QDROphile

A plan can be designed to limit the source of loans or in-service withdrawls. Participants do not have rights to loans or in-service withdrawals unless an improper cut back is involved. Be careful with terms that resemble terms of art, such as "rolled." If you misuse the term, you may get on the wrong track. The implications of money moving as a rollover are different from the implications of money moving by transfer. I am not suggesting that you misused the term.

In addition to the dangers of influencing employees to invest elective deferrals in company stock, I think it is offensive to both the principles and the law of ESOPs to define an ESOP with respect to how each participant decides to invest plan funds rather than by criteria such as employer contributions and employment culture. Company stock as an investment option is one thing, but making that the defining characteristic for having an ESOP seems like a mockery. Somehow I have the naive notion that there should be a provision in the plan document that specifies that a contribution be made to the ESOP. Also, odd questions arise because of special exceptions and rules (such as disaggregation) that distinguish ESOPs from other retirement plans. So how do you apply those rules when on Monday a dollar is in the ESOP and on Tuesday it is not because the participant has changed an investment choice? What is left of the policies behind those rules when application depends on how a participant chooses to invest? Or is this just further revealing the artificiality (or hypocrisy?) of putting ESOPs under section 401 in the first place?

Anyone care to comment on the current scam (blessed by the IRS in numerous letter rulings) of defining the ESOP as the portion of the plan invested in company stock? The IRS has ruled that even a stock fund that is subject to participant direction can be the ESOP portion. Nice giveaway to publicly traded companies that have company stock in the plan anyway, especially after 2001.

pax: It is not only possible, it is required. All domestic relations orders get responses and determination of qualification.

Harry O: 1(a) Physical separation of the actors by function will help the actors appreciate what function they are exercising so they can exercise properly. The distinction is often confusing. The different hats help remind people that they are subject to different standards and concerns when exercising different functions. Also, why put yourself through the exercise of untangling a web of actions to characterize them later? Among other things, you may have blown attorney client privilege by not respecting separate functionsin the moment. I won't get further afield in a dialogue about attorney client privilege. It is too complex, murky and circumstantial for this forum. 1(B) You still have the question about who should be focused on plan administration (see 2 below). Naming the employer as the plan adminstrator is not specific. Your suggestion of more specific delegation would address the vagueness problem. How many employer/administrators have formal and specific delegations that are kept up to date? 2 I don't think that a Board of Directors has the same interest in oversight of plan administration that would be appropriate for a fiduciary that has delegated some or all of its fiduciary responsibility, and I think the directors in many companies are too far removed to properly monitor even if they theoretically wanted to. Oversight appropriate for the Board is achieved by officer reporting to the Board. Steve72: I wouldn't bet on the corporate veil for protection against an ERISA fiduciary claim. I would worry more about the ERISA shotgun.

It is a bad idea to have the plan sponsor be the plan administrator for several reasons. One is that you want the settlor actions to be distinct from fiduciary actions. If you make the sponsor (settlor) a fiduciary, you blend or confuse the functions and actions. Settlors can do things that fiduciaries either can't or would agonize about. If the settlor is a fiduciary, it hampers the settlor's abilities. Another reason is that if the sponsor is a fiduciary, what live being is really responsible as a fiduciary? In a corporation, you put all the directors and officers at risk of fiduciary liability because corporations act by and through directors and officers. Do you want all your directors and officers to be named defendants in an ERISA lawsuit? It is better to identify exactly the persons who have fiduciary responsibility. Those persons know they are on the job and have to act accordingly and everyone else is then off the hook. A better alternative is to name an Administrtive Committee as the plan administrator. Put persons on the Commitee who really have the job of plan administration.

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.