QDROphile

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.

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.