QDROphile

It might be helpful to know more abbut the plan's distribution provisions and the QDRO's distribution provisions. Was a lump sum a possible choice, but the AP elected installments? Or did annuity payments start under the QDRO? What would happen to a participant that started benefits but was rehired? None of these questions will lead to a definitive answer, but they might help with interpretations and the choices. One thought: If annuity payments started under the QDRO, I would be very reluctant to stop them. Subsequent events almost never justify modification of an annuity benefit.

If you are worried about a regular monthly 5 day suspension of your trading, you should look for education or advice about investing for retirement.

Why would you want to leave yourself open for dispute at a later date about when you learned or should have learned that you had another defect, regardless of a literal reading of the rules? Hiding the ball is unbecoming. Even if you are square on the rules, you may be put in a bad light that could hurt for other reasons.

When a named fiduciary is the corporate sponsor, there is a very high probability that the directors and executive officers of the company will be identified as fiduciaries. It is always a bad idea to name the company as a fiduciary. In most cases, the "plan administrator" is a fiduciary. Kirk Maldonado makes a decent argument that the plan adminstrator need not be a fiduciary if the duties are carefully limited to only those duties specified for plan administrators under ERISA rules. But plan documents almost never have such limitations.

The purpose is to allow automation. Unless that is compelling, don't use the safe harbor. Life is not so dangerous outside of it. You will need proper plan and adminstration documentation and at least one brain for administration. Bye-bye prototype.

Look at Treas. Reg. section 1.401(k)-1(g)(11).

The plan may be disqualified because of terms that say that loans will not exceed the section 72(p) limits. Failure to follow plan terms will disqualifiy.

Return of premiums is very risky. Once premiums are paid, any assets are plan assets and generally, plan assets are to be used to provide benefits under the plan. Generally, benefits under the plan do not include cash payments to participants. Cash payments under a reimbursement plan simply cover the benefit that the plan provides, e.g. medical services; they do not provide "windfall" cash. Plan assets can be used to give a premium holiday, but I have doubts about whether you can give a premium holiday only to the person who paid the premiums. Depending on the the scope of the "plan," the assets might be used to provide benefits other than what was covered by the original policy. The Department of Labor has been surprisingly flexible with use of demutualization proceeds, but I am wary about treating that as a guide. If you client wants to do this, competent legal advice is needed.

What is the plan going to do with the premium refund? Who is effectively paying the premiums?

Make sure that your plan terms specify that for the first year of the CODA the special definition of compensation applies for purposes of the 3% contribution. If you don't, you could end up with a plan that says the participants get 3% based on the entire year if the definition of compensation already in the plan for purposes of contributions refers to the entire year. You may also may have compensation defined for puposes of contributions to be limited to the portion of the year after the participant becomes eligible for the contribution, such as at mid year entry dates. The plan terms will control and may be more generous than the minimum required by the law.

Possibly a claim that the claims procedure is defective or was not properly followed, with a shortcut to court and no deference to the findings and conclusions of the administrator. I think such a claim would fail and there are other reasons to lose the deference advantage. Mostly I just like to observe bad drafting in the regulations.

mbozek I completely agree with your conclusion. The top hat plan needs claims procedures and can disclose them as needed. But if you try to trace through the terms of the regulations, you run into contradictions. The SPD regulations and the new claims procedure regulations, taken together, don't fit with top hat plans. I was merely pointing out that curiosity, and that curiosity may create some doubt about timing and form of disclosure of claims procedures.

Look at ERISA Reg section 2560.503-1(B)(2). A description must be included in the SPD. Is this similar to dividing by zero?

This discussion is not distracting enough, so here's another distraction. Top-hat plans have to comply with ERISA claims procedures. The claims procedures regulation has disclosure requirements that refer to a summary plan description. The SPD regulations allow top hat plans to avoid SPD distrribution. Hmmm.

Don't forget to check what the plan says and to determine if the child coverage was added involuntarily under the order or if the employee actually made the election. Often employees will make the election when there is an order to the same effect.

RBeck: You and the participant can continue to waste time and emotional energy on feeling wronged, but I think you should catch on to the pretty clear and unifiorm message you are getting here. Unless there are some startling facts that you have not revealed, get on with requesting a distribution and put the money where the participant wants it now.

You could have a plan limit for HCEs that is lower than the 402(g) limit, so the catch up would start at less than the 402(g) limit.

Don't forget that the regulation requires that the determination must be made with respect to "objective standards set forth in the plan." The IRS audit guidelines at one time stated that a "catch-all" provision for determining hardships is not an objective standard. I have not checked the guidelines recently. But that may suggest that plan terms that merely recite "immediate and heavy financial need" are not specific or "objective" enough to pass muster. Even though I do not favor using the safe harbor for "necessary to satisfy," I favor sticking with the list in Treas Reg section 1.401(k)-1(d)(2)(iv) or some other specific list because of the uncertainty over what constitutes "objective standards." If "immediate and heavy need" is not a "catch-all," what is? I also do not believe that the audit guidelines are gospel. Make of them what you will. Another good reason for a specific list is to take the heat off the adminstrator to answer this question each time someone comes up with a new situation.

We have seen quite a bit of confusion and variability among reviewers. The IRS never had a uniform articulated or enforced policy in the first place and everything got out of control. The IRS has this funny antipathy toward ESOPs combined with letting all sorts of improprer practices and lore build up, sometimes with its own misguided help. You have to have some sympathy. ESOPs are a misbegotten square policy peg in the more or less round ERISA/ qualifed plan hole. The professionals shouldn't complain, though. They get fat at this trough.

For example, look under "Insurance" and find that some company owners put domestics and other persons on a payroll who perform no services for the company and are never expected to perform sevices for the company. They become "eligible" for group insurance benefits or cafeteria plan benefits as "employees" under the terms of the policies or plans. The insurance companies have a copy of the The Great Big Book of Everything and have no problem denying a claim by a person who was not really an employee, as long as they can find the fraud. They have a nasty way of interpreting policy terms in the cold light of conventional reality. mbozek raises a very good point. One must find the fraud. At one time, we found Commies everywhere and some lives were ruined for no good reason. An unorthodox arrangement is not necessarily fraud. But if one is in a sensitive position, one might have to worry about finding the fraud. The IRS has a copy of the The Great Big Book of Everything and has even adopted for itself one of the doctrines in the Book called "form over substance.'' They trot out the doctrine only when they find it useful, such as in the case of fraud. Many retirement plan rules are expressly intended to be form over substance. Comply with the rule, everything is OK. An employment arrangement has many aspects, including many tax aspects. Can I employ my child with no substance to the employment in order to give the child the ability to have a ROTH IRA, even if I follow all the formal rules for reporting and witholding on wages? I think the IRS might object. So what rules are you responsible for? And what rule is the taxpayer trying to beat?

I think you all should read section 402©(4)© of the Internal Revenue Code and compare it to the version before the amendment by P.L. 107-16.

The plan document will tell you the sources and the priority. If it does not, then the person with authority to interprest the plan (a fiduciary) must tell you the sources and the priority. An intelligent fiduciary would ask to have the plan amended to clarify rather than be forced to interpret a deficient plan. Priority is not governed by external rules.

You should look in The Great Big Book of Everything under "F" for "fraud." The particular section you want to read carefully is how not to get involved with the fraud of another person in a way that could make you liable or subject to penalty. You are not responsible for someone else's fraud. Your responsibilities may or may not include the unfortunate opportunity to assist in perpetuating someone else's fraud and thus becoming liable in some way. Or your position may make you responsible for either correcting the fraud that you learn about or reporting it to someone else. So you need to figure out where you are in the scheme of things to know whether to be amused and carry on with proper technical execution or if your have some danger in touching this on the way by or have some obligation to take note and address the impropriety directly.

I would still like to know how "formalizing" a bonus arrangement turns it into an ERISA plan.

How would you like your employee to elect $10,000 for the medical FSA, incur $10,000 of expenses in January and have them reimbursed, then quit in February. You would get maybe $1,666 from the employee. The rest comes out of the employer's pocket. That is your problem, not a statutory limit or coordination with a retirement plan.