QDROphile

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.

You are asking for trouble if you get involved with how or why the individuals are choosing how to divide benefits. As far as a plan is concerned, there is no right answer and the only thing that matters is administrative ability to follow the instructions for division, satisfaction of the qualification requirements, and compliance with the plan's written QDRO procedures.

The plan document has to be drafted properly to preserve the right to withdraw pre-1987 after-tax contributions only. Chances are good that bad drafting precludes the separate withdrawal. You have somewhat better odds if the plan stopped taking after- tax amounts after 1986.

If you are going to forfeit, the plan document should have provisions providing for the forfeiture and what happens if the participant or other payee subsequently appears. You also have to determine if you have made reasonable efforts under the circumstances to locate the participant. A single mailing might not be sufficient, or it might.

Still not a bona fide termination. Also a fiduciary breach because the participant is robbing the plan of value, at the expense of other particpants. A fiduciary has to be careful about value robbery even with bona fide termination. If the drop in value is material, the distribution should be postponed or a special valuation should be performed. The plan should be designed to provide for the delay or special valuation so the fiduciary does not have to stretch plan terms (what does "adminstratively feasible" mean? I would be tempted to read fairness into feasibility if the drop invalue were material). The more infrequent the valuation date, the more important it is to have safeguards.

If the plan document does not clearly cover the situation, the document must be interpreted. The person with authority to interpret the document should decide. Are you that person? In a well drafted document, the person with authority to interpret will be identified, and is usually the plan administrator or other fiduciary.

Be careful to distinguish what the law allows by way of a change and what the plan allows. Plan terms are not required to go to the full extent of what the law allows. The plan might not allow the mid-year enrollment based on the change in work schedule.

Reversing the order you asked: 1. Allocate all fiduciary duties away from the employer to the persons who will be responsible for the functions. Those persons will either be employees or third parties, exactly the same as if the employer were the misnamed fiduciary. No extra cost because the same persons are performing the same functions. 2. It is a mistake to have the employer in the position because naming the "employer" tells you nothing about what person is responsible. Corporations act through many persons, and the directors and officers of a corportion are responsible for what a corporation does. If the fiduciary is not more precisely identified, any of the agents could be liable for fiduciary responsibilities, even if they were unconscious about their theoretical responsibilities. To put this in more practical terms, if the employer is a named fiduciary and someone sues for breach of fiduciary duty, each officer and director will be named individually as a defendant. I am not saying that each will be liable, but the corporation will want to avoid the embarrassment and the expense and struggle to dismiss the action against the wrong bodies. Plaintiffs will have too much leverage. It is much better to name the persons who have the functions. They will know that they have the responsibility and they will answer if a claim arises. Everyone else should be left alone, and if not, will have an easier time with extrication. We have stomped all over plaintiffs who try to sue and fail to name the fiduciaries when the fiduciaries are precisely identified in plan documents and records. Persons who do not have the responsibility will not have to worry and will be less likely to interfere with or waste time on matters that are not theirs.

Appointing a fiduciary is a fiduciary function, but either (i) the employer does not have to name any fiduciary, or (2) if you believe that adoption of a plan document that names a fiduciary (or the fiduciary who names fiduciaries) is a fiduciary function, it is at least a very limited fiduciary function and is materially better than having a more general fiduciary status. I won't get into a discussion about Varity. The point is that the employer should not be set up to be a fiduciary, as happens with many plans because of bad plan documents or lack of thought.

By naming fiduciaries that are not the employer and allocating the fiduciary functions appropriately among those fiduciaires. What is it about being an employer that makes you think an employer is a fiduciary? Most employers are fiduciaries because they have plan documents that name them as the plan administrator.