QDROphile

You are correct. The issue is an audit issue. The audit issue arises when the employer calls something a leave of absence when it is not a leave of absence. In conventional parlance, this is also called a "lie."

I think that employers who use leave of absence as a bridge usually do it in a way that is so sloppy and internally inconsistent that it is easy to see the sham. That is why care must be taken when using leave of absence for what is really not a leave of absence, even putting aside the moral issue.

Be careful about sham leaves of absence. Vacation is better if the employee is entitiled to it.

Then take a close look at ERISA section 404(a) (1). If a fiduciary thought that participants were missing out on an opportunity for additional benefits because of ignorance of the opportunity for restoration, would the fiduciary be performing adequately if the fiduciary did nothing about it, even something as simple as giving a piece of paper to rehires? Usually I don't have a lot of sympathy for persons who do not read summary plan descriptions. One would think that if the participant left money behind, the participant might inquire or read the SPD upon return to find out where the money is. But these rules are complicated and not intuitive, so it might be too much to expect the SPD to be an effective communication about restoration Fiduciary duty is serious stuff. I get a bit peeved at the amount of effort that goes into finding out the absolute minimum required by law. I can't say that direct, individual notice is required after rehire, but it is the right thing to do.

Why do you need some authority to back up doing the best administration you can?

Assuming you get over all the other problems, the income from the nursing home business could be taxable to the plan, depending on the form of organization of the business and the actual property that the plan owns.

A discussion of an alternate payee's interest in a loan is beyond the scope of this thread, but it is good to be aware that many issues arise if the AP has an interest in the loan. Many of the big systems, like Fidelity do not even allow for an alternate payee to have an interest in a loan, except maybe the entire interest. The Fidelity system is not compliant with what the law would require. Even if a system can "split" a loan, there are many subtle issues to consider. For example, although the alternate payee could be allowed to make loan payments, I think that the participant must remain liable for the payments if the alternate payee misses any and that the payroll deduction feature needs to stay in place to cover the back up obligation. I think it would be a fiduciary breach to give up the support of an original obligor on the loan because loss of that support increases chances of default. I dodn't expect universal agreement with my proposition and I don't intend to explain or debate any issue. The point is that granting an alternate payee an interest in a loan is tricky and won't be appreciated by the persons who think it is a good idea in the first place.

I think you can get the comfort that Mr. Maldonado wants in an efficient mannner. The plan issues a determination that is conditioned on interpretation of the order as set forth in the notice of qualification The notice includes a description of how you arrived at the alternate payee's interest, the dollars allocated to the alternate payee and where the loan ends up (with the participant). All QDRO determinations should have some reasonable period between the notice and any actual effect and state it in the notice. The period allows either the alternate payee or the participant to dispute the determination or interpretation before any money gets moved. If the expectation of both is the usual expectation described above, once that period has expired without objection, you put the determination into effect and proceed. For example, you would then allow distribution to the alternate payee if the order provides for it. If either of them object, then you respond by saying that the order is not qualified because the interpretation was incorrect (at least in someone's view) and the order fails to adequately specify the award to the alternate payee becuase it does not address the disposition of the loan. Odds are in favor of acceptance of the original interpretation and you have saved time and work if you win. It helps if you have QDRO procedures that deal with the issue. The participant and alternate payee will have a hard time with any quarrel with the plan administrator if they don't take into account the procedures before they draft the order.

That is usually the result and would be a reasonable interpretation of the order. However, the plan could have policies and procedures for interpretation and administration that produce a different result. A plan is required to have written procedures for dealing with QDROs and good procedures will cover this issue. The order must be read very carefully to understand what it may say about the issue. Finally, it would be proper to refuse to qualify the order unless the order itself spoke to the details, but I would not recommend that hard line approach.

Without some court or agency document that provides for the former spouse to have a a legal interest in the plan, the former spouse gets nothing. If the court or agency document that provides an interest to the former spouse is from before January 1, 1985, the Retirement Equity Act allows the plan to give it effect under the QDRO rules even though it does not meet all of the formal QDRO requirements (good luck with interpretation!). If the document is after 1984, it must be a QDRO to give the former spouse anything. If it is a domestic relations order, but not qualified, the former spouse has a reasonable time to get the order qualified, but must observe the 18 month rule of section 414(p)(7)(B) and (E). Since "they never addressed" the 401(k) balance, it sounds like the former spouse has no interest, perhaps unless community property law applies. Whether or not a state court will consider doing anything with any situation that old is a matter of state law and the plan administrator should not care or get involved with what happens in the state court. There are other threads, including one that provides the cite to the Retirment Equity Act.

No federal withholding is required if the recipient elects no withholding. Otherwise withhholding applies, but not the 20% rate.

You said you needed the distribution to pay for school. Don't forget that when you sell the shares to get the cash to pay for school, the difference between the basis and the sale price is taxable gain. Depending on the holding period, long term gain rates may apply. You don't get the appreciation tax free.

The loan can't be distributed until there is a distributable event anyway. The loan will be deemed distributed for tax purposes under the usual rules. When the loan is repaid, the account will have after tax money. Interesting conflict if the participant terminates employment and the plan would distribute the loan under its usual terms. I don't know if the bankruptcy court can require the plan to hold a loan and accept payments beyond what the plan is designed to do.

I did not give an answer and would not without all the facts and considering all the options and having input from the employee. Maybe the employee could stand a current catch up on the missed amounts out of remaining pay. Maybe you have to go to EPCRS methods.

Just in time for Christmas! If you really mean back charging as described above, you need to think about it carefully. The employee authorized pay reduction from each payment. The back charge will not be in compliance with the employee's agreement. The mathmatical solution may not be optimal or even proper.

The loan is distributed by offset but is not included in taxable income. The interest accrued since the deemed distribution is not included either.

Just to keep the voting even, I don't think that a safe harbor design is that much safer and it is an imposition on an employee (although much less of one now that the suspension is 6 months and many plans are increasing the plan-imposed limits on elective deferrals). I wouldn't push for amendment. I have an old fashioned bias that favors use of brains over automtic systems. But use your brain to decide if the safe habor suits your situation better. More important, your forms should fit the plan rules. Having conflicting but inapplicable information in the form (even if the inapplicable stuff distinguishes itself to a careful reader) will cause confusion or trouble.

The diversification window is only required to be open for 6 years. If yours opened at age your 55, it may now be closed. If you missed it, you may ponder the interesting question of whose responsibility it is that you missed it. What is adequate notice to you, both content and timing? Check your summary plan description to start.

Be careful to make sure that the section 125 amount (the opt out cash) is properly reflected in the employer's retirement plans for the persons who do not opt out. The persons who opt out will get the cash as taxable w-2 income, which should show up properly in the retirement plan unless the payroll system is inadequate.

Beware Treas. Reg. section 1.411(a)-11(e) if there are any other DC plans in the controlled group.

No withholding on a distribution that is solely employer securities. Look at the IRS model tax/rollover notice form. The purchase of the distributed shares is another transaction, it is not a distribution.

Outside of a safe harbor design, hardship withdrawals of matching contributions and discretionary employer contributions may include earnings on the contributions. Matching contributions or nonelective employer contributions (as applicable) must be subject to the in-service withdrawal restrictions that apply to elective deferrals in order to qualify for the safe harbor. Notice 98-52 specifies that Treas. Reg. section 1.401(k)-1(d) must be observed, which appears to restrict earnings on matching contributions and nonelective contributions from hardship withdrawals. Any authority, rumors or thoughts to the contrary?

Have you informed the participant the the efforts to solve this problem are being charged to the plan and that his/her account is the only one to bear the costs?

That is a matter of interpretation of the plan document.

You have to test the portion of the plan that does not comply with the safe harbor -- the participants who do not have a year of service. Because it is very unlikely that the tested portion will have any HCEs, it should pass. I assume that you are looking at the match as the safe harbor option, but it works the same same way for the nonelective contribution option.