QDROphile

My vote is that the change is disallowed by law.

Then have we come full circle for 401(k) plans that define limits (and matching contributions) on a payroll by payroll basis (which I think is a bad design for many reasons)? Not quite the same circumstances as the original post, but food for thought. In the original post, the deferral clock simply runs out at $170,000. No one has argued in favor of that interpretation. Thanks, Medusa, for drilling down to an interesting layer within the issues. For clarification, note that the discussion of proration of the 401(a) (17) limit does not apply to a 401(k) plan that bases elective deferrrals and matches on payroll periods within a year. Treas. Reg. section 1.401(a)(17)-1(B)(3)(iii)(B) expressly exempts those contributions, and employee contributions, from proration. Other types of employer contributions are not mentioned in the exemption.

And the adverse consequence of determining that such an order is qualified is ... ? I like RCK's response. Discourage the misdirected effort at the draft stage if you can.

Medusa: You did not apply 1/4 of the annual limit each quarter because the law required it. You may have used 1/4 of the limit because the plan was designed that way. The 401(a) (17) limit is apportioned when you have a short plan year, but it still applies to the entire short year, not an internal segment of the year.

Because the applicable statutes are different for qualified plans.

The 401(a) (17) limit is not sensitive to timing. It is an annual limit. It says that for purposes of determining benefits, amounts in excess of the limit cannot be the basis of the benefit. In the most simple terms, if a money purchase pension plan says benefits shall be 15% of compensation, then 15% of the limit is the maximum benefit. 401(a) (17) says nothing about when the compensation is earned during the year. For 2001, the maximum would be $25,500. So apply that to a 401(k) deferral. Assume the plan limits deferrals to 15 percent of compensation. The 402(g) limit of $10,500 is well below $25,500. 401(a) (17 applies, but it applies by looking at the entire year, and is not a block to maximum deferrals. And think about it from a policy point of view. What purpose would such an interpretation of 401(a)(17) serve? We joke about the law, but it does have some rationality. We all see that it is simply a math trap. By a simple reconfiguration of deferral arrangements, nobody would be limited by the wrong interpretation. So why cause gyrations of administration or screw unsuspecting particpants who are no different from their neighbors but who simply time deferrals differently during the year? You could have a plan drafted by an idiot that provides that deferrals turn off when the 170,000th dollar of compensation is earned, but I bet you don't ever see a plan that says exactly that. What you see is plan that has a general statement about the 401(a) (17) limit and some poor plan administrator who does not understand the law possibly committing a breach of fiduciary duty by an incorrect interpretation of plan terms that unfairly limits deferrals. Or you could defend the poor soul by saying that the paln administrator has great discretion to interpret the plan and an interpretation that discriminates against the highly compensated is OK.

The first half of the first sentence from RCK is absolutely wrong as a statement of what the law requires. If the last sentence of the original post is correct, the plan was designed by an idiot. More likely the plan was interpreted by someone who was misinformed. Sorry about the strong language, but this misinterpretation of the 401(a) (17) limit has been kicking around way too long after it has been refuted.

A painful lesson. Next time for a home purchase, write the check (net of withholding) to the escrow agent. You will have a better argument that the distribution failed and you can take the money back. Not a perfect argument, but a better one.

pax: I agree. I think you can run into problems if you want to go many years back to credit service before the employee is in the current employer group. But that would be a very odd situation. The 401(a) (4) regulations have a lot to say about imputed service.

Sounds like a zero benefit to me, too. It would be a good idea for the notice of qualification to state that the order is qualified, and the alternate payee has a zero interest. I like to shock idiots into recognition, as it prevents disputes years down the road when reality otherwise dawns on them. One might argue that the order is not qualified because it does not assign an interest, but I think zero is a number.

The "appropriate language" in the restatement covers the retroactive effective dates of changes to the nonsurviving plan document. The restatement is effectively the GUST amendment of the nonsurviving plan document, so it must comport with that function. You also have to watch other aspects of plan mergers that are not GUST issues, such as vesting schedules.

Plan sponsors that allow the sponsor to be a named fiduciary or that take on any fiduciary functions deserve all the liability they can get. However, even a properly situated plan sponsor is likely to have indirect liability to the extent of agreements to indemnify fiduciaries.

All service to an employer counts whether or not the employee is a position that is covered by a plan, subject to a possible exception in the event the employer has not had any plan before. Various rules determine whether or not that service may be disregarded for various purposes. The plan document determines who is covered and determines certain details such as whether the plan uses an employment year or a plan year for counting years of vesting service.

I have asked IRS officials about how one-time elections work under USERRA. They don't have an answer, other than to acknowledge that it is an interesting question. Eventually, some poor soul will have to consider proposed terms under a determination letter request that treat the one-time election amount as the employee's contribution/deferral.

If the employer is a government or an instrumentality of a government, the plan is a governmental plan and the top-hat inquiry is inapplicable because it is solely an ERISA concern. You need to settle the question of plan status first. "Quasi-governmental" has no bearing except as a clue that you might have a governmental plan.

What did the plan say when you asked it this question?

Why doesn't 409(h) apply?

The plan document controls, regardless of the other possibilities and refinements the law may allow. Expect your plan document to require the spouse to be the beneficiary for all of the account unless the spouse consents to another benefiticiary. Ease of administration of the plan usually dictates these terms. But check it out if you are offended by the idea.

Taxwoman: A prohibited transaction is (1) a transaction between a plan and a party in interest (or disqualified person) or (2) dealing with plan assets for the benefit of a fiduciary. If the IRA (plan) loans money to a person that is not a party in interest and no fiduciary benefits from the transaction, where is the prohibited transaction? Uness the IRA owner or other fiduciary gets a benefit outside of the economic benefit to the IRA (such as a loan fee paid directly to the owner or fiduciary), I don't think clause (2) is violated.

I was referring to JimJ's proposal.

Why wouldn't a sale of a plan asset to a participant be a prohibited transaction? And if it is, what would be the exemption for the proposed transaction?

For withholding, take a look at Treas. Reg. section 31.3405©-1 Q&A-9

Yes. but it would be a good idea for the plan document or a written loan policy to cover the issues. Among other things, you need to know what the acceptable payment arrangements will be, what happens to the rest of the account (for example, may the remainder of the account be distributed while only the unpaid loan balance remains?), when the account will be distributed upon default and a bunch of other things you won't think of until they actually happen. I assume that you assume that the opportunity will be available to everyone. Terminology lesson. When a plan loan is in default and the amount is distributable (for example, because of termiation of employment), the distribution is not a deemed distribution. It is an actual distribution, often called an "offset distribution" because the loan distribution offsets the loan obligation (or vice versa).

How does a plan cease accrual of contributions and benefits but not have to vest 100%?

My vote is that interest keeps accruing and is part of the loan balance at the time you do the calculation of eligibility for the new loan.