QDROphile

Unless you have state law that addresses the subject (which is unlikely), tell the life insurance salesperson lurking somewhere behind this ridiculous proposition the same thing that Glinda the good witch said to the wicked witch: "Be gone. You have no power here."

Medical spending accounts cannot be used for payment of premiums for health insurance.

How about "it is mandatory"?

Here are answers to questions you did not ask (except indirectly). A 457(B) plan for a nonprofit, nongovernmental entity is still subject to ERISA, which limits its use to a select group of management or highly compensated employees. That will be a very small group in the average "smaller non-profit." Also, the plan must be unfunded, so any amounts set aside would be lost to creditors in a bankruptcy. If the non-profit has uncertainty about its funding or finances, would someone want to bet a portion of a paycheck? You also need to worry about securities law compliance, although exemptions from registration are probably available under state and federal law.

Perhaps you could discuss reimbursement in year 2 of an amount paid in year 1 when the services are not received until year 2. Seems like there would be timing issues. Or perhaps I misread your message. Do you require that the payment and the services be in the same year, even though it is OK for the services to be later than the payment?

EBIA rules.

Section 72(m) (10)

None other than the ones applicable to all other defined contribution plans.

Apart from the draft domestic relations order and where that might go, the injuction is most likely a domestic relations order. The plan needs to send a notice of receipt promptly. The plan needs to determine qualification within a reasonable time. What amounts to a reasonable time depends on the circumstances. I suggest that under these circumstances a reasonable time might be a while, especially if the participant does not actualy request a distribution. Meanwhile, the plan adminstrator needs competent legal advice about what to do and when to do it. The plan is in a difficult position and needs very sophisticated help to navigate. As the plan navigates, the circumstances can change and the changes will require appropriate response. This is an interesting situation and there is lots to say about it and various court cases that have a bearing on it. But don't waste any more time with the thought that you can deal with this without direct expert help.

Does 125(g)(4) answer your question?

A loan payment is not a contribution. A plan that does not permit after-tax contributions does not prevent loan payments after default and deemed distibution. I wouldn't want to be the fiduciary that turns away loan payments (did the fiduciary make a reasonable determination about not enforcing the loan in the first place?). The basis is recoverable upon distribution. I venture, without great confidence, that the "contract" is the defaulted loan balance and the earnings would be calculated on that amount, starting with the post-default loan payments.

Why do you care how many loans are outstanding?

The new proposed regulations speak to this issue.

That is the point.

Maybe you want to look at this as though the physicians are providing insurance -- pay a premium, get health care. Viewed this way, do think FSAs can pay premiums?

You might check to see what a year (or two year) of service requirement for initial eligibility would do for you. You did not say if you had rapid turnover in the population.

You are getting more expansive in you thinking. The big problem is that anything that is done for you is done for you alone, so it sticks out and automatically brings up the issue. If the employer contribution applied to more than one person and were not individually negotiated, you would have a much better chance of being outside the issue. You may want to do something like this rather than nothing, despite the risks. I think you need competent professional advice. You can reduce risks if you could control the process and reduce the signals, as you have been trying to do. You also have to consider what the employer may think about being involved in the arrangement. As for the question you asked, you have no problem with an employer funded contribution under discrimination rules if the employer is a government. The reason you may have heard otherwise is that governmental 403(B) plans have to offer elective deferrals to everyone. Now for a new idea. If your employer is a government and does not have a 457 plan, consider increasing your tax deferred savings that way. $12,000 is availble to you at no legal risk, assuming state law allows the employer to have or participate in a 457 plan. Some states have the plan at the state level and other governments can participate.

It is all a matter of interpretation. But the issue is always there, especially if you are the only one involved. You have a number of compensation dollars that they will pay you. Some of those compensation dollars are health benefits. Some are take home pay. Some may be deferred compensation. For practical purposes, it is a zero sum game. You may be able to negotiate the total up some, of course, but the current dollars and the deferred dollars are fungible. What kind of negotiation do you envision? If you have a total $100,000 compensation amount, they won't go for $90,000 current plus $20,000 deferred (unless you throw in some vesting requirement). And they won't care if you split the $100,000 in any way between current and deferred because it is all the same to them. So what is the difference between that and a written election to reduce current pay and have the reduction contributed to the plan instead? Answer: One is more difficult to detect than the other.

It is a disguised one-time election. At a minimum, he needs advice about this and the risk that it will be seen for what it is.

The language has nothing to do with the plan and therefore has nothing to do with the qualification of the order. A domestic relations order can cover any number of things. The language talks about what one person pays another. It does not require the plan to do anything. The plan only looks at the portion of an order that applies to the plan. Within that portion, the plan determines if the order is qualified.

You need competent advice. What you want to do, as you have described it, is a one-time election and you are not eligible for it because you have already made salary deferral elections under the plan. At least that is the IRS view.

If the alternate payee is the spouse or former spouse the participant will not have the distribution included in income as far as the plan is concerned. If the alternate payee is not a spouse or former spouse, the income will be attributed to the participant as far as the plan is concerned. Whether or not other tax law can change the ultimate tax liability among the individuals is beyond me and is beyond the plan. Assuming you get this straightened out and the intended result is that the participant is the lucky taxpayer, you should pay attention up front to withholding. The distribution is not rollable, so the 20% rule does not apply. Unless you settle withholding before the distribution (such as by terms of the order), an uncooperative participant may be able to elect 100% withholding.

As always, you need to check plan terms the plan. The plan might not allow trusts to be designated as beneficiaries. The plan might not allow beneficiaries to designate beneficiaries.

As a practical matter it won't work that tightly. The elected deferrals are still included as FICA wages and FICA withholding is required. Then you may have other tax withholding, such as state and local taxes, unemployement and workers compensation. Also, if you have a cafeteria plan, you need to cover the amounts necessary for the plan contributions. $22,000 of gross income won't get you $22,000 of contributions. Smart employers won't even let you have this delusion. They will limit deferrals to something like 50%, or maybe a bit more. You could get to $22,000 (or pretty close) of contributions with $22,000 of gross income if the employer funded the contributions rather than having the plan contributions come solely from deferrals. What are the chances?

You still have not clarified your comments. If the employer is getting a loan to purchase stock, that has nothing to do with the ESOP. The important facts for you initial questions relate to what transactions are taking place between the ESOP and "disquailifed persons." In conventional ESOP distribution transactions, either the ESOP or the emplyer coud be buying stock distributed from the ESOP. The employer could be buying stock form the ESOP to provide liquidity for the distribution. The employer could be borring money for any of these purposes while the ESOP is not. Or the ESOP could be borrowing. It makes a big difference and I can't tell what is happening.