QDROphile

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.

Sorry, I don't get it. The employee "defers" $100,000 to the trust but has income of $100,000, which leaves the employee with $60,000 after taxes. Where is the deferral? Then the employee transfers $60,000 to the trust. The trust has $60,000. The trust borrows $40,000 (from whom?) to make employee whole, which I presume means that the employee trust account has $100,000 ($60,000 from the employee and $40,000 loan proceeds). Where does the trust get money to pay interest on the loan, and later to pay principal of the the loan? From the insurance policy? Seems like that would seriously reduce the return on the policy. Seems like all that is happening is that the employee is getting tax deferral on investment earnings on $60,000 and the net (after loan interest) investment earnings on the $40,000. Seems like that could be done by going directly to the insurance policy without the trust and without any salary deferral. And the discussion assumes the the scheme works from a regulatory point of view, which I am not even touching.

Would it surprise you to learn that you cannot require the the particpants to take a distribution if the Seller maintains another defined contribution plan?

Still keeping those QDRO files. I regret that I am not directly accessible, but I have to maintain deniability for the incorrect and intemperate statements that I post.

Get competent help. Although people say incredible things when challenged, the nature of the comments you relate displays consderable ignorance about the very real dilemma that must be resolved.

Wendy: The plan administrator holds the best cards. But when the day comes that the drafter calls you on it and does not back down, you should consider your course of action very carefully. An order can be drafted that awards unvested benefts to an alternate payee.

The plan could provide for payment by other means, such as receipt of periodic checks from the borrower. Yes, it is more administrative trouble than payroll deduction, but it seems like a reasonable gesture under the circunstances. If the borrower does not want to pay the loan, the usual default consequences apply. You could amend the plan to allow all participants to elect to take a distribution of some percentage (how about 75%?) of the their accounts prior to receipt of a determination letter. That would preserve the plan while you wait for the determinationletter and provide room to allow a cash distribution to coincide with a distribution of a defualted loan. I assume that all the participants have terminated employment in the employer controlled group.

Depending on state law, if payroll reduction is authorized as a condition of getting the loan, the employee cannot unilaterally cancel the deduction before the loan is paid. A good backup is to get a separate assignment of the pay to secure the loan. Then cancellation of the payroll deduction does not matter; the plan can collect directly under the assignment. Pay assignments should not be done without assistance of counsel. State law must be respected in this area as well. How much trouble must the fiduciary go to in order to collect on a defaulted loan? It is a matter of judgment and circumstances. But the fiduciary must start from the proposition that the loan should be enforced. It then makes a decision about practicality like any other lender. If the fiduciary decides not to take enforcement action, it should doucment consideration of the issue and the reasons for not proceeding. And if the situation keeps recurring under the plan, the fiduciary needs to consider changing the conditions for loans and the security for the loans. Loans are expected to be repaid. If they are not, it jeopardizes the entire plan.

You might like to read some of the Department of Labor's advisory opinions about prohibited transactions before you put stock of you employer in your IRA.

The plan's written QDRO procedures should cover how vesting and account division is handled in absence of express provisions in the QDRO, and QDROs seldom cover these details. The alternative is to disqualify the order because it cannot be interprested or adminstered without more information. If you feel you have to choose without the ability to do this properly, the most conventional way to go is divide the vested and unvested account proportionately. The unvested portion of the AP's subaccount continues to vest as the participant accrues service. Depending on what the plan document says, the vested portion may be distributed to the AP. If the plan does not have special provisions for the AP, and if it provides for lump sum only, the AP can get no distribution until the account is fully vested or the participant separates from service. Essentially I agree with Mr. Anderson. I don't understand why Kristina is honked off. The unvested portion of the AP's subaccount does not affect the participant, nor does the incease in vesting. The alternative is to give the AP all vested money. Then the participant would really be honked off.

The fiduciary of the plan has to enforce the loan, even if the payroll deduction is somehow cancelled. The payroll deduction is simply a convenient collection device. Otherwise, the fiduciary breaches its duty. The plan may also be disqualified because the loan would then be a device to obtain distributions in circumvention of the rules against in-service distributions. The plan can't be drafted to allow "voluntary defaults." If the loan documents don't make it clear that the loan is an enfoceable obliagation, then the loan is bad in the first place. Don't pursue this idea. The legitimate possibility is to have the loan discharged in bankruptcy. Unfortunately, the law is not clear about what happens to plan loans in a bankruptcy proceeding and there are multiple credible views. One, thing is clear. A bankruptcy stay suspends of collection of loan payments by any means.

Many, if not most, states afford IRAs protection against creditors.

An early part of the process is to hire someone who knows what to do.

Treas. Reg. section 1.410(a)-7 has transition rules for switching systems.

Does the 403(B) employer have the authority and available funds to loan money to employees? Is it prepared to deal with defaults and enforcement? Will it comply with Truth-in-Lending requirements, if applicable? Will it try to restrict the proceeds of the loan to a particulatr purpose (repayment of the 401(k) loan)? You seem to be describing loans from the employer to employees, so there are no ERISA or plan related issues. The loans are simply loans from the employer. For good reason, most employers don't loan to employees, except for the fat cats. You may want to get a more precise and correct understanding of what happens to the 401(k) loans and possibilities for alternate consequences.

Have you ever heard of retiree health plans?

The plan document or the written QDRO procedures should specify how investments will be handled. It is better to allow the alternate payee to direct the investments. Otherwise the plan may fall out of compliance with ERISA section 404©. The plan fiduciary with investment responsibility could be held responsible for the investments. Under ERISA investment standards, holding amounts in a money market investment for 3 months pending a distribution is not a problem. How nice that the alternate payee is taking a distribution. Now get ready for the one who decides to stay in the plan a while.

Once the QDRO money is rolled over into a plan, the QDRO source is irrelevant. It is simply a rollover. So the recipient plan document controls whether or not a distribution is available, and the plans general rules about rollover amounts apply. There is nothing special about the QDRO rollover. So, among other things, the 10% penalty will apply unless an exception other than the QDRO exception applies. I don't see any point in dividing the rollover account into subaccounts

You might consider the probability that owner B killed owner B's IRA by having the IRA acquire the stock in the first place. If so, no issue about the conversion or the holding of the stock. The damage has been done. The hard part is evaluating the damage.

Hardship withdrawals are available from amounts other than elective deferrals becuase they fit the rules applicable to distributions from profit sharing plans. They don't depend on the 401(k) rules. The rules for profit sharing plans allow in-service distributions of aged money, upon attaining a specified age, or the occurrence of a specified event. The hardship is the specified event. 401(k) only deals with elective deferrals. It does not establish rules for qualified plans generally. We have the provision in our volume submitter plans, which get detailed review by experienced IRS reviewers. The "on the edge" statement reflects the fact that there is no guidance about events that can be the basis for in-service withdrawals. By contrast, we have guidance about aging money.