QDROphile

So here is your opportunity. First, make sure that you know exactly what the plan provides. Although Carol Calhoun is wonderful, neither she nor anyone else on a message board can give you a definitive answer. Assuming that the plan allows only transfers among the designated vendors (which is a common design), politely ask for the plan to be amended to allow other transfers based on past practice of the plan in other cases (or make a big stink, depending on your personal style). There may be enough embarrassment about the oversight that you will get what you want. However, there is a very good chance that you will fail and the person who was benfitting from the oversight will be shut off. Consider the potential benefits and consequences. What are you really trying to get from a vendor? Plans have many good reasons for limiting transfers, not the least of which is that individuals are vulnerable to sales pitches from vendors who really offer nothing much but commissions to the sales agents. If you are unhappy about the vendor options in the plan, do your homework and try to get a better vendor added to the list by convincing the sponsor of the merits. The dark side is that the sponsor probably is getting some nice back scratches from the current system or is simply paralyzed by inertia.

I think it is great that you are asking fundamental questions. We tend to take too many things for granted. I hope someone can respond for the benefit of all of us. I have never had occasion to get to the level of your question.

I don't really understand what you mean by the valid contract/custodial account rules. An arrangement is valid if it meets applicable requirements. The requirements are different for governmental plans compared to private employer plans. You can find other threads that discuss whether or not a governmental plan document should include ERISA features or references. You can also find a thread about whether or not a 403(B) plan has to offer annuity options -- answer: it depends. For a 403(B) plan, you start with the requirements of 403(B). Also, a plan can have features beyond what is required as long as it does not provide what is forbidden. Unless an employer wants a totally custom arrangement, the employer will be limited to what someone else has designed for sale. In these products, you tend to have some common elements, dictated by marketing rather than perfect fit with the buyer. Some products can be made to fit better than others. As for state law, I am not aware of a list. I would not expect to find one. I am aware of at least one state that has a special statute on domestic relations orders applicable to certain governmental plans. But the same state has its rules for domestic relations orders on a major government plan incorporated into the statute that constitutes the plan. This sort of variability makes analysis and organization of rules very difficult.

Medusa: Ask the lawyer for a list of his clients with plans under his design. If he is as good at ethics rules as benefit plan rules, he will give you the list. Then you can report the clients to the IRS, and maybe get a bounty. Alas, the IRS does not enforce much of anything, so rogues abound.

Start by examining your premises. A valid 403(B) arrangement does not have to comply with ERISA if it is a governmental plan and governmental plans are exempt from section 401(a) (13 ) of the Internal Revenue Code. Section 414 (p) has special provisions for governmental plans. Domestic relations orders could get really interesting under governmental plans, but probably most plans and state laws roughly approximate the federal scheme for QDROs.

I agree that mirroring hardship withdrawal standards for loans has nothing to do with compliance with loan requirements, so we are still looking for some way in which limitations on loans help with some safe harbor. I am not aware of any.

Please explain how limitation on loans would be helpful to a safe harbor.

The company would be able to deduct your costs of graduate school. The costs would be treated as income to you (and reported on your Form W-2) and the company would have a deduction for compensation to you.

QDROs can be amended, rescinded, and superseded. First, it will be a matter of state law, and sometimes state courts are reluctant to reopen a settlement or property division. The amended or new order might not work if it is incompatible with what has happened under the plan since the original QDRO. For example, if the benefit has gone into pay status since the QDRO was entered, the new order may not be able to make the same kind of changes that would be OK if the distributions had not yet started. A QDRO may provide that an alternate payee can start benefits at the"earliest retirement age" whether or not the participant starts. The "earliest retirement age" depends on plan terms, but almost certainly is on or before the participant's age 65. Perhaps the person who improvidently drafted the first order might be inclined to fix the oversight if the opportunity were properly presented.

We can't tell if the employee is entitled to severance pay. The post by KJohnson shows that it makes a big difference. If entitlement is uncertain, or if the employee is not entitled, then the offer of a payment to settle, including whether or not the employee will agree to quit the COBRA continuation, is up for grabs. If the employee is entitled, most states have laws that penalize employers for holding the payment too long after employment terminates. I got the sense that the employee wanted to continue coverage. Unless the employer wants to terminate coverage, the continuation of coverage should be expressly carved out of the release so the employee can quit worrying about the effect of a general release on the continution. If the the employer wants coverage to stop and the employee is entitled to severance, the employer needs to answer to the regulations for using the severance pay to pressure the employee, and may have problems with stay wage laws.

Thank you for correcting my grammar.

404© is out only for the pooled fund, unless you choose not to follow the rules.

Why don't you just address it expressly in the release? Who is trying to smoke whom?

Only in my wildest imagination would a plan provide for other than the usual result, but possibilities are what keeps us going. It is possible that a plan can't provide for a different result. "Check the plan document" is always correct, even if it is sometimes a refuge for the lazy. At least one court (Hopkins v. AT&T Global, 4th Circuit) has held that a QDRO cannot interfere with the contingent annuitant's benefit, but the court is wrong. A QDRO can reach anything payable to anyone except an alternate payee under a prior QDRO.

H1 gets the survivor annuity payments unless the plan expressly provides otherwise. The benefit locks on the annuity starting date.

Look at authority and cases under section 103 of the Internal Revenue Code. Factors such as ability to tax, power of eminent domain and police powers are considered. An entire legal specialty has grown up around making judgments about whether or not an entity is governmental and what powers it has. You won't get a simple definition that will answer the question in a grey situation. In the qualified plan area, the IRS issued Rev Rul 89-49 to set a standard for what constitutes an instrumentality of a government unit, but the application of the ruling is not always easy. The Department of Labor's views can be slightly different from those of the IRS.

I wouldn't want to defend a fiduciary who engaged in margin transactions and short sales. The deck is stacked against you under the prudence requirements. Short sales can be part of legitimate and prudent investment practices in a large fund with diversified investments, but I doubt that is what is going on here. There is a reason that we have so many jokes about physicians as investors. Change the plan to allow separation of accounts for self direction. Also, make sure that the plan provides that unrelated business income taxes and the related adminstrative costs are charged only to the accounts that generate them.

One difficulty that you face with nonqualified deferred compensation for partners is that all partnership income will be attributable to the individual partners in some way (e.g. percentage ownership interest) even if they don't get the cash, so there is no real deferral. There is no real deferral in a corporate plan either, just a shift from the individual to the corporation. But with a partnership, you can't even shift the taxation to the partnership because the partnership is not a taxpayer. You can shift taxes from one partner to another if the partners don't scream too much. Deferred comp is usually not viable. You can have viable nonqualified deferred compensation for partners, but it is not anything like what you may be used to in corporate settings.

I am surpised they did not refer you to the two insurance company exceptions to all rules: 1. Because we say so. 2. Because we have always done it this way.

Hardship distributions adversely affect elective deferrals only in prototype plans and plans that rely on systems instead of brains.

If the plan is subject to ERISA, don't immediately jump into the confusion of jargon about investments. Get someone to advise you about basic fiduciary responsibilities, including the fiduciary responsibility for investment management. Then, with advice, decide how the fiduciary duty will be carried out. Part of the decision will be to determine who is the fiduciary. If your plan is subject to ERISA, you have already make quite a few of the decisions about fiduciary duties, whether you know it or not. You may wish to have someone explain to you exactly what you have done, and who the fiduciaries are that have responsibility for the decisions that have been made. Under ERISA, consciousness is usually a good thing. If your plan is not subject to ERISA, many of the same principles could apply under applicable state law, probably without some of the formalities of ERISA. For example, ERISA has some very specific rules about managing a plan if the participants direct investment of their accounts. State law probably is much more general to the extent it applies.

Only regulations that strongly suggest that $1000 is the highest minimum. 2550.408-1(B)(2).

Harry O: I know there are other explanations, but I am comfortable arguing that the Form 5300 specifically asks the question and the answer, fully explained and highlighted in the application, should get appropriate attention and response from the IRS. I may have to make that argument to the mercy of the judge. If they don't want to deal with the response, they shouldn't ask the question.

The loan idea should bother you. And maybe it should bother someone who thinks you can reimburse expenses without regard for time.

Flahertys Arden Bowl 115 TC 269. I did not look up the cite for the affirmation. I think it was in the 6th Circuit. I do not understand your comment about independent control, but there are some key exceptions to regulation section 404c-1(d)(2)(i) in (d)(2)(ii). And you get no exception to prohibited transaction excise taxes in any event because of the tax code definition of fiduciary.