QDROphile

It is dangerous to look at use of any amounts related to plan assets as not "charging participants." All of the revenues and revenue opportunities associated with the custody and investment of plan assets belong to the plan. In a defined contribution plan, all plan assets are allocated to participant accounts. So any amount that is used to pay expenses is charged to the paticipants in some way. It is certainly a good idea to explore revenue opportunities such a commission recapture, but don't kid yourself that you are not charging participants if the plan pays for something. To the extent of any payment, the participant accounts receive less than they would have if the employer had continued to cover the cost.

No specific proscriptions. Depending on the investment, you may have special concerns under the plan asset rules under section 3 of ERISA and prohibited transaction rules. Get advice about unrelated business income tax.

Don't take it for granted that the situation involves a prohibited transaction. Could well be a difference when the employer completely fails to execute the deferral instruction. Compare to an employer that reduces pay but does not forward the funds to the trust.

The limits are coordinated. Look at the IRS Examination Guidelines for Section 403(B) Plans, Part V and Example 9 in particular. Carol Calhoun published the Guidelines on her website.[Edited by CVCalhoun on 09-06-2000 at 12:32 PM]

Hardship distributions are not limited to elective deferral amounts. Post-1988 earnings on elective deferral amounts are not eligible for hardship distributions

Deferrals under the 403(B) plan don't prevent deferrals under the 401(k) plan, but deferral of more than $10,500 for the year, taking into account all elective deferrals under all 401(k), 403(B), SIMPLE and SEP arrangements, has some adverse consequences. Depending on the terms of the plan, the person may be able to elect a refund of the excess aggregate amount, or the person could suffer the tax consequences of the excess deferral. I would be careful about preventing an employee from deferring unless the plan document blocked the deferrals and the administrator was sure of the facts. Nothing wrong with educating the employee about the rule to try to influence the election.

In addition to the prohibited transaction, the plan may be disqualified. If so, attend to the disqualification in an approprite manner. Competent professional assistance for assessment of the problem and execution of the remedy is a good idea.

Code section 414(p)(3)(A) and the ERISA equivalent state that a domestic relations order does not meet the requirements for qualification if requires "a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan." Your plan does not provide the option to change a J&S benefit after the annuity starts. That is the basis for all the comments above.

The plan cannot be required to provide a benefit that the plan is not designed to provide. So if participant enrollment is required to get dependant coverage, the plan can require participant enrollment. The rub is with how to collect the premiums if the premiums must be paid in full or part by the employee. The order can provide for sufficient payroll deduction to cover premiums with the employee's consent, depending on state law. However, there is a strange provision in the statute that says that a QMSCO is is a MCSO that "...assigns to an alternate recipient the right to receive benefits for which a participant or beneficiary is eligible... ." Does that mean that the you enroll the child indirectly as assignee of the of the employee, whom you have technically enrolled for the purpose of assigning the benefits to the child? In that case you only enroll the participant and don't enroll the child directly. Of course, this is nonsense. Whoever wrote the statute did not really understand or think through how medical plans work. They simply used the QDRO model.

I support the second paragraph of PJK's response. You don't want to mess with the J&S benefits in place, even if this time the participant and alternate payee would like the result. The order is not qualified. Next time you will have an order from a former spouse from before the particpant remarried and started a J&S with the new spouse. You will really wish you had taken the better stand this time. And if you don't like what PJK suggested, your plan document had better allow a post start date revision of the distribution option, which it doesn't because (among other reasons) you would open the door to adverse selection. There is a wrongly decided case that says that a QDRO cannot invade the contingent annuitant's benefit after the J&S starts. I think the name is Hopkins v. AT&T. The circumstances are not quite the same and that is not the basis for PJK's response. And PJK is correct about what would happen if the annuity had been purchased and distributed. It would not be a QDRO issue for the plan and the order wouldn't be a QDRO at all.

If the 403(B) arrangement is not an ERISA plan because the employer is not involved, the employer and its representatives should not get involved in any way with the domestic relations order. Orders are often submitted to the employer. At most, the order should be forwarded as a courtesy to the annuity provider(s), preferably with a disclaimer to the person who submitted the order. It would also be reasonable to return the order. [Edited by QDROphile on 08-08-2000 at 04:00 PM]

You are playing with fire if the account is not charged with costs that are like commissions. Deferred sales charges are very much like commissions. The IRS will treat reimbursement of such expenses as diguised contributions. If the employer wants to make up the charges through additional contributions, the plan document had better cover it expressly because the contributions won't be allocated the way "real" contributions are allocated under plan terms. And the contribution scheme will have to pass all tests applicable to contributions.

You won't find authority for your proposition because it is not true. Theoretically, nothing is wrong with continued administration of the plan pending receipt of a determination letter after termination, including distributions to those who are eligible. As part of the termination process, the plan may have been amended to provide special distribution rules and limitations. This is often done to avoid everyone one being able to receive distributions, leaving no plan to receive a determination letter (or amend, if that is what the IRS requires). Distributions can also be suspended in the process without special plan amendments for appropriate adminstrative purposes. So while it is common to suspend distributions pending receipt of the determination letter, and may make good sense, nothing in the law requires it.

The plan answers all questions about participant rights. Point out in the plan the provisions covering contributions. If (when) that does not work, you turn the tables. The proponent of the benefits that are not provided under the plan needs to show why the benefits are available when the plan says they are not. Let the participant worry about finding authority for the participant's proposition.

What authority says that plans have to provide for the maximum benefits allowed by law? Every plan stops short of allowing participants every privilege that the law will allow. A plan simply delivers the benefits it chooses in a permissible way. Of course, when you deal with limits or optional provisions, they must meet the qualification standards (nondiscrimination, etc.)

The Department of Labor believes that the plan has an obligation to protect assets for a would-be alternate payee. The DOL does not distinguish between the validity of(i) an anonymous midnight phone call and (ii) the receipt of a copy of a divorce decree with a letter stating that a DRO is forthcoming. The DOL has also evidently never read the Schoonmaker case. The best approach is to set the standards expressly in the written QDRO Procedures, including what evidence, if any, will affect the account pending receipt of a DRO and for how long. I think it is defensible to take no extraordinary action until a DRO is received (if that is what the QDRO Procedures say). Woe to the dilatory alternate payee. And so says Schoonmaker.

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.