recent cases have stated that an alternate payee has a reasonable time to cure a failure to qualify, but no bright line guidance is given. There are ways to cure disqualification other than getting the plan administrator to change its mind. The court decisions were not directed at administrative claims procedures.

A trustee is a title holder, so you would not need an individual if you had an institution. The fiduciary functions are another matter. It is common to have an institution as a "directed" trustee and have an individual or committee as the discretionary fiduciary.

ElKH: It is usually a bad idea to have the plan sponsor as the primary fiduciary of the plan. This point has been discussed in other threads. Your assignment of fiduciary functions should be reconsidered.

Don't mix up sponsor, fiduciary and plan administrator. Section 404© is primarily a fiduciary concern.

I will take my chances. Will you defend me?

If I were the plan administrator, I would apply the restriction.

Did the plan administrator have notice of the decree before the distribution? Whether or not the plan can get dragged in, there is probably some recourse under state law. The participant has disobeyed the decree by taking the entire balance.

Dick is correct if the settlement agreement was incorporated into the divorce decree or similar domestic relations order and the decree or other order were delivered to the plan. Upon receipt of a domestic relations order, the plan is required to protect the amount that would be payable to the alternate payee if the order is detemined to be qualified. Even if the order delivered to the plan is not qualified, the alternate payee would then have a reasonable time to achieve qualification. The original post does not say the the plan received an order. Without a domestic relations order, the plan should proceed as usual with distributions. If the plan received an order that is not qualified, then questions about reasonable time to achieve qualification come up.

That is what WDIK is saying. You look at the highest aggregate outstanding balance within the year. $45,300 in your example unless some more of the June 2 balance had been paid before June 19.