QDROphile

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.

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.