QDROphile

If the plan is reimbursing expenses paid three years ago, did the employer effectively loan the money by covering the expense with the understanding that the loan would be repaid? Or is the plan making a gift to the employer because the employer was so nice to cover the expenses three years ago?

The Tax Court, recently affirmed by the Court of Appeals, has ruled that a person who directs his own account is a fiduciary under the Tax Code prohibited transaction rules even though the person may not be a fiduciary under ERISA. Also, the exclusions under 404© that give one the idea that we can play a little looser under ERISA are usually trumped by the rules on affiliates under 404©.

The 403(B) plan is subject to ERISA and must file.

Another perspective on surrender charges is that it may be a questionable economic/investment choice to select an annuity with a surrender charge, but the surrender charge is a cost of the investment (somewhat like commissions are a cost of investing in stock -- they effectively reduce the investment return on the money). For example, the stated rate of return on the annuity may have been much lower if the term of the investment were not "protected" by the surrender charge. The surrender charge, by itself, does not violate the exclusive benefit rule. No one, such as the school district, is benefitting from the surrender charge. Using plan assets to run the plan (pay the management fee) does not violate the exclusive benefit rule. Maintaining the plan is a benefit to the participants. The fee must be reasonable for the services it covers. You could say that the insurance company is benefitting from the surrender charge. I think the charge is a cost of the investment, not an improper use of the money. If the surrender charge was unreasonable at the time of the investment (my bias is that it probably was because I generally dislike insurance company investment products), someone may have been at fault for the choice of the investment. Unless there was something under the table in the deal, the bad investment choice is not a violation of the exclusive benefit rule, but it may have been a breach of fiduciary duty. Also, as Carol Calhoun suggests, what appears unreasonable now in your personal circumstances may have been reasonable under the circumstances at the time the investment was chosen and in light of subsequent developments. You can't get a good answer to your questions without considering all of the facts and circumstances. Since Carol was so good about disclosure, I will follow suit and confess that I am an employer lackey, too.

My uninformed vote is for stock sale. Seems to me that the fundamental issue is successor liability, which is a state law matter, not a tax code matter. Who has the obligation to make contributions seems more important than the tax bill. If we make the call, do you still get paid?

We have been able to get the IRS to issue determination letters on amendments that restricted the distributions to facilitate proper plan administration. The restrictions were reasonable and had good reasons behind then (valuation of assets, usually). "Immediately upon termination" is subject to interpretation in light of reasonable administrative practices anyway. If the plan is changed to be more precise about those reasonable practices, you may be able to get a letter. Don't do it without one. But if you are considering a fundamental change and substantial delay, you are running afoul of the rule. For example, you couldn't change to distibution after a one-year break in service.

You might want to designate it that way because that is the proper terminology under the tax code for what your plan does. Does the plan offer annuities as a payment option?

The future effective date applies only to the provision that eliminates the distribution options. How it shows up depends on the style of your document. Do you have a section for the various effective dates since 1996? If so, this is another special effective date. Or you can go to the soon-to-be obsolete provisions themselves and add a sentence that says the the provision becomes ineffective after xxx date. Nevermind if you are using a prototype. You get what you pay for.

Put it in the restatement, but with an appropriate future effective date.

Carving the representative out of witnessing a signature does not preclude the representative from determining that consent cannot (and therefore need not) be obtained. The functions are different and separate. Careful drafting of the plan document is important, as always.

I think the plan document can require a notary and let the representative (whoever that is) off the hook. I would question the choice to limit to a notary -- but I can think of a few good answers, too.

Look at section 417(a)(2)(A)(i) of the Internal Revenue Code. But the provision may not apply, as suggested by previous posts.

The other option is that it is not a QDRO because it specifies that the plan do something that the plan does not. I prefer pax's response. State the award to the alternate payee based on the last valuation date before the specified date and make sure you explain in the notice how and why you got there.

What employer eligible for a 403(B) plan is a taxpayer?

You can have a plan that complies with 404© with respect to the portion that is under the direction of the participant. The plan has participant directed funds and a fund that is is under the management of the plan fiduciary (which we hope is not the employer, but unfortunately often is). The fiduciary is not responsible for the investment results of the participants relating to investments in the participant directed funds. But if a participant wants some or all of the participant's account in the fiduciary managed fund, the fiduciary has all of the ERISA duties (prudence, diversification, etc.) with respect to that part of the account invested in the managed fund. I don't like the implication that the participant has a one time choice. I think it is better to allow the managed fund to be available as an ongoing option, and a participant can choose from time to time to have some or all of the participant's account invested in the managed fund. Be careful about the liquidity of the managed fund if it is subject to traffic in and out.

Both Partner A and Partner B have an incentive to work this out. If plan monies were improperly distributed, the plan has an operational error that disqualifies it. So the money in each IRA is bad and they lose the deductions they took for the plan contributions. But who is going to threaten to report to the IRS and discover a bullet hole in his own foot?

You may have a breach of fiduciary duty. Loans should not be made to persons unless the lender reasonably expects the loan to be paid. If repayment is only through payroll deduction, it is rather dicey to conclude that a per diem employee will pay the loan. Perhaps the loan is OK if the employee has a long history of regular per diem pay that would support the loan. Or perhaps the fiduciary did a thorough asset, credit and cash flow analysis and expected to be paid from other sources if employer compensation was insufficient.

I accept R. Butler's "why ask for trouble" conclusion. It is not worth it to get into a touchy area. Sometimes we don't do things even if we can, especially with retirement savings.

Money is fungible. I defer $100 from my pay. On pay day, my 401(k) account is credited with $100. Does it matter if the source is the emplyer's payroll disbursement account or the plan's forfeiture account as the plan asset rules go? If you think it does, why is it different if my money purchase plan says I get an allocation of $100 and the source is the forfeiture account rather than the employer's bank account? The employer has an obligation to fund in both cases, so can the difference be employer use of plan assets? The timing rule for credit of deferrals is honored in the 401(k) plan. The employer's bank account is the same in both cases (the employer is "using" plan assets the same way in both cases). My account is the same in both cases. Could it be that forfeitures cannot be credited against against contributions of a different character? Then matching forfeitures could only be used for matching contributions, profit sharing forfeitures for profit sharing contributions, etc. If we don't have symmetry in similar circumstances, one looks for authority to explain why, however arbitrary that authority may be. I was hoping someone had a reference immediately at hand; there may well be such authority. There are obvious practical reasons for not crediting against deferrals. Such strict management of the forfeitures is an administrative burden.

R. Butler, please explain why not.

You need a competent lawyer to advise you, and that is probably not the lawyer who represented you in the divorce. The plan may have done something wrong, but that depends depends on many facts. You may also have a claim against the lawyer who represented you in the divorce, again depending on many facts. You won't be able to get a good answer from this message board.

Did you ask about how much trouble is generated by having the employer put its hands on the money rather having transactions conducted by the trust -- the owner of the funds?

Wouldn't there be some securities regulatory issues if someone was functioning as an investment advisor as an employee of an employer that was not an investment advisor? And would the plan being advised have an "investment manger" within the definition of ERISA if the person is employed by the plan sponsor? No comment as to other issues in the arrangement, other than the whole thing is stinky.

Any proscription on contributing "matching" contributions to a governmental 401(a) profit sharing plan based on participant deferrals to a governmental 457(B) plan? This would be similar to matching 403(B) deferrals in a 401(a) plan. I know that the 401(m) regulations say that the contribution is not a matching contribution if the "match" is based on the 457 deferral. But I cannot find a reason for disqualification. Government 401(a) plans don't need 401(m) to be able to contribute different amounts to different participants.

How does one "buy" vacation time pre-tax and why is that better than having unpaid vacation time?