QDROphile

The money isn't tainted. The participant is. If the participant has a certain status, the participant cannot have a good loan while the partipant has that status, no matter how the loan starts. That is why a person who has a good loan has a problem when the S ownership interest crosses the threshold or the C corp changes to an S corp. The good loan goes bad.

Your message is very sparse, but I will rely on some inferences. It sounds like your divorce decree awards you a portion of retirement benefits of your former spouse. You will get nothing from the retirment plan under any circumstances unless the plan adminidtrator is given a domestic relations order (DRO) that meets the requirements to be a qualified domestic relations order (QDRO). Your divorce decree by itself might be a DRO that meets the requirements, but it probably is not. If the plan administrator is given a DRO, the plan administrator is required to notify you if the DRO is a QDRO. If you don't have such a notice, assume you do not have a QDRO. If you have a QDRO, you might get something or nothing if your ex-spouse dies before you start getting benefits. It depends on the plan and on the terms of the QDRO. If the plan is a pension plan that provides for payments for life after retirement, there is a great risk that you will get nothing if your ex-spouse dies before benefits start unless the QDRO has exactly the right terms. Because of the likelihood that you do not even have a QDRO and will get nothing, no matter what happens, you should get assistance to help you understand what you have and what you need to do to protect your interest in the retirement benefits. Although a lawyer who knows about these matters may seem expensive, all of the potential payments to you from the retirement plan depend on getting things right.

More information is needed. Chester's answer is probably correct for a defined benefit plan or money purchase pension plan. But if the plan is not subject to the J&S rules, it could be OK.

I agree with greymann that a domestic relations order may be disqualified if the order provides for payment to a person who is not within the definition of "alternate payee." However, (i) the ability of an AP to choose a form of benefit under the plan that provides for payments to a survivor and (ii) the ability of a plan to allow or disallow an AP to designate a beneficiary for payment of the balance of the AP's defined contribution plan subaccount upon death of the AP are separate matters. A long discussion of those mattters is in order, but I haven't the energy. I cannot resist taking a shot at the statement from Benefits Briefs noted above. The brief discusses a case that by its own terms is restricted to a limited situation. Generalizing from the case without further analysis is risky and sloppy. Also, the reference to the proposed section 409(a) regulations should say that the designation MAY violate the minimum distribution rules. Those same regulations describe compliant situations that involve the beneficiary of the alternate payee.

P.L. 93-406 (ERISA) added section 408(a)to the Internal Revenue Code, effective for taxable years beginning after 1974. That is as far back as I have traced.

The QDRO rules do not prevent a QDRO from providing that an alternate payee can choose any form of benefit allowed under the plan, including a J&S annuity, even when the contingent annuitant is the subsequent spouse of the Alternate Payee. An almost universal misreading of section 414(p)(4)(A)(iii) of the Internal Revenue Code is responsible for the almost universal misimpression that an alternate payee may not have (or the plan can prevent the alternate payee form having) a J&S anuuity with the AP's subsequent spouse as the contingent annuitant (except in the limited circumstances described in that code section). The "QDRO Answer Book" by Panel Publishers gets it right.

You could determine that the MCO is not qualified because it requires the plan to provide a type or form of benefit or option not otherwise provided under the plan (enrollment of a child when the parent is not enrolled). See ERISA section 609(a)(4). But try to figure out how to reconcile this with section 609(a)(2)(A)(i), which implies that the alternate recipient can be given the employee's rights to benefits. In your case, if the employee must pay premiums to get the coverage, you can still disqualify the order because the plan can't be forced to cover someone without payment of required premiums. But the order, or a related order could require the employee's pay to be docked for the premium. This is disguised in section 609(a)(2)(b)(ii). I think most states have laws that allow the authorities to order payroll deduction for the child's coverage. Still perplexed? It is a poorly written law, thoughtlessly copied from the QDRO statute.

I am not so sure that an alternate payee's beneficiary has to be someone who could be an alternate payee, but it is an interesting thought and worth consideration. Here's another way to look at the issue. ERISA says that APs are treated as the same as beneficiaries. While this is questionable under thetac code and the DOL sometimes seem to have forgotten this provision of ERISA, most plans do not allow beneficiaires to designate beneficiaries. Such a plan could refuse to allow an AP to designate a beneficiary. Depending on the plan and QDRO terms, payments would be made to the AP's estate upon death of the AP. My comments are are directed at typical defined contribution plans. The comments also do not apply to the situation where an AP is in pay status under a form of benefit that pays to a designated survivor or contingent annuitant, such as a joint and survivor annuity. In that case, the payments are made in accordance with the form of benefit when the AP dies.

Depends on the governance provisions in the LLP or LLC organization document. It is not a plan question.

Although I think they are wrong on the law, some DOL representatives have suggested that the account should be protected when the plan administrator receives some sort of notice of impending QDRO (such an anonymous phone call in the middle of the night). By "protect," I think they mean "don't distribute an amount (whatever that might turn out to be?) that might go to the alternate payee under the impending QDRO. There is a federal circuit court case about a plan that froze investments after a hint of a future QDRO. It paid for that bad judgment. It is better to be dumb and just follow normal procedures until you get a domestic relation order in the door. And be sure that your written QDRO procedures say that nothing will be done until delivery of a DRO. Or, if you are the protective sort, try to put some standard in the QDRO procedures about when you will do something and what the something is. But anything beyond simply limiting distributions for a while is risky. The sovereign nation of California thinks that its civil court procedures provide for preservation of accounts and benefits pending issuance of a DRO. The DOL has been at war with California on several QDRO issues and keeps losing. Part of the problem is that the DOL is fighting on foreign soil.

The 403(B) plan is subject to ERISA and the plans are not aggregated for section 415 purposes unless some very specific exceptions apply. The 401(a) plan is considered in the calculation of the exclusion allowance under the 403(B) plan.

I apologize for not paying adequate attention to either the question or my answer. I agree that the regulations prevent aggregate loan payments on the 1998 loan for the year from exceeding aggregate contributions plus aggregate dividends on the stock aquired with the 1998 loan proceeds, whether or not those shares have been allocated. Although we could talk about how to move sources and uses around, this effectively means that you can't pay off more of the loan with dividends on other shares. If your contributions plus dividends on 1998 shares for a year are $20,000, you can't pay more than $20,000 of 1998 loan debt service in that year. I assume we are not contemplating sale of any suspense account shares, which brings in other concerns.

No prohibited transaction. The regulation you cite only applies to what the lender may have by way of a security interest. In effect, the lender may have an interest in the suspense account (the unallocated stock plus dividends on the unallocated stock). The regulation has nothing to do with use of dividends to pay the loan except to limit the dividends that are subject to the security interest.

The situation may well be limited to analysis as a prohibited transaction. The employer is using plan funds because the money becomes plan funds at the end of the reasonable period for deposit. At some point after egregious delay, you might have a violation of the exclusive benefit rule because of the employer's use of the funds. The rule does not have any penalty provisions or other reference to penalty provisions, so look to prohibited transactions for guidance. One requirement under prohibited transactions is that the plan be restored to the position it would have if no prohibited transaction. This ought to come from the employer (for example, lost earnings on uninvested funds), but others may be responsible for the transaction, including fiduciaries.

Be careful about using "hardship distributions" as synonyms for "elective deferrals." A plan can be designed to allow distributions (including related earnings) on account of hardship from sources other than elective deferrals. If so, then different rules apply to the different types of monies because the new rule only excludes in-service distributions of elective deferrals from the definition of "eligible rollover distribution."

Bad idea and probable prohibited transaction and lots of people do it. The prohibited transaction occurs with the self dealing that is involved with the IRA buying the stock from a party in interest. Even if you could avoid the party in interest transaction, the transaction could be prohibited because the fiduciary (the IRA benficiary who has authority to direct investments) is realizing a personal benefit outside of the IRA by funding something that the fiduciary will use in a personal capacity -- the new company, that among other things will pay a salary to the fiduciary. The DOL has several advisory opinions on the subject.

404(h)(3)doesn't give you any comfort?

The "limited window" refers to Treas. Reg. section 1.401(k)-1(d)(4)(iii). The distribution must be in connection with the acquisition. If someone waits too long to take advantage of the opportunity to get a distribution, they lose it because it is no longer "in connection with" and they must have another reason. Bad news if anyone stays back. You have to find out from Company B (now a stranger) if the participant has separated from service. Here's another trap: if Company A's plan transfers (but not a rollover or an elective transfer) funds to Company B's plan (or a plan in the Company B controlled group), Company B maintains the plan of Company A, so Company A's plan cannot distribute under 401(k)(10). See Treas. Reg. section 1.401(k)-1(d)(4)(i).

Please tell us much, much more about the situations in which you got IRS approval in stock acquisitions, and the nature and formalities of IRS approval, or any supporting authority. If this scheme passes IRS muster, it would be a nice solution to recurring difficulties in acquisitions.

The Company A cannot "clear out " the accounts of the employees of Company B. The 401(k)(10) rules merely allow the Company B participants to take distributions as if they had terminated employment. They may not be forced out unless their accounts are less than $5000. Company A would have to transfer the accounts to Company C's plan to be rid of the accounts. Check with legal counsel to see if a transfer (or spinoff and merger) can be done under the prototype document without amendment. Also, the Company B employees have a limited window to elect to take a distribution from Company A's plan based on the sale to Company C.

Read PLR 9236042 and GCM 39880 and weep.

I think MWeddell is correct that it was a TAM, not a GCM as stated in my messages. Sorry.

GCM says none of the sale proceeds are annual additions. The PLRs said that the basis of the shares would be annual additions.

You may use either the contribution amount allocated in the same proportion as the released stock) or the value of the stock allocated for section 415 calcualtions. I got two determination letters that allow the plan to use the lesser of the contribution amount or the value allocated. The ruling that OKs the use of the value of the allocated stock does not say that the plan gets to switch back and forth as it may desire, so a plan provision and a detrmination letter would be prudent. See PLR 9625045.

Could you cite authority for the proposition that a spouse beneficiary can roll over from a qualified plan to the deceased participants's IRA?