QDROphile

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 For example, some plans state that after tax accounts must be withdrawn first before the participant can get to other money.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.

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.