QDROphile

Annual additon limits combine all defined contribution plans of the employer. The ESOP contributions could limit 410(k) elective deferrals if the other aggregate contributions to your accounts are large enough. If the ESOP is not leveraged, the limit for additions is 15% of pay. A leveraged ESOP (or a plan combination that includes a money purchase pension plan) can raise the limit to 25% of pay. In either case, the limit cannot be higher than $30,000. The rules for what constitutes an annual addition get complicated, especially for leveraged ESOPs.

Don't forget to worry about this statement: "When you vest after year 3 and continue to work for the employer, you will get taxed on your balance even though you don't get any distribution at that time."

A checklist is inadequate for administration. At best, it is one tool. Entire books cover the subject. The concept is simple, but the execution can be very complicated, especially because most drafters of domestic relations orders (including laywers) are not knowledgeable about benefits law or plan design. Your plan must have written QDRO procedures. Good ones will cover most of what comes up regularly. You should also have a copy of the Dept. of Labor's publication on QDROs. Available at www.dol.gov/dol/pwba and at (800)998-7542. Beware that the DOL has some misguided notions about how to deal with QDROs and you need to decide whether to conform to the DOL view or the law. That last statement is sure to draw some attention!

It may not be a problem but the outcome would be uncertain.

That's why it is called a "deemed distribution." Nothing is distributed if the participant is ineligible for a distribution. Contrast with an offset distribution, where the loan is actually distributed.

Don't miss Interpretive Bulletin 96-1, 61 Federal Register 295686, 29 CFR 2509.96-1. While you are doing your research, keep in mind that liability for investment advice arises primarily under securities laws rather than ERISA. Research about fiduciary liability is likely to limit you to the wrong track.

Under the DOL's Delinquent Filer Voluntary Compliance Program,$2500 and partial completion of page 1 of Form 5500 allows you to file the Top Hat statement late. See 60 Federal Register 20874-01

Not if you remove the excess and related earnings before April 15 and properly take into account the income.

One nice advantage of after tax money is that you can borrow more than the maximum allowed under section 72(t), if you think that borrowing is nice.

If the loan is secured by a mortgage, the mortgage should be foreclosed and the proceeds applied to repay the loan. There will be no loan to offset, it has been paid. There will have been a deemed distribution because the payments will have failed to comply with the quarterly payment rule. If the distribution occurs at about the same time as the default, instead of much later, it may be OK not to foreclose on the mortgage and have an offset distribution, but I note that only as a possiblity to think about.

Since a partnership can't have an ESOP, could you clarify your question?

If a person had a loan and through bad investment choices or simply a down market reduced the remaining account balances to below the loan amount, would you have an adequate security problem? One could argue that adequate security is measured at the time of the transaction. But it is still better to deal with this in a way that is comfortable to the plan in the plan's written QDRO procedures. What is comfortable? Ask an appropriate advisor. The plan could restrict aa distributions to the AP until the security issue evaporates or resrict distributions in amounts in excess of the loan balance if the plan worried about the security issue. But the restrictions need to be in the QDRO procedures and the plan document can't be contradictory.

Take a look at PLR 9146004. It is old and it is only a PLR, but I haven't found a more recent statment to the contrary.

I assume you are serious in asking this question. You will not find the situation in real life. The loan would be made only if the plan were designed to allow participant loans from a pooled investment fund as one of the investments of the fund (where else would you get funds in excess of the participant's account?) If the loan defaulted, the pooled fund would experience an investment loss. It would be the same as if the pooled fund had invested in a bond that defaulted. Don't forget the adequate security requirement for participant loans. A pooled fund loan should require security beyond an assignment of the participant's pay if the fiduciries are doing a reasonble job. The practical meaning of the statute is that a $17,000 account could support a loan of $10,000 rather than $8500. You won't find many plans designed that way, either. Most go with the 50% limit.

No comment on the specific circumstances in your message. But if a deemed distribution occurs, the plan at least has a reporting requirement. A Form 1099 must be issued. Failure to handle and report distributions properly deprives the public of tax revenues. It may even be a tax evasion conspiracy. Don't take reporting requirements lightly. Also, sometimes botched loans can lead to disqualification. S corporations come to mind.

Loans are usually assets of the participant's account. The big problem is that it is not a liquid asset and not a readily divisible asset. If all or part of a loan is allocated to an alternate payee, the asset keeps its inherent properties, such as maturity, defaut provisions, interest rate and the like. Your question sounds like you want to modify the loan or partially default the loan for convenience of QDRO administration. Be very careful about that. Nothing about QDROs overrides the loan rules or the contractual rights associated with the loan. Also the plan and its written QDRO procedures should be designed to deal with attempts to assign all or part of a loan to an alternate payee. I generally design documents to discourage assignment and maintain status quo for the plan. For example, the entire loan remains payable through payroll deduction under my documents.

Technically, not if the plan is a top hat plan, which most are. Section 206 of ERISA does not apply; neither does 414(p) of the Internal Revenue Code. But the plan may allow for it and is not required to use the QDRO rules. The interesting question is whether state law will purport to force it if the plan does not allow it (California does). The IRS seems to say that a division under a domestice relations oder will not cause tax problems, at least in community property states.

There is no time limit under federal law. State domestic relations law may not allow you to resurrect the distant past. And without a state domestic relations law order, you can't get to the plan. At least two federal circuit courts have issued incorrect decisions to the effect that if an alternate payees waits too long (until after the participant has remarried, retired and statred benefits, died)the alternate payee's interest may be compromised or lost. So delay may have a negative effect, depending on the circumstances. Also, depending on how you wish to divide the pension benefits, no one may have adequate records from that far back, and you may have to estimate to arrive at a division rather than have a precise and objective division based on benefits accrued during the marriage. You start by going to a lawyer who is competent in domestic relations law to answer the state law question and then a lawyer who really understands QDROs. In order to really understand QDROs, you have to understand qualified plans. Unfortunately, it is seldom the same lawyer who can handle both with the level of understanding that you may need.

See section 401(k)(2)(2) of the Internal Revenue Code. Termination of the plan is not an event that allows distribution unless it is an event described in setion 401(k) (10). 401(k)(10)(A)(i) lists termination of the plan "without establishment or maintenance of another defined contribution plan ***." So if your employer has another defined contribution plan, termination is not an event that allows distribution. "Employer" means not only the company that employs you, but also the related group of corporations that includes your company. So if the parent of your company has a defined contribution plan, no distributions. There are other events listed under 401(k)(10). And listing under 401(k)(k)(10) doesn't necessarily give participants rights to distribution. The plan sponsor may choose not to distribute, depending on the circumstnaces.

You couldn't get a distribution under the old regime until you terminated employment. You haven't terminated employment. What makes you think you should be able to get a distribution?

You may have a disqualification event that can be remedied, but you also have a prohibited transaction. Prohibited transactions are not handled in VCR.

No exemption from Part 5. You need a claims procedure.

The authority is under . A plan provision that death is a default event is unusual. The plan may have other unusual provisions, so take this response subject to plan provisions to the contrary. I would expect death also causes the participant's account to be distributable (to the beneficiary). Because the account is distributable, the loan is offset and treated as an offset distribution. See Q&A-13 of the proposed regulations and compare (a) and (B). Because distributions are taxed to recipient, the beneficiary gets the offset distribution and is responsible for the taxes on the distribution. Could you get a different result by treating the offset distribution as a distribution to the participant, and therefore the participant is charged with the income for income tax purposes? Maybe. But one would expect all distributions after a participant's death to be made to the beneficiary. What does the plan say about that? [This message has been edited by Dave Baker (edited 12-07-1999).]

RLL: I found a 1998 PLR that had all the right facts for the ruling you describe, but it ruled only on the primary benefit issue. It stated that it would rule on two other issues under separate cover. I assume that one of the two other issues is the annual addition limit. But I have found no such published ruling in 1998 or 1999. Do you have a citation or other suggestion for finding the PLR that follows the TAM?

A plan does not have to use the safe harbor suspension. Abandoning the safe harbor requires more attention from the administrator, so the big systems don't like them and often people are told that the suspension is required by law. Not so.