QDROphile

A nongovernmental organization may allow allow employees to participate in 403(b) arrangments and remain exempt from ERISA. It facilitates the arrangment by sending pay deferrals to one or more 403(b) providers. If the employer gets involved in documentation beyond its limited role as a conduit for deferrals from pay, it increases the risk that the arrangment will be subject to ERISA. A governmental employer's 403(b) plan is exempt from ERISA because of the exemption for governmental plans. ERISA does not apply and the Internal Revenue Code does not require a plan document in order to provide the tax benefits of a 403(b) arrangement. However, state law may require the government plan sponsor to have a written document and a written disclosure document that might be similar to an SPD. No comment on the wisdom of not having adequate documentation and disclosure.

If the plan is designed to have particiapnts direct investments, generally two approaches are possible: 1) The participants may selelect from investments designated by the fiduciary. In that case, the fiduciary is responsible for designating reasonable investment options that provide an opportunity to diversify. See the ERISA section 404© regulations. 2) The participants are allowed to select investments without restriction, except for legal restictions and certain administrative restrictions because of feasibility. For example, a participant might be restricted to publicly traded securities. The fiduciary is not responsible for evaluating how the participant is investing. The fiduciary is not reponsible for prudence or diversification of the participants investments, and should not get involved. If the fiduciary gerts involved, the fiduciary will undertake responsibility and the limit of that responsibility will be uncertain. Allowing participants to have unrestricted investment authority brings in some issues on which there is disagreement. If participants do not direct investments, the the fiduciary is responsible for all aspects of of investment. If the fiduciary delegates to an investment manager, the fiducicary must still monitor. If the invesment manager is not diversifying assets, the fiduciary may have to intervene.

Whose plan document would you want it to be? Unless ERISA does not apply because the employer is a government or governmental instrumentality, the employer would not want to get involved with any documentation.

The more I think about it, the published decison that allowed attroney's fees was probably a state cocurt decison.

Mr. Maldonado: An earlier published federal opinion allowed joinder and attorneys fees in a case where the plan seriously misbehaved, but I did no go back to find it. A more recent federal Central District decison supports your view, which is the correct one. AT&T Management Pension Plan v. Tucker, No. CV ABC 95-2263, 1995 WL 590256. After that decison was issued, I thought that the Califonia decisions were shaping up and I became less paranoid about attorney's fees. The confidence was undercut by an article published 2 to 3 years ago by lawyers who battled attorneys fees more recently. Although they won, it took a lot of effort and they claimed that the attorneys fees statute allowed the state judges to be a bit indiscriminate in awards. I regret that I could not find my copy to provide the publication reference. I have heard similar complaints informally from personal contacts. Until the state judges catch on, there is some risk that a plan will have to defend against a request for fees. The plan should win, but I still like the idea that the plan starts from the proposition that the state court has no jurisdiction over the plan. The Oddino decison is pretty scary, even though it, too, falls into your category of laughable.

The DOL is not looking to go after the plan for failing to resist the order. The DOL is looking (maybe) for the right case to get the court to rule that the joinder has no effect and the plan should not have to pay any attention to the formalities or consequences of being a party. By being "overbroad" in the assertion of no jurisdiction, the plan preserves all issues. The DOL has complained about its failures in its endeavors in past California cases by explaining that it got caught in the wrong procedureal posture. The DOL implied that if it saw the right case, it might jump in on the side of the plan. In the hyperbolic world of litigation, a response to a pleading that is overbroad is par for the course. Also, I do not think it is overbroad, because I do not think the plan can be joined as a party to a state court action and I think the state court has no power over the plan or the determination of qualification (contrary to the California Supreme Court's hilarious decision). The state court divides the benefit to determine the relative rights of the individuals under state law and that is the end of its authority. The order is presented to the plan and whether or not the plan gives it effect is a matter for the plan and federal law. However, I agree 100% that even if a court has no powers, you don't want to get crosswise with the court to test the proposition. Although I think no one (least of all the court) reads the response to the joinders because they are essentially meaningless except as a device to preserve the retirement benefits for later division. The statement that the plan will not distribute should defuse any adverse reaction by anyone who actually reads the response. As a practical matter, one could just return the form without special response and forget about it and everything would proceed without problems. There have been cases in California where the court has awarded attorneys fees against the plan because the plan had the audacity to tell the divorce lawyers that their orders did not qualifiy and needed some more work. The lawyers wanted attorneys fees to compensate them for having to fix the order. Faced with such a situation, I would prefer to have submitted a pleading that states that the court has no jurisdiction. It would give the plan more grounds for defense and the DOL might even jump in to help. Although the cases I know about finally got straighted out, it was a lot of work. At least a few California practioners remain apprehensive about the possibility.

Here is what I do: Fill out and send back the paperwork. Include a statement that the plan asserts that the court does not have jurisdiction, but that the plan will not distribute any amounts pending further orders of the court or other applicable process. By the way, this is what the DOL recommended. The DOL is still sort of looking for the right case to get a decision that the joinder is pre-empted, sou you can be their test case if you preserve all rights. I think they have really given up. California is a sovereign nation that will never admit that its laws are limited, and even the federal courts in California think this way. The statement that the plan will not make distributions is what the joinder is really trying to accomplish, so probably no one will get excited about the other statement. By not making distributions (and perhaps not loans) the plan is not obeying the joinder because of California law (the plan is asserting no jurisdiction). Instead, the plan is obeying ERISA and 414(p) of the tax code because it has received a domestic relations order (the joinder). You and I both know that the joinder is not a QUALIFIED domestic relations order, but the plan administrator has a "reasonable" amount of time to decide qualification. Even if the plan disqualifies the order, the Tise case (9th Circuit) says that the would-be alternate payee has a reasonable time to cure qualification defects. What this all boils down to in most cases is that it is "reasonable" for the plan to sit on the joinder order, not make distributions, and wait for a "real" domestic relations order that it can process in the usual fashion. It gets a littel sticky if the participant is eligible for a distribution and asks for a distribution or loan. That will trigger the 18 month periond, and you might have to start communication with the parties at some point if the divorce proceeding drags on. I realize that this is artificial and a stretch, but it is my best effort to reconcile the applicable law with the inapplicable law and stay out of controversy. Maybe I am just lucky, but this has never been a problem over quite a few years and a large number of joinder orders. At one time I sent letters to at least one of the divorce lawyers so I could get the lawyer to buy in to the scheme, but I quit doing that years ago. They don't want extra trouble either. The only problem has arisen when the divorce got completed and they decided not to divide the retirement benefits, so no QDRO. Then the poor participant asked for a distribution and we had to tell him tha the plan needed some appropriate evidence that the proceeding had resolved and that there would be no further orders concerning the plan benefits. That turned out to be tricky.

I am not surprised that you did not find a section that covers in-service withdrawals by 45 year-old 50% owners, but the Rev. Proc. states principles of correction and does cover improper distributions. If there were specific guidance, I would not expect to find it anywhere but the Rev. Proc., unless you are looking for unofficial guidance, like in the Benefitslink Q&A column. You should also consider whether a breach of fiduciary duty or prohibited transaction occurred.

Same as an "umbrella plan," if that term is more familiar to you. A single plan covers component plans. The component plans often have their own documents that are incorporated by reference. One Form 5500. Of ten, the document for the section 125 plan serves as the umbrella plan document, even if not all of the component plans are section 125 plans.

I was hoping for insight on the zip code for St. Peter, or maybe Mephistopheles. Since you obviously know your stuff, here is a useless policy thought. I would like the rule for DC plans to be that the plan does not care how the order came about. As long as the plan has the assets to divide (the order did not arrive after distribution to the beneficiary), the plan simply follows the terms of the order and the qualification rules. The plan administrator has only two concerns. Don't disqualify the plan by inappropriate distributions and don't create a fight that will drag the plan into court, especially into state court. The plan does not care who gets the money; let the interested parties fight it out in state court. And maybe that IS the answer in most jurisdictions. The DOL has issued an opinon that the plan administrator does not have to be concerned that state domestic relations law has been followed. The plan administrator can take the order at face value. Unfortunately, the DOL is wrong on several QDRO issues, so I don't know what we make of the opinion if we try to stretch the "face value" comfort to cover these issues. I don't see a big difference between a beneficiary getting a reduction because of an after death QDRO compared to a before death QDRO unless one believes that the beneficiary "vests" because of the death, as described in Hopkins. I think Hopkins is wrong becuase the statute allows a QDRO to award benefits "in respect of" the participant and death benefits are "in respect of the participant" even though they would be delivered to someone else. Also, given that the law prefers spouses, and QDROs are designed to get spouses whatever state law decides is their proper share after the end of the marriage, why should after the death make such a big difference? A spouse would not be thwarted by death. A former spouse should not be, either. DB plans provide a greater challenge. Most DB plans want the participant to die and to pay less benefits (zero, in some cases). To the extent that benefits get assigned to an alternate payee, the death is not so rewarding for the plan. If the division is not adjudicated before death, the plan can get screwed. In the worst set of facts, the divorce occurs, the decree does not mention benefits except that they will be divided pursuant to a subsequent order, the particiant dies unexpectedly soon after, and then the former spouse attends to the QDRO. At that point, no one except the plan would object to an order that gives the former spouse 100% of the benefit. No one else would be getting anything because the plan pays benefits only to participants and spouses. The plan would rather pay nothing, but certainly wants to argue that if the participant had been around to negotiate and argue about the division of benefits, the former spouse would have received something like 50%, not 100%. We have cases that either say or strongly suggest that if the court did not decide the award based on pre-death considerations, the QDRO can't raise the benefits back from the dead. If you drag this through court, try to see if you can get us a published opinion, preferably a correct one.

This addresses only a small portion of your questions, but I think that death benefits are still "with respect to" a participant. The benefits would not be paid to the beneficiary if the benefit was not accrued by and payable through the account of the participant. And in this case tha participant also designated the beneficiary. "With respect to the participant" has to be broader than "of the participant." Hopkins vs. AT&T is to the contrary, but I think that case is just wrong. You did not specify if the pan is a defined contribution plan or a defined benefit plan, but it sounds like a defined contribution plan. That can make a big difference. I think it matters what circuit you are in because of some of the court decisions, but I also think that the right answer depends on if the benefits were adequately divided before the death. I think the Tise case in the 9th Circuit is correct. If a pre-death court adjudication got the basic division down, the details can be resolved for qualification of an order after death. As long as the plan gets a domestic relations order before it distributes the assets, the alternate payee has a reasonable time to satisfy the qualification requirements. Plus, it will be interesting to see what address is given for the deceased. I suppose they will have to resort to the "last known" address. If the division of benefits was not adjudicatd before death, it gets more dicey. In that situation "nunc pro tunc" translates to "nobody knows what to do and the situation is unfortunate so let's try some Latin." The issue about consequences of designation of the mother in violation of the order, by itself, is not for the plan to worry about. It is a state law issue, and the designation cannot be affected if the designation passed under propoer plan provisions. I hope that the state court does try to change its ruling on the division of the benefits. That sort of post death division would be extremely problematic for the plan. It would be a lovely set of facts for guidance from the DOL or IRS.

The only way to be sure that you have protected yourself from the risk that your former spouse will receive money from the plan pending recognition of your interest under a qualified domestic relations order is to submit to the plan a domestic relations order that mentions your interest under the plan. The divorce decree is a domestic relations order and it sounds like it mentions splitting the plan account. While the plan is determining whether or not the order is qualified, it is required to hold back the amount that would go to you if the order turns out to be qualfied. According to at least one federal court decision (but not a literal reading of the statute) even if the plan determines that the order is not qualified, it should continue to protect you for a reasonable time in order to allow you to correct qualification defects. Three years is not a reasonable time, so you should stay on track with submission of another order to prolong protection. You should ask the plan for a copy of its written procedures on qualified domestic relations orders. Those procedures should state what is necessary to know for an experienced person to draft a good order. However, if the plan even has written procedures, they probably suck. For example, the procedures should explain that it has a cut off of July 1998 for calculation of account changes (probably a change in plan administrators). You can probably get account balance statements from the plan from before 1998. From the statements, you can calculate a good approximation of what you are after. You may need a subpoena or other legal process to get the account information if your former spouse will not consent to release of it. It may also be possible to describe what you should get without reference to the account balance numbers. Unfortunately, I doubt that you will be able to carry through with this mess without competent and experienced legal help. Yours is no longer a garden variety situation and most divorce lawyers barely get by in the most simple of these matters.

The Department of Labor may not care, but Blinky's example shows why the IRS might care, disqualify the plan, and create a mess with any rollovers. And the point is well taken even without the extreme numbers.

I wonder if this would be a legitimate correction of the error. Seems like cutting new checks is more in line with correction principles. I don't see anything in the Revenue Procedure about making up investment losses. In fact, making up investment losses is something of a taboo. Mike Preston is correct. The techieswill not be satisfied. If you want wild suggestions, how about breach of fiduciary duty? The fiduciary should not have cut checks without ascertaining good funds. The fiduciary makes the plan whole by covering the shortfall in the checks. The company indemnifies the fiduciary. Still not very satisfying, especially since each participant gets a different windfall.

Make sure you take the period to which the match applies, e.g. annual, by quarter, by pay period. Also take into account when the match is set. Another way of looking at it is, when are the participants induced to defer in order to get the promised match?

The problem with any answer in in this situation is that all the facts and circumstances can't be considered and it would be foolish to try to make a decision based on responses to this message board. Perhaps one might ask a a very specific question that has a right or wrong answer and actually get the answer here. But one should not be seduced or comforted that this board is a cheap and quick source to solve problems. This is a situation where the responses have very little value except to identify some aspects of the situation for consideration. The best we can do is give someone the perspective to realize that expert help is probably necessary. That said, Mike Preston's suggestion is probably a top consideration as a direction to explore, but that is all I would be willing to venture.

Unless the communication 15 years ago had a very strong written disclaimer that the "approval" had no effect on the participant's rights and created no rights in the former spouse, the plan might as well hire a lawyer now before doing anything to make the situation worse.

Try this http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html

Consider a policy and plan design that does not allow loan rollover unless the entire account is rolled over form the other plan. That is independent of your question. The loan can properly be rolled over by itself. Of the reasons for rolling over only the loan, most are negative from a policy perspective one way or another.

Not many plan documents have adequate language to create the sparate accounts.

You should go kick the author of the plan document that did not provide for a clear and practical disposition of death benefits. Or perhaps you should check the plan document to discover it is not so bad. A decent one would not let anyone "will" a benefit. Benefits are paid to designated beneficiaries. If there is no designated beneficiary, the plan should identify the recipient. Usually, an estate (of the participant or the designated beneficiary) is one of the default recipents.

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?