QDROphile

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.

For truth-in-lending purposes, the $75 is part of the amount financed. The plan can be designed to loan the $5000 to the participant and the participant may have to pay the loan fee with outside money. The loan from the plan would be $5000 and the $75 would not be taken into consideration for repayment to the plan. You could design the plan to deduct the fee from the account and either automatically add it to the face amount of the loan amount or not. Check the plan document. There is an alternate analysis that would get you to a different conclusion than the conclusion attributed to Vanguard. But an internet bulletin board is not what should use to reach a conclusion.

Yes, do look at your plan document. It may provide that elective deferrals are distributed to comply with the limits.

See Q&A H-4 of proposed regulation 1.401(a)(9)-1. If the alternate payee is a spouse or former spouse of the participant, the alternate payee is treated as the spouse of the participant.

You may not have deferred compensation at all. Your facts are a bit sketchy, but if the employee simply traded potential pay for stock options, the employee may simply have opted to take pay in the form of stock options. In that case the value of the options may be included in in 1999 compensation. I say "may" because the outcome depends on a lot of things, including characteristics of the options.

Still aggressive. There is no indication in the guidance on corrections that you may reduce a benefit to which a participant is entititled by the terms of the plan as a method of correction of an operational error. Section 415 is not a good analogy. It seems harsh that the employer would pay in a situation that provides a participant with a double beneift. But the employer usually pays because of the error. And participants don't forgo future accruals undar a plan to correct an error. A better analogy is the correction procedure when elective deferrals are missed. The employer pays and the participant gets a windfall -- a plan contribution and no reduction in pay. Tough luck for the employer, but that is what the IRS says. Be mindful of it whether or not you think you have the moral high ground. You can reduce a perticipant's account to adjust for mistaken accruals to the account. That can happen in many situations. But this is not a reduction of an incorrect accrual. This is a restoration of an improper reduction (by distribution), which is not a basis for adjustment by reduction of a future correct accrual.

Don't forget that the loan continues despite a deemed distribution. The original deduction from pay arrangement stays in place and catches dollars when they do come through. Then the account will have basis.

Recouping the correction amount from participant pay sounds aggressive. APRSC corrections shouldn't be aggressive. Attribute the $1000 employer loss to education in the school of hard knocks.

I don't recall anything in EPCRS (which covers APRSC and other correction procedures) that provides any help under section 72. While you may be able to fix the situation from the perspective of getting the loan back on track and possible plan disqualification because of the error, you may not be able to fix the deemed distribution and premature taxation of the participant. You may find some way to make it up to the participant outside of the plan.

Short answer is that the employer cannot touch the plan distribution. If the employer gets very sophisticated advice from a competent advisor, there are ways to educate a particpant about the convenience of choosing to use a part of a plan distribution to settle a debt to the employer. This is playing with fire. Don't do it unless you know exactly what you are doing. Go back to the short answer.

I agree with the earlier answers. It is possible in a correctly worded order to provide that an alternate payee would receive a benefit under a DB plan with an actuarial value of a specified dollar amount. The form of benefit to the alternate payee would have that value, but the AP would not be paid that amount if the plan does not offer single sum distributions.

Mr. MacDonald has confirmed that you would not WANT to include persons who were not in a select group of management or highly compensated employees, and has provided some additional detail about definitions of those terms, but you CAN include anyone. Furthermore, you could have a top hat plan with a management employee who was not highly compensated (whatever that means). But because we do not have precise definitions (as we do in the tax code) or authoritative guidance, playing around the edges is risky.

By the way, why such a rush? If this is the first required distribution year, the distribution could be made as late as April of next year (subject to contrary plan provisions). If this is not the first year, what election was used for the prior distribution? Something is amiss here.

A good plan document will have default provisions about how to calculate required distributions if the elective provisions have failed.

You can include anyone. But you only get an exemption from key ERISA requirements if particpation is limited to a select group of management or highly compensated employees. No one knows for sure what "highly compensated" means for this purpose. If you have to comply with ERISA, you can't get the tax goodies, so it would be rare that anyone intended to have an ERISA nonqualified plan.

The issue would be promissory estoppel, there are a number of cases out there, and it is unlikely that the participant would prevail under the circumstnaces you describe.