QDROphile

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?

The issue of what "notice" of a domestic relations order suffices to cause the plan fiduciary to take protective action under the statutory provisions was not before the court in Stewart v. Thorpe Holding Company. The court discussed notice of the order in the context of its alternate ruling about standing and breach of fiduciary duty. Even in that discussion, the facts are so unusual that the opinion is no basis for a conclusion that informal "notice" of a domestic relations order triggers the statute. One of the trustees of the plan was a party to the domestic relations proceeding that divided the retirement benefits. The fiduciaries also took action on the divorce decree. No one tried to defend the egregious actions of the plan by claiming that the plan did not receive a domestic relations order. The decison espouses an extremely liberal view of interpretation of orders and the rules for qualification. While that view has merit and represents a trend, it also presents problems for plan administrators. For example, the decision says that lawyers should not be held to a standard of drafting domestic relations orders to comply with the statutory requirements and consequently plan administrators have to supply and correct missing and improper terms and have to become become familiar with the state law behind the order. Shame on the court on both points! Of course, a California court cannot imagine that there is any law other than the law of California, and concluded that a plan administrtor should have figured out how to divide the benefits based on a knowlege of California case law that was not even mentioned in the order. The Department of Labor believes the plan adminstrator should interfere with a participant's rights under the plan at the whisper of "divorce." It has some support for its position in legislative history. If a plan intends to bow to the DOL position and abandon the bright line of the statute, the plan's written QDRO prcedures should have express detailed terms about what will cause the partiicpant's account to be compromised pending the receipt of a domestic relations order.

How about the requirement that plans have to follow their terms? Plans can set lower limits than the IRS maximums. If the plan has established a lower limit, it must change the limit in order to allow the higher amount. The reverse is not true. If the IRS limit is lower than what the plan provides, trouble ensues if the IRS limit is not respected. I am not commenting on the details of the advice you got concerning timing of changes to the plan terms.