QDROphile

You assert that the two employers are unrelated with respect to the ERISA and tax qualification aspects of maintaining the plans. Will the two employers remain related enough to avoid the securities law and investment company law issues with jointly maintaining the 401(k) plan as the ownership of A shifts because of the ESOP? There is a recent thread that addresses the uncertainties about what “related enough” means.

A competent plan document will deal with mid year distributions when there are questions about valuation of pooled assets. One of the provisions that goes with competent terms is the ability to perform a mid-year valuation at the discretion of the fiduciary. Liquidity is definitely one of the issues that should be addressed by plan terms relative to distributions. As suggested by others, you should be instructed concerning what to do pursuant to plan terms as interpreted by the appropriate fiduciary in accordance with that fiduciary’s prudent discretionary determinations.

I have an educated guess, but interpretation of plan provisions is up to the plan administrator or other fiduciary charged with the authority and responsibility. Check with them.

I have no argument about use of a promissory note as best practice. A promissory note is a device that facilitates enforcement/collection as a matter of civil procedure. It is not essential for creation of a valid, enforceable obligation to pay. As suggested by Lucky32, it is taken for granted in commercial lending practice, which is the standard for plan loans. So why would a fiduciary not employ one?

1. What do the loan documents provide? For example, is fraudulent application a breach? Does the loan have an acceleration provision for the breach? Does any fiduciary have any discretion over remedies for breach? 2. What do the plan documents, broadly considered, provide? Does the employer have any say in this? I know that everyone presumes that the employer is the, or a, fiduciary with such powers. I have asserted now and then that that is not a good design, especially for a larger organization. 3. Do you have any say this? What do your engagement documents provide? Or are you just curious?

Layering on Peter Gulia’s excellent summary, it is difficult to determine when the relationships among the participating employers not are related (or whatever) enough to qualify for the exemption from registration. However, in one arrangement in my experience, the decision was to disassemble and have some of the employers go their separate ways with their-spun off plans. I am not aware of any enforcement action or participant claim of violation.

It depends on what the PsOA and plan documents provide. Who or what do you think you represent or answer to? Any interested (directly or indirectly) fiduciary needs to ask if they need to engage an independent fiduciary. And what Bill Presson said. EDIT: Replaced “interested” with “independent”

Interrogation from the Language Police: “Also, thefts and other frauds were extraordinary.” Does this mean that the amount of thefts and other frauds was extraordinary, i.e. rampant? Or does it mean that thefts and other frauds were uncommon, and therefore extraordinary?

If it is not a controlled group or affiliated service group, you could have a multiple employer plan, which probably is not an issue for federal securities law purposes because of the relationship of the two companies, even though short of controlled group status. State securities law compliance is a separate issue but often parallels federal securities law. If what I am posting sounds strange to you, you are not alone.

This isn't really about a deliberate grab by the employer. The employer did not choose this outcome. It is more of a function of what pension plans are generally supposed to accomplish (retirement income for the worker and spouse during their lifetimes -- not wealth transfer) and how plans are designed and funded to accomplish it. The employer made some design choices from a limited menu of options, but probably had no idea about how they would work out in specific, and unusual, circumstances such as yours. The employer did nothing directly in this matter. It was all about administering the plan in accordance with the plan terms and the QDRO terms, plus the untimely death. From your side, it certainly looks unfair to have benefits that you earned go poof.

I agree with ESOP Guy under the assumption the the terms of both plans and the terms of both QDROs were effectively the same, which you imply. If there were differences in the terms of plans or of the QDROs, different correct outcomes are possible. There is no way of evaluating what is correct or incorrect without review of the actual plan terms and, more importantly, the actual QDRO terms. FWIW, I would interpret the sample language language that you furnished as providing a "separate interest" to the alternate payee. That means the participant effectively has no interest in the AP's benefit any more and that benefit is paid or not according to what is going on with the alternate payee, including disposition on the AP's death. For that, refer to #1 under Death Benefits. Nothing means nothing, including no reversion/restoration. A couple of qualifiers: 1) We don't get to see plan terms, so certain plan terms are inferred from the QDRO terms, especially #1 under Death Benefits. I am fairly confident of my inferences, but would never advise on that basis. 2) There is no such thing as a true separate interest, so I used the phrase "effectively has no interest" in my interpretation. This is not advice to you. I am dubious about any attempt to modify the order at this point, both as a matter of state domestic relations law and as a matter of QDRO law, but that is for the lawyer you hire to consider.

The terms “separate interest” and “shared interest” are artificial and derived. They are not used in any of the relevant statutes or regulations. I believe that their use in an order (or in written QDRO procedures) can create difficulties in interpretation. For people who know what they are talking about, the terms can be nice shortcuts in informal discussion, but they are terrible for defining an interest in a defined benefit. Nothing on the face of the decision appears to be wrong. The only way to quarrel would be to see the actual language in the QDRO that describes the alternate payee’s interest. I doubt that the ABC got it wrong.

Partially baked thoughts: If the order restricts what the plan would allow, the plan probably does not want to have to make a special case for the order and treat it differently or increase its monitoring. If the plan allows beneficiaries to to name beneficiaries (e.g. if alternate payee is allowed under plan terms to have an interest in the form of a J&S annuity, but the order says no new spouse can be named as contingent beneficiary), the plan probably does not want the extra administrative burden of determining if the named contingent annuitant is a new spouse (or whoever else may be disallowed by the order). The plan would want to follow the terms of any QDRO, so the plan would probably elect not to qualify the order, which it could rightfully do because the order would impose terms on the plan that are inconsistent with how the plan is designed to provide benefits.

Mandamus is not available to direct a private party to a legal proceeding (e.g. the two individuals in a divorce) to take action. Mandamus is for directing a lower court, a public official, or a public administrative entity to perform its prescribed duty. I doubt that mandamus is appropriate to force a private employer plan to determine whether or not a domestic relations order is a qualified domestic relations order. Mandamus is a pretty cool word, though. It also has a very distinguished role in United States jurisprudence: Marbury v. Madison.

There should be a plan of dissolution/liquidation to guide how obligations of the business are to be discharged. Things can get murky and informal especially with sole proprietorships, where personal and business matter can get unfortunately or improperly blurred. Are you asking what your responsibility is to trace/direct funds flow?

What you mean by “sold” matters. You might find guidance in a plan of disposition (sale agreement)/dissolution/liquidation.

I refrained from commenting on Effen’s original answer to the question about time lapse in submitting a domestic relations order to the plan because that answer is quite sufficient for practical purposes, and another more sophisticated and complete answer will be fraught with difficulties and complications involving matters of state law as well as what are called “equitable” concerns and principles. That won’t help you much. Furthermore, there are few regular responders in this forum who would venture to advise you about any specific action for you to initiate.Your situation is very dependent on facts and circumstances and lacking in adequate information upon which to act. The information you have been advised to pursue is relevant, but will be insufficient by itself to help you decide what to do.

First, be careful not to conflate “plan sponsor” and “plan administrator” even though it is a common mistake to name the plan sponsor as the plan administrator. If the plan sponsor is named as the plan administrator, it can still be important to make sure one understands the separate roles of the sponsor and the administrator, and make sure the right hat is being worn in any action or decision, even if the hats are on the same head. Next, your question is really bigger than whether or not plan documents are required to be provided under the circumstances. The choice about providing plan documents, even if they are not required to be provided is not trivial if somebody is looking for trouble. Perhaps that bigger question is not really your question, because it is really a question first for the plan administrator and you are probably not providing comprehensive advice about how to respond to the request for documents. Apologies for not giving a direct answer to your literal question, but your channeling of a definite answer might actually be a bad thing for the ultimate recipient. I will offer a footnote answer. If the former participant decides to make a claim for benefits (under a theory that the amounts actually received were the wrong amounts because of some mismanagement) the participant eventually will be entitled to examine plan documents under the claims procedures.

Mark: Nobody was advising you what to do or not to do.

JM: Certainly a 14 year lookback is a potential multiplier, and is one of the factors that figures into the consideration. Another consideration is the award amount at the division date. For a lot of folks $400K is big number to be multiplied. Thank you for responding with an explanation that went with a real life illustration. Don’t get me started with Fidelity and its approach to QDRO servicing.

The algorithms for calculating gain and loss may not be perfect. But how much would perfect cost? You have the cost of the expert. Somebody has the cost of going back to the court to obtain a domestic relations order that has a different formulation than in the divorce decree, which means arguing to the judge if the other party opposes the departure from the divorce decree terms. I am not advocating one way or another, but consider how much money and how much difference is involved before working against a well-established system. Also, the time lag involving calculation and approval by the court and submission and approval by the plan will mean that earnings and losses will have to be brought down through the time that the domestic relations order is determined to be qualified and the alternate payee sub account is established – if you want perfect.

Assuming that your retirement plan is a defined contribution plan, such as a 401(k) plan: After the plan determines that a domestic relations order submitted to it for purposes of dividing the benefit is a qualified domestic relations order (QDRO), the plan will establish a sub account for the alternate payee (your ex) and determine the initial balance of that sub account in accordance with the description in the QDRO, which should mirror the description in your divorce decree. How the plan will accomplish this depends on what service provider handles the accounts and the investment management. The large commercial operations (Vanguard, Fidelity, Schwab, various insurance companies) typically use algorithms to bring forward the initial balance of the sub account as of the date of the divorce decree to account for the investment results up to the point that the sub account is actually established. Once the sub account is established by subtraction from your full account balance, the sub account takes care of itself with respect to earnings and losses, and your remaining account is unaffected going forward. The “until … the date of distribution” language becomes irrelevant to you. One problem with delay is that it makes bringing forward investment earnings more difficult. Worst, if in the interim the plan changes its investment provider, the usual methodology for bringing forward investment earnings will not work in many cases because the new provider will not have adequate records and information for the account in the time before the change in providers occurred and will not be able to do the calculations from the date of the divorce decree through the date that the new recordkeeping began. If that happens, you and your former wife may have to figure out your own way to estimate the your balance as of the date of the divorce and the investment earnings on the amount awarded to the alternate payee going forward until date sub account is actually established. I use the term sub account to be technically correct. The account for the alternate payee will look like a regular account for the alternate payee, and will function as such in almost all cases. My use of the term investment earnings includes both earnings and losses. If your ex was clearly assigned the responsibility for preparing and submitting a domestic relations order to the plan, at some point your ex’s ability to enforce the divorce decree terms could be compromised to some degree. That means that any difficulties in trying to comply with the terms of the decree through a domestic relations order could fall more heavily on your ex. But everyone will be burdened by the mess.

What does the plan document say, including provisions concerning the scope of the fiduciary's discretion to interpret plan provisions?

Hmm. That’s only a small step away from, “With actuaries, all things are possible.”

The usual way to reach a private pension benefit to collect or secure child support is through a domestic relations order that is recognized and determined to be a qualified domestic relations order by the pension plan when the participant is alive. It is best done at the time of divorce or establishment of the child support. Also, agencies that are responsible for overseeing child support (e.g. those that provide or administer government support for children) should be familiar with the approach, but the law is very specialized and complicated, and is often not understood or properly employed by the officials. Complexity and difficulty increase markedly when the participant dies before such an order is established. It may be too late, especially if the death beneficiary is a subsequent spouse of the participant. A description of any possible path is beyond this forum. Unfortunately, you need to find someone who is expert in these matters, including Texas domestic relations law, to assess. I am skeptical that liens can be effective, which may be why no one is pursuing them. But I am not able to comment competently about such matters.