QDROphile

I agree that the QDRO Procedures should be followed. If the QDRO Procedures don't address the issue sufficiently (that's my bet), you should be aware that the Department of Labor's position is that the plan administrator should protect the would-be alternate payee's interest if the administrator is aware that a domestic relations order is coming. The statutes do not say that, although some legislative history supports the DOL. The DOL's position has some other problems, such as how does plan administrator know with enough confidence that a DRO is coming that a limitation on the participant's rights is warranted? And how long must the plan administrator hold it its position withou receipt of a DRO before having second thoughts? Subject to what the QDRO Procedures say, consider the following: 1. The adminstrator should not decide unilaterally that it would just be a good idea to take some restrictive action. For example, I don't think that mere knowledge of a divorce is enough to project a receipt of a domestic relations order. Receipt of a divorce decree is another matter, because that is a domestic relations order. 2. What would the administrator "segregate"? The restrictive action, if any, should not go beyond limitations on distributions and loans. Restricting investment directions by the participant (if the participant has the right) is an invitation to disaster. See Schoomaker v. Employee Savings Plan of Amoco Corp., 987 F2d 410 (7th Cir. 1993). As Mike Preston wrote, the situation is sticky. Legal advice would be a good idea. I am of the school that believes that nothing is done to compromise rights of a participant until receipt of a domestic relations order.

SEC says you cannot net shares. All shares purchased or issued count against the number you registered, no matter how many are sold/distributed or when. Further, I believe that once you register, all shares count. In other words, you would not have to register if the shares came in only as match. The elective deferrals invested in the employer securities are what causes the registration. But the shares purchased with match dollars (or issued to cover the match) count against the number you registered, not just the shares associated with elective deferrals. Seems odd, and others may disagree, but registration costs are low enough that it is not worth taking a chance on the issue to cut back on the number of shares registered. You really should consult legal counsel when securities laws are involved.

The plan will have to stop receipt of loan payments. You may require notice of the proceeding. You may also have to grapple with a direction to return any payments that were accepted after the time of suspension, but that is much less common. Sometimes payments are allowed to continue, but you would want to see provision for that because most of the time they must stop, same as for other creditors. Next, the fiduciary has do decide how active to be in making claims as a creditor. Be sure to read all the notice materials you get from the bankruptcy court or trustee.

Your plan terms present a problem. You can't distribute the entire alternate payee interest immediately in a lump sum. You could interpret the plan to provide for a distribution of the entire interest in a lump sum at the time the alternate payee becomes fully vested (or when the participant terminates and is eligible for distribution of the partially vested account). You could interpret the plan to mean that "lump sum" applies to the vested portion of the interest and distribute the vested portion. After all, you would do the same for the participant when the participant terminates employment and becomes entitled to a distribution. You would have a "lump sum" distribution of the remaining vested portion when it vested. You might have several years worth of annual lump sum distributions, depending on the vesting schedule. Your interpretations would best be memorialized in the plan's QDRO procedures. Or you could amend the plan to state the rule you want to use, and avoid the need to interpret the plan terms. Remember to read the QDRO very carefully. Will you be followig its terms if you follow any of these suggestions?

A stock dividend cuts the same pie into more pieces; there is no economic substance. The stock dividends on suspense account shares stay in the suspense account and are allocated along with the shares that were there before the dividend, otherwise you would be diluting the ultimate allocation. If you had a real and competent pledge and security agreement, the agreement would provide for the lien to cover shares received from stock splits and dividends.

How about hardships distributions are available only if you have no other assets that can cover the need? The real estate baroness seems to have other assets.

A plan does not have to allow alternate payees to designate beneficiaries. Many defined contribution plans allow it. Although there are arguments to the contrary, allowing a designation of a beneficiary by an alternate payee in most cases under a defined contribution plan should not be an impermissible assignment of a benefit. Certain payment restrictions may apply. Most defined benefit plans (except for cash balance plans) do not allow an alternate payee to designate a beneficiary because they either do not provide for payments to anyone but a participant or spouse or they are correctly concerned with issues under section 401(a) (9) of the Internal Revenue Code. However, it is possible to allow an alternate payee to choose a form of benefit distribution that provides for payments after the alternate payee's death as long as the form is permissible under 401(a)(9), such as a five year certain annuity. One may argue to the contrary. The terms of the plan control, as implemented through the written QDRO procedures.

"Of Counsel" has no estabished meaning. You have to learn more about the particular relationship

Now that pax has explained what "nunc pro tunc" means, I had to go back and edit my message to make the statement negative! Actually, I slipped and omitted the "not" in the post. In short, an order that is issued "nunc pro tunc" has a retroactive effective date. What I was getting at was that I think it would be improper to go back to court to have the original order modified to stop annuity payments on the theory that the modification was not a new (and not qualified) order, but a negation (nunc pro tunc) of the old qualified order, with the same impermissible effect as a new order, but rationalized through legal mumbo jumbo. Hmmm, I wonder what Google would tell us about mumbo jumbo. Sorry about that long sentence and all the commas.

As long as the plan administrator does not suspect fraud, I agree that the plan administrator does not have to take action and the inidviduals need to arrange for the changes they want via an amendment to the QDRO. But even if the parties go back to court and amend the order, I would be reluctant to modify an annuity distribution that had started properly under a legitimate QDRO. A subsequent order cannot change the distribution because an order is not a QDRO if it provides for a type or form of benefit or any option not otherwise available under the plan. I have not seen any plans that allow modification of an annuity once the payments have begun, except suspension upon rehire. A new or amended order could not modify the annuity payments because the modification would not otherwise be available under the plan. And I would not give any credence to "nunc pro tunc." I don't think the plan administrator should choose to qualify the order to modify the annuity. Once the plan allows modification, trouble lies ahead in other circumstances. Also, it may be that permissive modification would cause the plan to be operated contrary to its terms.

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.