QDROphile

I generally start from the proposition that the alternate payee's benefits, especially in a defined benefit plan, are derivative of the participant's benefits. Unless other specific authority applies (such as the ability of a plan to make distributions to an alternate payee while the participant is still in service), restictions on the participant's benefits continue to apply to the alternate payee's benefits. The 401(a)(9) rules generally take this approach. If the general policy were otherwise, some "important" rules could be subverted by a divorce, which may or may not be a "real" divorce. Please note that I am not responding directly to your qustion. I have not looked at the situation you decribe or the applicable rules.

Medusa is correct. See section 401(k)(4)(B) of the Internal Revenue Code. You are misreading Ms. Calhoun's statement.

Would it bother you if the company's payments on the loan were treated as additional contributions to the ESOP? If not, then have the company make additional contributions to the ESOP instead of making the loan payments. The ESOP can pay the loan with the additional contributions. If the idea of deemed additional contributions bothers you ....

Employers do not have any role in decisions about payment of plan loans. Loan payments are the province of plan administrators. If the employer is the plan administrator, shame on the plan designer! Look at Treas. Reg. section 1.72(p)-1, Q&A 10 to 21, and Q&A 19(B) and 21 in particular. If the loan is not treated as an offset distribution, I think it would be a breach of fiduciary duty to refuse to allow a participant to pay. The plan administrator could establish reasonable conditions for payment. Or perhaps you are asking if the employer could amend the plan to provide that loans could not be paid under the circumstances you describe. A much more intersting question. I would advise against it out of a concern that the loan program could fail the requirements of section 72(p), but I am not aware of any authority that spells it out.

I think the better answer is by UKH under the 401(k) thread started by Mr. Klose. However, as indicated by that response, the facts and timing are very sensitive and I would want to see the whole package that shows that the residence will be built as part of an integrated arrangement that will proceed apace. Any indications that the land would be sitting around by itself for any length of time, or that the arrangement (or a material part of it) is subject to significant contingencies, would nix the withdrawal. One comfort feature would be to allocate the withdrawal proceeds to several elements of the residence acquisition/construction rather than the land alone. I also advocate sending the money to the escrow agent rather than the participant. If the deal does not close, there is a prospect of getting the money back into the plan without having a distribution. If you give the money to the participant, you have a more questionable prospect of avoiding treatment as a distribution, even if the participant wants to give the money back. Payment to escrow also is an indication that the money will be used for proper purposes.

So you are operating the plan for the benefit of the vendors rather than participants? You may not like my style of response, but you should consider what the fiduciary duties and standards are, including the requirement to follow plan terms. If you go beyond them, even out of good-hearted concern, you invite trouble that is difficult to foresee. You haven't said what the plan says about how to get disbursements. Perhaps the plan document could be "better," but I start with the proposition that the problem is the family's and there is something wrong with the conclusion that court is preventing an arrangement that will allow somone to protect the interests of an incapacitated person. Who is authorizing the expenses that will be paid from the plan, and on what basis? In the end, the representatve of the deceased employee will be able to get the funds to pay bills of the employee.

So how do you defer amounts out of W-2 compensation that is not paid in the form of cash?

You may not have an operational failure. First, look at what the plan documents and election forms say about about the deferral elections. Some plans do not allow elections from bonus amounts. Others are ambiguous. Some apply the election against all checks. Some allow a special election on the bonus check. Just because some amount is in the definition of compensation does not mean that the participant can elect to have some part of the amount deferred. Be careful about matching contributions and other contributions that are claculated based on compensation. You may not have a problem with deferrrals, but if the bonuses were not added to compensation for purposes of calculating other contributions, you may have a problem.

You are not going to be able to stretch the 404© regulations to create a need for the plan to provide financial education. The regulations you describe go on to provide what is necessary to satisfy the requirement that you describe, and financial education is not on the list. In fact, the related interpretive bulletin 96-1 expressly states that investment education is not necessary to comply with the requirments of 404©. If the plan is going to provide investment education, it will have to be justified on some other rationale. Not every good ideal is a legal requirement. I am not saying that education cannot be a plan expense. I doubt that I would advise anyone to treat general investment education as a plan expense.

Why is it your problem to get the money out to the vendors?

The AT&T and Hopkins decision is wrong, but that is what makes life interesting.

Under the transition rule in the Retirement Equity Act (which created QDROs), section 303(d), PL 98-397, a plan may accept a domestic relations order entered before 1985 and the plan may waive any of the formal QDRO requirements. The plan is not required to accept the order and may require that the order meet the QDRO requirments. The plan shoud make sure that it can interpret and administer the order to its satisfaction before accepting it. You should also check the plan's written QDRO Procedures to see if they say anything about pre-REA orders. I could show you some that address the issue. If they address the issue, they probably pick up the transition rule because it is so practical. If they don't address the issue, you have to consider if the language of the Procedures precludes the administrator from accepting the order without the QDRO formalities. Written QDRO procedures can be amended.

Yes. That's half the point of a QDRO. You get some disagreement around the edges, such as when the participant remarries and starts joint and survivior annuity payments from a defined benefit plan and then dies before the order concerning the fomer spouse arrives. But that is what makes life interesting.

You can probably find it in the IRS Publication on IRAs, number 575 or 590. But simply instruct the custodian in writing of the excess and to distribute it with related earnings. Inform the custodian that if the custodian fails to execute timely and correctly, the custodian will be held responsible for any consequences of an excess contribution that could have been avoided by following the instructions. Put the burden on the custodian of trying to support the custodian's position by making the custodian bet that the custodian is right.

You got the correct responses the first time. You look at the year FOR which the contribution is made. A contribution made after Jan 1 and before April 15 of 2001 can be for either 2000 or 2001 or can be split between the years.

I just love it when the too, too clever tax avoiders find out that they are not so clever after all. The taxpayer has some tough choices to make about getting everything straight and needs comprehensive advice about all aspects of the games being played. Depending on the global position eventually taken, the position of the plan should be conformed to the extent possible. Anticipate correction of an operational error under the plan.

Depends on what the plan says and the plan can say almost anything. But flexibility is seldom allowed because it is too much of an administrative burden. The prior post descibes the most common variation on what is otherwise usually an inflexible arrangement. Don't cheat plan terms. Bad planning by the participant is not your problem.

You have made valid points about how to proceed with changes, but the reason is not 204(h). As you have indicated, the reasons are the need to follow plan document terms and the contractual obligation reflected in the document (if the employee defers, the company will match). Section 204(h) has strict formalities that do not need to be observed in order to cover the points you raise. In fact, trying to follow the 204(h) formalities could interfere with the most expeditious legitimate transition. For example, the original question was concerned in part with the timing of a Board of Directors meeting. Under section 204(h), a pre-meeting notice is ineffective. But under these circumstantces, the premium is on early notice, not the actual Board action. Artificially following 204(h) would hamper the best approach.

Rcline 46, please explain why a change in contributions to a profit sharing plan is subject to ERISA section 401(h). 402(h) says that it applies only to a defined benefit plan or a plan subject to the funding requirements of ERISA section 302. Section 302 would cover a money purchase pension plan, but would not cover even a "hardwired" contribution to a profit sharing plan.

1. Yes, for the exclusion allowance. Probably not for the annual addition limit. 2. The analysis depends on all the facts and circumstances. The IRS has ruled on similar circumstances. You need help on this one.

The IRS has ruled that ADRs of foreign securities that trade in the US are employer securities.

You can notify of an anticipated change before the amendment is adopted. Consider that you may need to notify far enough in advance to allow participants a reasonable amount of time to change elections in light of the change in the match. They were promised a match if they elected to defer amounts. They may have a right to the match for amounts put in under the promise of a specified match. You also need to consider how the match is designed. Different designs create different obligations to contribute.

Agreed. There are ways to encourage particpants to choose a distribution. Most participants will choose a distribution when it is offered, so only the rugged few will stick it out. The plan informs the rugged few that the plan will be paying all of its own expenses, so the few accounts can expect to see much bigger deductions for plan expense. That usually smooths a few edges. And then you can transfer if necessary, which is less a problem now that most benefit options can be eliminated.

Treas. Reg. section 1.411(a)-11(e).

You can add $3500 to an IRA if you can attribute the amount to two years ($2000 maximum per year). For example, if you have no IRA contributions for 2000 or 2001 and contribute to the IRA by April 15, 2001, you could attribute $2000 to 2000 and $1500 to 2001. The IRA contributions have nothing to do with the 401(k) plan. You can do the same thing with any cash that you have available to you. Nothing said about eligibility for Roth IRA or deduction. We can be relatively certain that you cannot deduct an IRA contribution in 2000 if your status as a highly compensated employee is based on your income. Congratulations.