QDROphile

CRC02 is revising the document. The question was could it be written that way. There are multiple definitions of "rationalizing." As a lawyer you are most involved with one of them ;-).

Applying the J&S requirements to all accounts is a common approach to rationalizing the requirements that would otherwise apply only to the MPP accounts.

If the plan is not set up to have these sorts of calculations performed for any other reason, I question whether the plan is obligated to go to such an effort. If not, the order is not qualified. I think it is acceptable to make records available to the participant and alternate payee and let them figure it out and give a number to the plan. A lot depends on the actual facts and circumstances.

If the ESOP allows alternate payees to receive distributions on demand, does it comply with the diversification requirements because the alternate payee can take a distribution, which is an acceptable method of diversification? Consider that the alternate payee has a right to distributions at the participant's age 50. Does that mean the ESOP is OK as to the alternate payee unless the QDRO forgot to include the early retirement age distribution rights? Another way to look at it would be to treat the AP's interest interest as a subaccount of the participant's account. Whatever the participant does, the same thing happens pro rata in the subaccount. The law does not give an alternate payee separate right to chose investments. ERISA says an AP is a beneficiary. You are not doing anything else for the ESOP's other beneficiaries. The tax code doesn't say. Make sure you think about the effect on the participant's aco**** and rights, whatever you do for the altenate payee. Depending on your choice, you may need to coordinate Nothing precludes approaching it your way. I think most persons would start their thinking along those lines. Be reasonable, be true, put the key provisions in the plan document and get a determination letter.

Your main problem for comparison is scope. There are many elements of QDRO administration, and determination of qualification of a domestic relations order is a fiduciary function. When you get information about cost, you have to be sure you know what elements are covered by the cost, and especially if one of the elements is the fiduciary responsibility. Also, you know you get distortion in charges when you are dealing with bundled services and products. I have heard figures of $500 per order associated with both Fidelity and Vanguard, but I don't know what the fee purported to cover.

JanetM Assuming a providently drafted QDRO, what are you going to do when an employee who is an alternate payee demands a distribution when the former spouse reaches age 50? What do you do about a demand for payment when the former spouse terminates employment and the alternate payee remains employed?

RTK makes a good point. A plan can be designed to allow a form of benefit to be reformed under a QDRO. For example, a single life annuity could be reformed to provide two single life annuities, one for the participant and one for the alternate payee. A literal reading of IRC section 414(p)(1)(A)(i) does not include taking away any interest of an alternate payee. It provides only for recognizing or creating or assigning an interest for the alternate payee. A literal reader would conclude that an order that tried to take away a survivor annuity interest fails to be a QDRO. Are plan provisions effective if they allow allow a "QDRO" to reform a J&S annuity to provide a single life annuity? A determination letter does not cover whether or not a domestic relations order is qualified.

There are more cases after the Hopkins case. Most of them cite the Hopkins case, even when they disagree.

That provision, despite wrongly decided court cases, allows a former spouse to get a QDRO that taps into the survivor annuity after the participant has remarried and started benefits. The QDRO could provide something like "the alternate payee shall receive $100 per month for as long as benefits are paid to the participant or survivor." A QDRO can make the survivor benefit go to an alternate payee. If you simply try to divest the survivor of the benefit, where does it go? It cannot go to the participant. If the survivor benefit can't go to someone else, why bother? The participant may act out of spite, but the plan should not. If the benefit can't go somewhere that is legitimate and supported by authority, I would be disinclined to say that the former spouse can be divested at this point. Those wrong QDRO decisions say the survivor cannot be divested, even by a domestic relations order. See Hopkins v. AT&T Global, 105 F3d 153 (4th Cir. 1997).

If you intend or expect every director and officer of the company to be personally liable for every fiduciary act, then the company can be the fiduciary. It is not a matter of the employer having recourse against the individuals, it is that the individuals who have corporate responsibility will all be exposed personally. ERISA will pierce the corporate veil to find individual fiduciaries. It is better to identify those persons who will in fact have fiduciary responsibility, make them named fiduciaries (via a committee or otherwise), and protect those who will not in fact have fiduciary fuctions by not lumping them in with a group that has fiduciary functions.

If the plan is registered under federal securities law, the prospectus is required to state trailing performance of each fund. I am not familiar with a registered plan that unitizes company stock. If the plan is complying with the regulations under section 404© of ERISA, some document available from a plan fiduciary upon request will provide investment return information, probably the mutual fund prospectus and periodic fund statements and reports (if you have retail mutual funds). Derivative materials prepared by or for the plan may also state returns. If the plan is not required to be registered and is not participant directed, the plan is not required to report returns on particular investments, but the plan investment fiduciaries will have investment return information.

Fortunately, a few judges have seen it our way and dismissed a few ill-considered lawsuits. No attorneys fees yet.

"Without merit" is a bit extreme, even for a lively discussion of the issue. I think the circumstances of the negotiations, the compensation package and the outcome from year to year is important. There is an issue and need for advice from someone who understands the issue. Certain approaches are not possible and how you document the arrangements can make a big difference.

An employer should not be authorizing an employee to be acting on its behalf becuase the employer should have nothing to do with distributions. I know about the unfortunate decision in Varity and the confusion it has spawned, but employers are not necessarily fiduciaries and they should not design their plans to make themselves fiduciaries

The plan sponsor should not be authorizing distributions. That is a fiduciary function and the sponsor should not be a fiduciary.

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

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)?