QDROphile

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.

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.