QDROphile

The plan administrator has discretion in the determination about whether or not you are close enough to eviction to qualify for a hardship distribution. Overdue rent , by itself, is not enough. In my personal view, the letter is enough for a plan administrator to justify the distribution unless the plan administrator knows of something that undercuts the threat (such as state law or procedures that delay evictions for a material amount of time -- which is suggested by the administrator's comments). You might ask what the plan administrator expects before approval (maybe you have that now) or why the administrator does not think eviction is imminent so you can address the specific concerns. The failure to use the word "eviction" is not fatal in light of the "regain possession of the premises" statement, assuming that we are all speaking English. You may have to educate the administrator if the administrator is mistaken about eviction proceedings and documents. There may be reasons apart for the eviction that are in the way, such as whether or not you have other resources. Ask for all reasons for the denial.

I did not suggest that that the regulation required one thing or another in your situation. I identified it as the source of plan language that you have seen on the subject, as you requested. The regulation and its principles need to be considered in evaluating what is appropriate in any particular circumstances. The plan language must be considered also, whether or not the plan language is more restrictive than the law allows.

ERISA regulation section 2550.408c-2

I just had a vague recollection that a benefit that was legally required (such as annuity in a money purchase plan) could not be eliminated. I don't think a merger or nonelective plan to plan transfer changes the rule.

Convince me that you can eliminate the annuity option if it was imported from a money purchase pension plan. I don't think the regulations go that far.

There are enough court decisions that a one person arrangement is an ERISA plan that you should be concerned. Often the workable solution is to follow the top hat plan rules. You should get competent advice to help you decide.

If you read the statute literally, it is business as usual until a domestic relations order is received (not a draft, an order). And so says the Schoonmaker decision, 987 F2d 410 (7th Cir. 1993). But read Schoonmaker very carefully. It suggestst that the written QDRO Procedures are very important. My experience with the DOL is that the DOL wants the would-be alternate payee to be "protected" as soon as there is information that suggests a domestic relations order may be coming. But that is a very problematic standard, and Schoomaker says not to do it unless maybe the QDRO Procedures provide for the earlier protection. Maybe. And then be careful about what constitutes a domestic relations order (not necessarily a qualified one) and the protection it offers an alternate payee. See the Tise decision, 234 F3d 415 (9th Cir 2000). So the real answer is beef up those QDRO Procedures and follow them. And everything we know is wrong in the sovereign nation of California.

It is a lovely regulation that needs to be applied to the specific facts at hand -- all the facts. One plays with fire if a full time employee of the employer gets compensation from the plan. Among other things, an employee who has significant administrative duties may be a fiduciary.

Consider ERISA Regulation section 2550.408c-2.

If you are willing to live with the consequences of being your own lawyer and operating on benefits that you don't understand, you might get enough rope to hang yourself by asking the 401(k) plan administrator if the administrator has a model domestic relations order or model QDRO. If you get one, it will probably come with disclaimers about how the plan is not suggesting how to divide your benefits or draft an order. Disregard those disclaimers because nothing about your situation could possibly involve any considerations or complexities that would require thinking or knowledge about any issues that are not resolved plainly, fairly and properly for you in the model. Write your own order using the model as a guide. Send your document in draft form to the plan administrator for review. Modify as necessary to make the form acceptable. Don't worry about any suggested changes because the plan administrator is looking out equally for both of you and will make sure to ask any relevant questions about personal issues that affect the property division to make sure you both get exactly what you intended. You can also count on the plan administrator to be concerned about your personal tax consequences and respective economic circumstances. And the plan administrator will make unsolicited suggestions about things you can get the plan to do for your benefit, even if the suggested action will increase the plan's administrative burdens. Finally, the plan adminstrator will tell you exactly what words to use if any changes are necessary. Now comes the fun part. The order is an order that must be issued by a court. You need to make the order look like the form of your divorce judgement or decree at the beginning part of the order (names of parties, name of court, docket number). If you don't have a model pleading from your own proceeding, go to the clerk of the court and ask for help with the refinements of the form and instructions about how to file it with the court and how the court will enter the order. When the order is entered, get a certified copy and send it to the plan administrator, along with an inquiry from your former spouse about procedures for getting the money. If you live in California, the drill is much easier. The California courts know that the plan administrator knows exactly what you want and are entitled to under California law. So just find a way to get some sort of indication that your divorce has in some way entered the court system, give any old document to the plan administrator that says somebody wants something from the plan. The plan administrator is supposed to do everything else, even without information. Other resources: The Department of Labor published "The Division of Pensions Through Qualified Domestic Relations Orders," available at the Depatment of Labor website. Look for the Pension Welfare Benefits Administration location within the site and use the internal search engine. The publication includes a copy of IRS Notice 97-11, which has sample QDRO language, but is quite cumbersome if you aren't already familiar with QDROs. Private publications about QDROs abound, and should be available at your local law library. If you are having trouble separating useful information from nasty sarcasm, it may be an example about how helpful advice about cutting corners is a bit of a contradiction.

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.