QDROphile

Why would you do anything but process it normally? By the way, the plan sponsor does not do anything with DROs. DROs are handled by the plan administrator. If the plan sponsor is also the plan administrator, someone should consider a change

Overnight camp--no. To the extent the program is one of education instead of simply childcare--no. Theme camps are a bit tougher to justify because they tend to promote the educational aspects. But "before care" and "after care" would be OK even if the core is not qualified. Often those amounts are separately negotiated and stated.

You have some other problems if you really mean that "the doctors actually fund their own contribution amounts." Except for CODAs and legitimate one-time election amounts, an employer contribution does not reduce a participant's pay. Depending on your contribution and pay scheme and numbers, the economoic effect may be correctly perceived as though income generating employees effectively fund their accounts, but you can't really do that as a matter of form unless you are a partnership. Better take a close look at the smoke and mirrors. With respect to your question, if the doctor opted out for the year (which I am not supporting), you could not increase the doctor's pay for the year compared to having the doctor participate. So if you allow the opt out and increase pay you are leaving a trail for an auditor to get through the smoke and mirrors to the improper reality. And an auditor would be interested why the good doctor would want to opt out, because it obviously could not be for the purpose of increasing take home pay. But what other reason would cause the opt-out?

Conventional wisdom is that you are better off with pre-tax savings under a qualified plan, especially if you save (outside of the plan) an amount equal to the taxes you would have paid if you saved after tax. Various assumptions and considerations could justify the other choice. I am sure some clever person could post a reply that shows after tax savings in a qualified plan as sensible. For example, if the difference between ordinary income tax rates and capital gains rates become very large, certain scenarios would come out better for after tax savings, especially if your savings period were relatively short. The investment earnings are tax deferred and ultimately taxable at distribution at ordinary rates for both pretax and after tax contributions.

The question has terminology problems. A contribution to correct an error is not what one would call a QNEC, so discussion of deductibility of QNECs probably does not get to the issue. A contribution to a qualified plan has to be deductible under section 162. Section 404 limits the amount of deduction for plan contributions for a year. A contribution in a year that corrects undercontribution errors in past years is probably deductible under section 162 in the year of contribution and does not count against the 404 limit applicable to the year of contribution because it is not a contribution for that plan year, it is a payment to the plan under the authority of Rev. Proc. 2001-17. It is not pursuant to plan terms (except indirectly); it is not allocated like a contribution to the plan for the current plan year. Under the principles of Rev. Proc. 2001-17, one gets the idea that the deduction may not be allowed to the extent that it would have caused the contribution for the year being corrected to exceed the 404 limit for that year. Interesting question: Is the contribution for purposes of 404 the entire contribution amount, or do you exclude the imputed earnings portion of the corrective contribution? Seems like you would. I propose that the analysis under section 162 is that the contribution is a deductible expense because it is an expense of maintaining plan qualification. Or looked at another way, it is a payment to settle a dispute over proper plan benefits. I have not gone to authority under section 162 to see if the proposed analysis fits. If you dip into forfeitures to find the money for the correction, you don't get another deduction. It is also a separate question whether or not you can use forfeitures forfeitures for a correction. I bet that the plan document specifies how to use forfeitures and I bet that correction of errors in prior years is not among the specified uses. However, I bet that the IRS would allow use of forfeitures for correction under at least some circumstances if you file with the IRS under Rev. Proc. 2001-17. Doing it on your own is a bit uncertain.

If you establish a money purchase plan and then reduce an employee's pay to fund the contribution, it will look a lot like a one time election arrangement. I wouldn't try it. Of course, if you want to pay the employee and make the additional contribution, too (a legitimate money purchase plan), go ahead.

Would a domestic relations order that awards zero to the alternate payee satisfy 414(p)(1)(A)(i), which requires that the order create or recognize an alternate payee's right to receive all or a portion of benefits under the plan? Is zero a portion? Can you "create" nothing? Can you "recognize" something by taking it away? If the law is interpreted to allow QDROs for zero benefits, would everyone get nervous and feel they had to obtain a zero QDRO every time a plan is not divided? Such an order might be especially difficult to obtain before the divorce. Nothing in the QDRO statute that says a QDRO can take away a spouse's rights. The law is designed to give rights that someone does not have or recognize rights (e.g. community property) that need protection or enforcement. A better approach is to go through the lawyers and the court, either through cooperation or order. Usually a lawyer can act in a representative capacity and can sign the consent on behalf of a client. That way, plan formalities can be observed.

An employee cannot make the election if the employee has ever been eligible for a retirement plan of the employer before the election is made. See Tres Reg section 1.401(k)-1(a)(3)(iv). So an employer with a 401(a) retirement plan of any kind could only implement the new feature for new employees. The feature must be in the plan document.

Just to make things more interesting, the Department of Labor position is that notice of an impending QDRO should cause the plan to protect the assets to enable future division. The Department of Labor is wrong and Schoonmaker is right. You should see what the plan's QDRO Procedures say. Schoonmaker implied that the answer could be different if the QDRO Procedures provided for a different result.

Subject to state domestic relations law, the former spouse can get the money now in the IRA. Division of IRAs is not covered by the QDRO rules. As far as the plan goes, the two prior posts are correct. The plan owes the alternate payee the money. If I were the plan administrator, I would consider supporting the alternate payee's efforts to get the money from the IRA and settle. There may be better ways to proceed, especially if the former participant is cooperative or you can find a kick-ass domestic relations judge.

First check the plan document to see if it has an ordering provision that will determine the character of the amount distributed. For example, some plans state that after tax accounts must be withdrawn first before the participant can get to other money. Next, ask youself how it is a hardship if the participant is going to roll money over instead of spend it on the financial obligation that justifies the withdrawal.

The regulation addresses only the distinction between pension plans and severance plans. A severance plan can be an ERISA plan even though it is not a pension plan. Many (perhaps most)severance arrangements are not ERISA severance plans. First, one must have a "plan," which many courts have interpreted to require a scheme of administration and possibly some discretionary or judgment aspect. A simple severance pay formula, uniformly applied, is not an ERISA severance plan in various federal circuits. But a severance agreement, applied to only one person, has also been held to be an ERISA plan. No pat answers to this question! But if you are a government, no ERISA concerns. Beware state and local law.

If the only benefit payable after the participant's in-service death is a surviving spouse benefit, the alternate payee can only get the portion of that survivior benefit that is awarded under the DRO (an alternate payee that is not a spouse or former spouse can get nothing). If the DRO says nothing about that benefit, the alternate payee gets nothing. It is a drafting problem, and it is legal malpractice (unless the intent was really to stiff the alternate payee), but the most the plan administrator should do about it is put the following in the notice of qualification: "As provided by the terms of the Order, if Participant dies before Alternate Payee starts benefits, Alternate Payee will receive nothing from the Plan." If that does not get the attention of the alternate payee, shame on the alternate payee. If that result is not what was intended, they can amend the order. The plan administrator should stay out of what is right or wrong or who is right or wrong except to the extent of maters tha affect qualification. But it is a good idea to alert the parties about unusual aspects of the order, as interpreted by the plan administrator, to avoid an ugly dispute years later when the consequences of the drafting become apparent and the opportunities to fix are compromised.

If after tax money is used to qualify for restoration of forfeitures, it is not taxed on distribution. If the plan allows IRA rollover funds to qualify for restoration, the rollover money will be subject to tax on distribution. In response to Alf, the money that originated in the plan and is still in the IRA will be taxed on distriution from the IRA, so no pre-tax money escapes taxation. If the buyback money is taxed, there would be double taxation. I can think of one example of double taxation --- failure to remove excess deferrals in time --- but that is an express penalty circumstance. The general rule is that income is taxed only once.

Plans may have many fiduciaries, whether or not they are named and whether or not they know they are fiduciaries. If one does fiduciary things, one is a fiduciary. Named fiduciaries are simply fiduciaries who are expressly identified as a fiduciary, usually for specified purposes. The purpose may be general, such as plan administration, or limited, such as naming participants as plan fiduciaries solely for purposes of tendering company stock in their accounts. It is difficult to imagine a plan administrator that is not a plan fiduciary.

Not so fast. The participant would have to terminate in or after the year of the 55th birthday to be eligible for the exception. If termination is at age 53, the exception is not available even if the participant waits until age 55 to start distributions. If eligible, thats it. Nothing more is necessary to avoid the penalty tax. But the exception does not work under IRAs, so don't roll over a distrbution and then expect to get penalty-free money out of the IRA without qualifying under another exception.

I am not surprised it is not a common feature. What is the point of having such a feature in a cafeteria plan? It offers no tax benefit unless the employer's medical benefit plan is extremely unusual.

Is it possible that the manager of a "designated investment alternative" is a "designated investment manager"? The skills of the fund manager arguably have a lot to do with the performance of the fund. On the other hand, a mutual fund manager is not normally an "investment manager" under ERISA 3(38).

The DOL rules are rules of timing. They determine when an asset that is destined for the trust is treated as a plan asset. But if the plan is designed correctly, a 402(g) excess is not eligible to be a plan asset. If the system works properly, an excess is not destined for the trust; it is ineligible. It is an error if the money slips through. If that error occurs, I agree with R. Butler that the options for correction become limited. But I think there are many options for dealing with the excess before it becomes a problem, including interception at any point before the money mistakenly gets to the trust.

What if the TPA's job is to assure compliance? The TPA compares the receipt by the TPA against the 402(g) accruals to date of each participant. Lo and behold, the participant already has $10,500 for the year. The plan says no more than $10,500. TPA notes that the money is not a legitimate contribution because the plan does not allow more than the 402(g) limit. The TPA sends the excess money back to payroll and says, "sorry, you sent me money that cannot go into the plan, I cannot deliver it to the trust." The TPA has done its job properly. No one would have a problem if the comptroller looks at the disbursement before it leaves the payroll department. The comptroller compares the disbursement against the participant 402(g) accruals to date. Lo and behold .... What is the difference between the TPA and the comptroller, except the TPA is in a different building?

Deliberately preventing a 402(g) excess from being delivered to the trust is a perfectly legitimate way to comply with 402(g) and the amounts that are timely intercepted are not plan assets, if the plan and the election forms are properly drafted. If the amounts are not plan assets, they can be returned to the employer and the employee. You do need to consider phenonmena that straddle a tax year for proper attribution. This is no different from a payroll deduction stop at the 402(g) limit. I think you read too much into the DOL regulations. They are concerned with timing only, not what constitutes a contribution iin substance.

The scheme is not without controversy. You need expert advice about the foundation for the scheme to see if you can tolerate the uncertainties. No comment on accounting treatment.

Plan disqualification means that the employer loses deductions for contributions, no one gets tax deferrral on contributions after the disqualification and highly compensated employees include their entire accounts in taxable income. You may have other complications, including determining the year of taxability. All very bad things that you do not wish to happen. As a practical matter, the IRS won't disqualify the plan unless you spit on them, but they will use the disqualification to compute what it will cost you as a penalty to get out of the mess.

Keep the assets in the B plan, work through the problems. After the fix, either keep the frozen B plan forever or merge it with the A plan. No one is "forced" to move anything from the B plan to the A plan, although there may be some pressure to do so. Someone may want to ask about the definition of "due diligence."

A person would repay a loan after a deemed distribution (1)to enjoy the tax deferred earnings on the repaid amount (same reason people make nondeductible contributions to regular IRAs) and (2) to reduce outstanding loan balances to allow for increased future borrowing from the plan.