QDROphile

402(g)(3), last sentence. A one-time election has to be made "at the time of initial eligibility to paticipate in the agreement." One may argue otherwise, but it is very likely that eligibility for any elective deferral under the plan is initial eligiblity "in the agreement" because elective deferrals are done through salary reduction agreements and that is what a one-time election is. Since employees become eligible for elective deferrals right away, a one time election has to be done right away, not years later. If the superintendent contract has the deferral (or whateve they want to call it) from the outset, it is probably OK because it meets the "initial eligibility" requirement. Renegotiation of a contract to provide for the deferral for the first time is dangerous. The IRS would not issue a letter ruling on the proposition that current employees could participate in one-time elections when a new 403(B) plan was adopted. The employer had a deferral-only 403(B) plan. The new 403(B) plan had no elective deferral feature, but allowed a one-time election for everyone in addition to employer funded contributions. The eligibility for the deferral-only plan killed the opportunity for the current employees. New employees were OK if they elected right away. Ruling positions and enforcement positions of the IRS can be different. Better to be advised by a "prominent ERISA attorney" than an internet message board.

If you assume away all possibility of definitions of income that are not identical to the plan's definition for the applicable purposes, maybe. I don't go that close to the edge. Monsters live in the abyss.

I don't understand. The trust has to withhold according to the rules. The plan administrator is not trying to determine whether anyone intended the amount to the alternate payee to be before or after withholding. The plan administrator is trying to resolve a latent ambiguity about how much to pay the alternate payee when that amount cannot be determined without taking into account the effect of the withholding rules. That is the plan administrator's job. If the plan administrator has to require that everyone else do their jobs better rather than accept a defective order that could easily lead to more trouble, I am happy to advise the plan administrator how to do it. That happens with QDROs all the time, just different issues and circumstances. In this case, all the plan administrator has to do is refuse to qualify and explain the the order fails to specify what to pay the alternate payee because it fails to specify how withholding will be handled, and the handling of witholding directly affects the amount that will be delivered to the alternate payee. I don't belive in disqualifying domestic relations orders unless they have a defect that can't be fixed by reasonable interpretation of the order by the plan administrator (plus appropriate disclosure and opportunity to object, but that is another matter). Sometimes this even means that the plan administrtor will interpret "green" to be "yellow." But I think the withholding issue has enough variability and risk that the best course is to disqualify when everything is not nailed down. We seem to assess the same situation differently.

You describe a plausible outcome, but you get the same outcome with less trouble if the plan administrator says that the order is not qualified, which would be even easier if someone had the intelligence to submit a draft order first. Then the drafter would go back and resolve the withholding issue by rewriting the order to say "distribute an amount in respect of the alternate payee to provide payment to the alternate payee of $1000, net of applicable withholding." No contempt of court. No agency going after supplemental wage garnishment to make up for shortfall because of withholding. No getting dragged into the mess to argue about the plan administrtor perfoming only ministerial functions. The plan administrator should excercise control over the part of the process that the plan administrator is responsible for, namely whether or not the order is qualified. Section 414(p) gives the plan administrator the power to solve the problem where the problem lies -- bad drafting of a domestic relations order based on ignorance of the odd rules that apply when you have an alternate payee that is a spouse or former spouse.

Perhaps my point was lost because I presented the extreme example. Let's try a more realistic one. The order says to pay $1000 to the alternate payee. Let us assume that the federal income tax withholding rate is 10 percent, but the taxpayer can waive that amount. For the moment, we won't even contemplate the possibility that the participant could elect greater withholding. Assume that the participant does not waive. What does the plan pay to the alternate payee and what does the plan charge to the participant's account? The trust (not the employer) is obligated to withhold according to the rules. Does the plan pay the alternate payee $1000 or $900? If the plan pays the alternate payee $1000, does it "withhold" $111 and charge the participant's account for an aggregate of $1111? Does the participant complain? There is a good chance that the participant is a deadbeat dad and not cooperative, and maybe not even very nice. Maybe he is a Montana Freeman. But I digress. If the plan pays the alternate payee $900, does the distribution violate section 401(a)(13) because it it does not follow the terms of the order and is therefore not "pursuant to a qualified domestic relations order"? Does the alternate payee have a claim for $1000 rather than $900? Does the state court try to hold the plan in contempt (maybe only in the sovereign nation of California, where ERISA does not pre-empt and the state courts have authority to determine qualification)? I don't really think that plan disqualification is a risk, but I think it is fair for the plan administrator to require that these questions be adequately addressed in the order so a dispute does not arise after everyone learns about the exact results -- after disbursement to the alternate payee. In response to your first statement, I live in a a storybook world where everything is defined by words and the words are taken literally. Most of the the stories do not happen outside of the book. The real world is a messy and unpredictable place and approximate solutions can work out just fine.

mbosek: I am unconvinced, although I don't exactly see the point you are making. I agree that the plan adminstrator has no authority over the participant's tax elections. That is why I want to see something in the order. The order can simply say that the participant may make withholding elections. As for contempt of court and other ancillary remedies, the plan administrator has no concern for what happens in state court, or aspects of the order that do not relate to qualification. The plan administrator wants to avoid the issues and I think the qualification process provides the tool for that.

An additional note to RTK's point. Be careful about withtholding. The 20% rule does not apply. Under regular withholding rules the "taxpayer" may be able to make elections. The plan does not want to be caught in a dispute over withholding. For example, what if the participant elected 100% withholding? The alternate payee would get nothing and the participant would get a nice credit against income taxes on "real" income. I insist that the order itself somehow resolve withtholding so the plan merely executes according to the order. If the order does not specify about withholding, I think it can be disqualified because it is not certain about what should be paid to the alternate payee.

Your answer depends on how well the merger terms were drafted. The merger could be complete before the "transfer" of assets if the merger documents said that the MPP trust merged into the PSP trust. If so, you would have no "transfer" and you would have distribution form only one plan/trust. The "transfer" is simply the paperwork of conforming title documents. Are you worried about the merger being effective January 1 and the implication that the plans existed separately for some moment on January 1? That would affect the year for which the final 5500 is filed if you have calaendar year plans. I doubt that it is worth the quibble.

Is the claim based on failure to comply with section 402(f)?

What happens if the contribution is not made by one of the proposed dates? Why doesn't the plan say when contributions are due?

The order is effective if it is a qualified domestic relations order. More than one QDRO can apply to a plan. The order does not have to have a particular name to be a QDRO. The question is whether or not the order is qualified, and state law will probably have a lot to do with that because the plan appears to be a governmental plan. But you said that the order instructed the employer to withhold. You need to interpret exactly how the order applies. The "employer" is not necessarily the plan, so the order may apply only to payments from the employer and not payments from the plan.

JanetM: Does the discharge of the loan in the bankruptcy proceeding change your observation? One of the purposes of bankruptcy is to give the debtor a clean slate and generally it is improper to hold a discharged loan against a debtor, directly or indirectly. Seems like counting the discharged loan (with ever accruing interest) directly against future borrowing capacity is inconsistent with the purposes and rules of bankruptcy. The bankruptcy code is on the same level as other federal laws, and all have to be reconciled in some way. I don't think we have seen any authoritative recognition or reconciliation.

The Wulf decision has critically different facts and rules on a different question. The Pratt decision does cover the same question, but I think the decision is questionable. Still, when arguing with the plan it is far better than the "nothing" I offered.

You are likely to get other answers, in part because of contradictory positions of bankrutcy courts about whether or not a plan loan is a debt that can be discharged in bankruptcy. A chapter 7 bankruptcy discharges the loan (meaning that the plan cannot collect and payroll deduction must stop). It may be possible for the loan to be excluded from the discharge, but the effect of exclusion is available to the participant because the participant may voluntarily continue to make payments after the filing (in this respect, different from chapter 13) or may formally reaffirm the debt. I have not considered if the plan can refuse to accept the voluntary payment unless the participant formally reaffirms. The participant suffers a deemed distribution if the payments are not made in time, no matter what the reason. The loan regulations define the outer limits of "in time." The plan terms can probably provide for less grace. Q&A 11(B) of Treas Reg section 1.72(p) says that the 10% tax applies to deemed distributions. I think that the better answer is that if the loan is discharged and not reaffirmed, it is removed from the books and does not count as an outstanding loan for purposes of future loans, but I am not aware of any authority that has addressed the issue. Richard Wickersham was once induced to say so, but it was a very tentative statement. The alternative is that the loan remains on the books and may interfere with later loans. If the participant continues to pay without reaffirmation, I don't know. I suspect that the plan can't take loan payments without taking the position that the account has a loan. The plan may wish to require a reaffirmation of the loan to help resolve the question. Loan payments after a deemed distribution create an after-tax account.

According to the Microsoft cases, no.

If the change was based on an intelligent plan document and done properly, there is no viable claim. If the usual sloppiness applies, it will still be almost impossible to win and the participant will have to have more to say about it than than "waaah." A more reasonable question is whether or not the participant will be given the opportunity to rescind the distribution election, assuming the the change in valuation date is legitimately a surprise to the participant.

Consider the very real possibility that the arrangement is a farce, or has become a farce. Lots of employers try to get around all sorts of rules with sham employment arrangements. It is just a natural move for the business types. You need to view it with a very critical eye. If you don't have prearranged structures and policies to fit the situation, all the worse for supporting the conclusion that the person is still employed.

Do you think your "plan administrator" is not a fiduciary?

Mr. Maldonado: I am curious about why you generally agree with me that the corporate sponsor should not be named as a fiduciary (which would include the plan administrator), but disagree when it comes to the plan administrator of ESOPs. Your posts in several threads have been perfectly consistent. I must be missing some nuance.

Depends on what the plan says. Probably not, based on the specification of the annuity providers, but it is worth asking or checking.

Keep in mind that most corporations cannot be trustees. Also keep in mind that whoever the fiduciaries may be, they have to keep their corporate and fiduciary roles straight and may have very serious conflicts in various circumstances. If the labels overlap, the concepts may be had to keep separate. Finally, it is never a good idea to name the sponsor as the plan administrator or other fiduciary.

The plan administrator is asking for trouble by digging. The divorce decree is a domestic relations order, too. What are you going to do with inconsistent provisions? Are you going to ask for all documents that might be a domestic relations order, or just the divorce decree? Are you going to ask for other information that is not in court documents? Where do you stop and what are you going to do with all that dirt? You started on exactly the right track -- a participant cannot be an alternate payee with respect to the participant's benefits. Is is for someone else to overcome your negative determination by clarification or additional information or orders. Don't try to do the work for that person.

If the order is designed to provide for child support, I would insist that it name the child as alternate payee, but expressly provide for delivery to the participant as custodial parent. This is an unlikely arrangement under state law, but that is not for the plan administrator to decide. I suspect an improper attempt at distribution to the participant. So what is this about asking for a copy of an order that you have already received?

There is a requirement that one-time elections be made "at the time of initial eligiblity to participate in the agreement." IRC 402(g)(3). The IRS has refused to rule that a one-time election that is made after a participant is eligible for "regular" deferral elections is a separate "agreement." You are on thin ice (or perhaps all wet) if the one time election can be made later than the first salary reduction election is available.

So who is the trustee that violated ERISA by discretionary investment of all money under its control in company stock? The nature of your questions and the situation you describe suggest that you need the help of another "benefitpro" and should not rely on responses from bulletin boards for how to proceed.