QDROphile

Mr. Berke is correct that the rollover rules are harsh and stiff. You might want to rethink who received the check. Who is the "company?" If the recipient was a fiduciary of the qualified plan of the "company," or the custodian of an IRA, the check may have been delivered to the plan or IRA. That would complete the rollover in the required period. The rules require delivery, not reinvestment. But then the fiduciary or custodian would have to answer to why the funds remained uninvested for an unreasonable period. And perhaps the failure to cash the check for an unreasonable period would undermine the theory that the funds were effectively delivered to the plan or IRA.

You may allow hardship withdrawals of employer funded amounts on the basis that hardship is an "event" defined in the plan. This position is a bit on the edge, so it is best to get your determination letter on plan provisions that describe the withdrawals. We have not encountered IRS resistance to such provisions.

You need to redesign you loan offset procedures to allow compliance with the rollover notice rules.

414(p)(5) says "To the extent provided in any qualified domestic realtions order ...." So one could provide that the AP is a surviving spouse to the extent of a QPSA but not to the extent of a QJSA. Most people don't want to give an AP QJSA rights with respect to the participant's remaining benefit. That would be double dipping for the AP. My problem is usually with an order that simply says that the AP is treated as the spouse when I know that they don't really want the QJSA on the participant's remaining benefit. I draft QDRO procedures that say in order to get the QJSA the order has to provide for it expressly and that a mere mention of treatment as a spouse won't be sufficent. The notice of qualification also makes note of the issue and results.

All responses are qualified by requiring reference to the terms of the plan and the plan's written QDRO Procedures. Note partial inversion of order of response. 2. Yes, except it is the order, not the participant, that must designate the alternate payee as the surviving spouse with respect to some portion of the QPSA only. The wording is sensitive. 3. Yes. 1. Probably not, but you have gone overboard in your definition of "separate interest" QDRO. I work the plan side, not the particpant side. My preference is to have tha alternate payee's interest lapse if the alternate payee dies before starting benefits, and the participant's benefit is restored. There are related details that I won't go into. You may have some section 401(a)(9) and other issues if you think you can assign a QPSA to an alternate payee that allows a death benefit after the alternate payee's death.

Assuming that your 403(B) arrangement allows for hardship withdrawals (which it might not because it is not required to allow them), if the arrangement is a custodial account under 403(B)(7), only elective deferral amounts may be withdrawn before termination of employment. Elective deferrals amounts are the amounts you chose to come out of your pay and go into the arrangement instead. If you had a match or other employer-funded contribution, it is not eligible for withdrawal before termination of employment. Rule of thumb for determining if you have a 403(B)(7) cutodial account is whether you go though a mutual fund. If you go through an insurance company, it is probably not a 403(B)(7) and the hardship distribution could tap earnings on contributions (if the contract allows). You imply that your 401(k) plan is an additional plan of the same employer. If you terminted from employment under the employer that provided the 403(B) plan you have a separate basis for getting your money. Try not to take the money if at all possible even if you can get it under a hardship provision. By the tme you pay all the taxes on it, including the additional 10% tax if you are not 59 1/2, it won't look like much. Furthermore, you won't be able to replace it in the future, so you will have lost the significant value of deferral of taxes on the earnings. The thing to do is ask. You will be told what you can and cannot get.

Being excludable does not mean that your service doesn't count when you finally fall into a covered position. For example, a union employee is excludable, but when the employee becomes a manager, the service for all time with the employer counts for eligibility and vesting. You need to look at the plan document and you will probably need to look at the rules under sections 414(B) and 414© of the Internal Revenue Code to determine if the UK employer is aggregated with the US employer for purposes of determining who is the "Employer" for purposes of service crediting. If the UK employees get into the plan, you will need to look at the same rules to determine if the UK employees can get a distribution when they go back to the UK affiliate. You will have to determine if they have terminated employment for purposes of distributions. Hope for a plan document that excludes them on some other basis.

Given the complexities of the issue in the abstract and the importance of the actual plan provisions, QDRO provisions and other facts, I don't think Cindy should be getting her advice from people who choose to participate on a bulletin board. Good leads, food for thought, confirmation of what one knows, yes. Answers to act on, not usually. While the plan usually has the upper hand in QDRO matters and as a practical matter, the other players usually cave in to what the plan dictates (usually it is not worth pushing it), the Department of Labor is disposed to presume that the plan is the bad guy and that the alternate payee needs and deserves protection. Trust me on this. I have participated on panels about QDROs that included DOL representatives. The DOL hears mostly from frustrated alternate payees and lots of plans don't behave properly. This is the DOL view of life because of its sample space. I think the DOL is somewhat twisted and occasionally wrong in QDRO issues, but you don't take them on lightly. Also remember that ERISA provides for attorneys fees, so you are always betting you are right. Perhaps you want to bet advisedly. Although plan fiduciaries look to administrative service providers to answer most questions, determination of qualification and adminstration of domestic relations orders is a fiduciary function. A service provider that does not want to become a fiduciary or who does not feel competent to advise the fiduciary should decline and suggest that the fiduciary seek other advice. As one can see from the discussion among knowledgable commentators, this is not an easily resolved issue. Also, neither the service provider not the fiduciary should be advising the participant or alternate payee. Very dangerous to get caught up with them. Get good written documents and give them out and then react in the determination process to what they come up with. Don't engage them. Among other things, it is a black hole for use of time.

I agree that QDRO issues could get more attention in plan documents, but I don't think you would want to choke the plan document with all the details. Our written QDRO Procedures are about 14 pages long, covering both DC and DB plans. Our plan documents say that QDROs will be determined and adminstered in accordance with the written procedures adopted by the plan adminstrator. The plans have a few other key provisions, such as allowing APs to get distributions in DC plans even if the participant is ineligible. This approach is similar to an approach that is often used with plan loans. The plan document does not have all the gory details. The loan procedures are in a separate administrative document, and can be adjusted without a formal plan amendment. I also agree that the plan document controls, so the written procedures should not contravene the plan document. But the procedures wll provide a lot of embellishment. Were it not so, we would have express requirements for QDRO provisions in plan documents. We do not. ERISA says that plans shall have written procedures, not that procedures shall be in the plan document. The new Summary Plan Description regulations say the the QDRO procedures either have to be summarized in the SPD or the the SPD has to say that a copy of the procedures is available on request. That implies (i) that the plan document does not have to say every relevant thing about QDROs (otherwise it would have had to be in the SPD anyway without mention in the regulations) and (ii) the procedures are so important that they have to be mentioned in the SPD and made available. Also, when someone is looking for the the procedures to assist in drafting an intelligent domestic relations order, you don't want to have to give them the entire plan document. Give them the separate written procedures, that is all they care about.

The plan document should specify. The plan may state that a rollover is not a repayment.

In response to Ms. Lambert's follow-up question, the plan's written QDRO procedures should have default provisions for dealing with these questions if the QDRO does not specify. Let's suppose that only elective deferral amounts are available for hardship withdrawal. Matching and profit sharing amounts are not. The QDRO could assign 50% of the participant's balance as of date XX to the alternate payee and further could direct that the alternate payee's benefit be constructed first from elective deferrals. Let's say that the participant's account is more than 50% composed of elective deferrals. The APs benefit is 100% elective deferrals and the AP has access through a hardship distribution (assuming that APs can get hardship distributions). The participant's elective deferral account is reduced by that amount and the participant has a much smaller balance for future hardship withdrawals. But the drafter of the QDRO is as ignorant as the plan administrator who does not have adequate QDRO procedures. So the the QDRO does not say anything about how to construct the APs benefit. Adequate QDRO procedures would say something like the following: Unless the QDRO provides otherwise, the alternate payee's subaccount will be created by pro rata withdrawals from all of the participant's accounts and investment funds other than a loan accounnt. The plan administrator would then prorate, so that 50% of the participant's elective deferrals as of date XX would go to the AP's subaccount and be available for hardship withdrawal. So go out and amend your written QDRO procedures to provide some rule for dealing with the situation. It does not have to be pro rata, but you need a rule for this and other purposes, such as deciding which investments to charge. Even if you decide that APs cannot have hardship withdrawals, you need an ordering rule or policy.

At the risk of perpetuating a dcussion with many implicit points that beg for clarification, I don't think a right available to an alternate payee need be expressly authorized in the plan document. For example, if the plan provides lump sum and installment payment distribution options, alternate payees may receive installments even if the plan does not state that alternate payees are eligible for installments. The plan provides for installments, so the QDRO does not require the plan to provide for a type or form of benefit or other option not otherwise provided under the plan. I doubt that many plans state that APs are ineligible for hardship distributions, but maybe that would not be a bad idea. Hardship withdrawals have features that may ultimately justify a different treatment for alternate payees, but I would feel comfortable arguing that the participant can get a hardship withdrawal, therefore the AP can. The plan is not asked to do anything that it is otherwise unprepared to do. Remember, plans are not required to have any provisions for QDROs, so it will be difficult to refuse something on the basis that the plan is designed to do things only for participants or active participant (loans are a different matter for more complex reasons). I am not clear on the concept of nonactive participants being ineligible for hardship withdrawals, but let's take that at face value. The argument then becomes that an AP under a QDRO affectng a nonactive participant can't get a withdrawal because the participant can't. But an AP of an active participant still can get a withdrawal. I don't know what to make of the ERISA provision that says APs are treated as beneficiaries. Does that mean they can't get what a participant can if the plan expressly provides more limited rights to beneficiaries? The tax code might have a different view. In the end, I don't know the answer, but it is plausible that APs are entitled to hardship distributions. I completely agree that it is better to avoid the uncertainty by allowing APs the right to receive distributions from defined contribution plans whether or not the participant is eligble. Then you don't have to get into the secondary issue of the QDRO designating which participant accounts and funds are awarded to whom, as correctly observed by MWeddell.

You cannot satisfy all of the required 404© information requirements by providing a prospectus. For example, if the shareholder materials, such as proxy voting materials, are not given to participants and then followed according to participant directions, you fail. I know of many plans that don't pass through shareholder materials on mutual fund to participants. That's OK, but triggers disclosures that are not covered by a prospectus. A propectus won't tell you anything about plan fiduciaries either. A prospectus won't provide the 404© disclaimer. And more.

You should give SPD on request. An SPD should be given automatically to an alternate payee who is receiving benefits (as well as summary annual reports). You can provide SPDs more generously. ERISA says alternate payees are to be treated as beneficiaries.

OK, here's attorney-client privilege 101: With some exceptions, communications between a lawyer and the lawyer's client are privileged. That means another person is not entitled to know the substance of the communication. Put either the lawyer or the client on the witness stand and ask "What was in the communication?" You don't get testimony about the contents of the communication. With some exceptions, if the lawyer-client communication is "published," the privilege is lost. Suppose the client tells her mother, "I told my lawyer I wanted to offset retirement plan distributions against embezzled funds." Put the lawyer or the client on the witness stand and ask about the communication between the lawyer and the client. You will be able to get testimony about the lawyer-client communication concerning the offset. The client can waive the privilege by telling others. There is no privilege when a lawyer communicates with someone who is not the lawyer's client. A communication received by a nonclient is not privileged even when the client is participating in the same communication with the client's lawyer. If the mother is present when the client talks to the lawyer, the communication is not secret between the lawyer and client so it is not privileged. I don't don't know what was meant by the comment on the privilege, but the implication was that somehow it was OK for a client's lawyer to say something to the embezzler that the client could not. Despite certain mistaken beliefs to the contrary, lawyers have no right to lie, cheat or steal or otherwise not be accountable for their actions, and anything the lawyer said to the embezzler would not be protected by attorney client privilege because the statements would not be a communication to the client. Anything said to the embezzler by the lawyer acting on behalf of the client would be attributable to the client. And it would be discoverable because it was communicated to a person other than the client. Perhaps I didn't get it or was being unfair. I don't think attorney client privilege has anything to do with statements to the embezzler. A lawyer can't say something to someone that the client can't. To the contrary, lawyers can't say things to others that their clients can. Perhaps a lawyer might be more skilled in the choice of words. What did you think the comments about use of an attorney meant? By the way, I am not suggesting that legal advice in this situation is somehow not worthwhile. This is a sensitive situation. You should get competent legal advice before touching plan funds to right a wrong.

The statement about attorney client privilege in this thread is misleading.

You are in a grey area with respect to prohibited transactions. The standard advice is never have your IRA invest in your employer or a company in which you have a separate ownership. You need sophisticated advice to reach a conclusion. You didn't ask, but it is likley that the IRA has UBTI from the investment in the LLC if the LLC is an operating business. Bad news all around on this situation.

The employer is not a proper payer of qualified plan distributions. The trust is the payer and has the obligation to withhold. Make sure you get the basics straight before you go on to the more difficult issues.

Establishing a mistake of fact based on failure to follow plan terms is going to be difficult if you look at examples of what the IRS thinks constitutes mistake of fact. Your situation could just as easily be a mistake of law. "Gee, we just didn't know we weren't supposed to count compensation over $170,000 ...." The fact that you violate a plan term does not make something a mistake of fact.

California domestic relations procedure is a disaster for retirement plans. One way to approach the problem is to treat the joinder as a domestic relations order (not totally farfetched, but unconventional), which causes suspension of payments until you resolve qualification. This bridges the plan into the 18 month rule (which most people misunderstand)and provides a basis for delay or action as appropriate under the circumstances. And read Trustees of the Director's Guild v. Tise for guidance. And read the dissent in Stewart v. Thorpe Holding for the antidote to the assinine majority opinion in that case(sorry, just had to throw that last gratuitous sentence in there, but the majority opinion deserves as much bad publicity as it can get).

You should question the wisdom of anything that directly or indirectly encourages employees to be invested in Company stock. Company stock in a retirement plan is generally a bad idea.

The information required by the regulations under section 404© of ERISA is not what one would normally call "investment education." There is no requirement to provide investment education. Understanding what is required and what is not required is important for many reasons, including a a full and appropriate response to the initial question. Describing what is required and what is not required is certainly not the end of consideration or discussion about what is desirable. But appropriate consideration or discussion of what is desirable should not be based on a mistaken premise. Sponsor provided investment education is not always desirable. What is not said can be as important as what is said.

Mr. Dugan: It is a common misperception that anyone, including a plan sponsor or fiduciary, has an obligation to provide investment education to participants. There is no such obligation.

Some part of your system should be designed to prevent an excess under 402(g). A payroll deduction stop at the limit would work. That would probably also prevent an excess annual addition unless you have an unusual plan design.

The $75 fee is a cost of getting the money and must be accounted for in the truth-in-lending computation and presentation of borrowing rate and cost. I may have used incorrect terminology when I called it "amount financed." The point is that the plan disregards the $75 as part of the loan but for truth-in-lending, the $75 is not disregarded.