QDROphile

Fidelity is used to strong-arming plans and participants to fit its system rather that create a system that is compliant with QDRO rules. I have had to protect clients with end-around policies and procedures even in DC plans. I never had a client willing to take on Fidelity or fire Fidelity over it. I agree with Larry Starr -- this does not even look like a system fault, only a form of order preference. You should at least force Fidelity's hand at round one.

What practical difference does it make what you call it? What would you do differently to rectify?

1. It depends on the plan design. Most plans do not provide for it because of adverse selection, complexity, and disclosure. It should be in plan terms if allowed. 2. You should make sure what form of benefit applies, and how the QDRO operates to divide it (or the payments under it). Your questions are well founded and the answers should be found in the plan terms, and be consistent with the written QDRO procedures. I do not trust plan administrators, especially those who give advice about QDRO matters. Distrust and verify.

So, "Honi soit qui mal y pense." ?

This appears to be a state domestic relations law issue at heart, which is not best addressed in this forum. We do appreciate the thought that the plan administrator (which you described as the union) probably messed up, and therefore caused problems. Evaluation would depend on the terms of the domestic relations orders the plan received.

Although I usually hate them when I see them, I usually ask a plan if it has any guides to drafting. The plan can be the biggest hurdle. The courts usually are pretty forgiving about the form of order unless it is contested. And nobody seems to be concerned about the unauthorized practice of law in these matters. It never hurts to check with the clerk of court about filing and submission procedures.

The circumstances involve too many moving parts for me, and probably for this forum. You need professional advice from someone competent in both corporate and pension law.

I thought that's what you meant.

fmsinc: I think Golfing is squarely in the sunshine and cool breezes of ERISA compliance and very practical and efficient practice. I would rephrase his sentence ever so slightly to, "AP is not the only party with rights that should be protected." That is something the DOL fails to see in the law. And the DOL gave us completely useless regulations to guide us through the thorny issue of dealing with post-death QDROS, especially under DB plans, after Congress directed the agency to give us regulations.

Larry Starr: Idr seems enamored of the following provision: "1. Suspension of Participant distributions or loans. If the Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the Participant's account may become subject to a QDRO, the Administrator may suspend processing the Participant's distribution or loan requests pending resolution." Although that reflects the DOL's approach, it is not legally required and I think it is dangerous. Better to go with the objective trigger described in the statute of receipt of a DRO. If not, then define on what basis the fiduciary will form a reasonable belief that a QDRO is forthcoming, such as receipt of a DRO that is not intended to be a QDRO (place saver) or a draft DRO for review of form by the plan (good practice). Otherwise, how about an angry phone call that says, "I am divorcing that SOB and I am going to get every penny of the retirement plan!" Is it reasonable to suspend a participant right to distribution based on that? Also, if the suspension is imposed based on something other than a DRO, how long will the plan tolerate silence and inaction? And then what does the plan do when it starts to worry that the interference with participant rights was improvidently imposed because nothing has happened since? All work, potential liability, and for what?

ESOP Guy: The statute defines DRO and it is with reference to state domestic relations law, "including approval of a property settlement agreement". The OP describes the problematic statement as "a one paragraph passing reference to the participant's retirement account in the Marital Settlement agreement". We are missing information about whether or not the court approved the settlement agreement. I also support the "it does not matter conclusions" no matter which of two paths are taken. Even if the document is a DRO, it is not a QDRO, and because it is not on its face attempting to award an interest in the plan and does not direct the plan to do anything, this is not a failed order that requires a reasonable time to cure defects in qualification. The order simply directs the participant to do something with proceeds of a distribution. That may indirectly violate the applicable anti-assignment provisions of ERISA and the Code, but the plan can ignore it because the plan is not involved in any direction or action. Of course, the plan should not cut any part of the distribution check to the former spouse as a courtesy. The plan needs remain clear of the order. You have seen that plan administration (whoever that involves) has decided to get into the personal matters of the participant. While there are noble intentions, and probably the right understanding of what is better for the participant, I think it is a mistake for plan administration to get involved in reforming, supplementing, or fixing documentation that comes out of the state domestic relations proceeding.

You will not appreciate this, but I recommend not adding a provision that requires judgment and discretion into a legal scheme that does not require that of the QDRO fiduciary (yes, you very well may be putting yourself into fiduciary status by what you are doing in QDRO processing). You may consider this to be a rude insult, but if you know what you are doing, an objective (meaning no discretionary judgment) checklist approach is best. It minimizes exposure to fiduciary liability. If you are not deeply knowledgeable, then adding discretionary judgment is a bad idea. It is better to have an objective checklist procedure and then seek advice when the strange event that does not fit arises. From other traffic in this category, we know that Larry Starr’s clients generally involve Larry Starr in the QDRO processing, so it is safe because the fiduciary has an adviser with deep knowledge to provide protection to the fiduciary that has the duty to make discretionary judgments, voluntarily taken on by unnecessarily adding the provision to the written QDRO procedures.

It might help to know what is going on with Company A after the asset sale. Does it have any assets, activity, revenue, or employees (what is to close down?)? What is its form of organization: C Corp? S Corp? LLC? Proprietorship? Same questions for what is going on with Company B, including whens (when formed, when active, when it employed anyone). While various options are available, what is optimal depends on a lot of circumstances.

Here is something you need to know about an important issue that is inadequately covered by your playbook. The divorce proceeding, and all that comes out of it, including the terms of the settlement as reflected in the domestic relations order to be submitted to the plan., is personal to the plaintiff. Plan, its fiduciaries, and its service providers, are in line for a heap of trouble if they intervene or advise about personal matters, especially personal tax matters. The contents of the Tax Notice and what might be in the SPD are as far as the plan should go with respect to advising about tax consequences and strategies. I know you don't like to receive anything I have to say,. If your interest in fmsinc's post is academic, OK, but if you are thinking of passing along any advice, you are going way out on thin ice unless you are expressly engaged to provide services to participants'/employees.

I would be pleased with a happy outcome. If your plans are going to take action, particularly restricting accounts, the written QDRO procedures must spell out the circumstances and the procedure. And that is not the best policy or protection for the plan. It is a suggestion of the first published federal court decision on the subject as an approach that might pass muster. That court imposed liability on the plan for restriction based on less than receipt of a domestic relations order. The Department of Labor doesn’t quite have a grip on the law in this area, but you should take some comfort in its position that the plan should act on suggestion.

"My issue is with QDROphile, who is simply rude, and not even 100% accurate in all the advice he gave. " Yes, I was rude. It ticks me off when service providers cover matters that look manageable from the middle of the road in an off-the-shelf form-based world. QDRO practice in particular is tricky because the action is generated (1) in state court under state law either by (2) lawyers who are often not competent in this technical area or (3) untrained individuals in an environment usually involving great (4) emotional and (5) financial stress, all the more reason for the adviser to the QDRO fiduciary to have a broad and deep understanding beyond just the checklist aspects of qualification in order to minimize the complications at the plan level. Even the Department of Labor gets a lot of QDRO stuff wrong. So where are you right now? Unless you believe that the plan fiduciary or employer should take a paternalistic approach to deciding what is right or best for the participant (which I will not quarrel), the participant has been hung out with at least delay against his rights and wishes (as imprudent as they may seem to the experts). It could have come out differently, allowing the participant to manage his own life, even in desperation. The original post seemed to ask how to get the participant what the participant wanted. I was rude, but I am teachable. I responded without knowing what might be provided in the plan's written QDRO procedures, but I bet it would not make a difference, notwithstanding some astute comments by others concerning policies about action to be taken upon the receipt of a domestic relations order or the suggestion of an appearance of a domestic relations order. What was not accurate about the advice I gave?* *As for Larry Starr's disagreement with my warning about falling into the pit of unnecessarily engaging John Hancock, I was stating possibilities. He is correct that John Hancock should simply follow instructions from the appropriate fiduciary, but (1) we have no information about John Hancock's actual role or responsibilities, and (2) a lot of institutional service providers overstep their role and improperly interfere unless they are happy in their own minds with the proceedings. I wager that Mr. Starr has had to read the riot act to an officious provider about respecting the instructions of the appropriate fiduciary or compliance in some other fashion.

Pardon me while I bark first. Your ignorance about QDRO law and procedures probably prevented the practical solution that I offer below. Your should refer QDRO questions out to someone capable of advising about QDRO administration. That said, your standard of understanding and competence is about average in the industry, so don't take it too hard. What should have happened is the participant should never have shown the papers to the plan. The order (and it is a domestic relations order) applies only to the participant and has nothing to do with the plan. It orders the participant to pay half of the distribution to the former spouse. This may be stupid or pretty sneaky on the part of the former spouse; it changes the tax consequences and I pass on that issue. The direction has nothing to do with the plan. But the participant DID give the order to the plan, so next what should have happened is the plan (or its adviser) should have recognized that the plan was not implicated and bent the strict processing procedure and conclude that it has not received a domestic relations order and therefore it should process a distribution to the participant in normal course. The plan should not accommodate the participant's request to split the distribution check in any way -- the plan needs to completely disregard the order to keep itself clear. The entire distribution is to the participant -- just as the order says. You probably cannot now restore Humpty Dumpty. You have started processing the order as a domestic relations order. You may have to continue, especially since you jerked John Hancock's chain. If you understood QDRO processing, there is still a way to get the participant a distribution of half of the account right away, even while processing the domestic relations order that is not going to be qualified. I will refer you to section 414(p)(7) to give you ideas, but I am not going to spell it out. You need a shock to your system to make you understand that you are not competent to deal with QDROs and you should seek professional help that you or the plan pays for to extricate yourself from this mess. Or not. You can just let the participant dangle while you process the domestic relations order under usual procedures. The participant brought it on himself by not participating in the divorce.

And a prohibited transaction lurks under certain circumstances, probably not present here. While you are not the adviser to the individual, it is fair to advise that certain plan designs are not desirable for participants in general, or the plan. The provision would add some burden to administration and create opportunities for error.

Repaying the loan does more than create taxable basis. It is an investment that provides tax deferral on the earnings. However, that investment decision is not a no-brainer. One must consider the restrictions on distribution and the ordinary income rate of taxation vs. capital gains (depending on the actual investment choice).

Every employee has an employment contract, one way or another. Determining and disputing the terms of employment are what keeps a lot of employment lawyers in business. Of course you have to use the plan terms for participation in the plan. To do otherwise would create direct problems with plan documentation and operation. I observed that the failure to keep the personnel manual consistent with the plan terms is a potential source of liability that is not directly related to the operation of the plan. If the organization has an employment dispute with an employee, it is likely that the employee's lawyer will be interested in the personnel manual. Many employers are surprised to find that ERISA is their friend in employment disputes because it is often a shield against nuisance employment claims, such as eligibility for benefits or severance compensation. Your caption suggests that ERISA is not of service to this organization, so the employment law concerns are relevant.

The plan document is superior with respect to plan operation, meaning that there may be no plan problem with the exclusion. Other documentation, such as an employment contract might give an individual some right to participate and exclusion would breach the contract and create liability for the employer. The role of the manual in establishing the employment terms must be considered. That is why offer letters usually refer to benefit participation “in accordance with the terms of” the benefits plans.

Thank you for your contributions, including the good humor and the attempts at good humor. In particular, thank you for identifying IRS authority to dispel the silly notion that the 401(a)(17) limit is a timing rule.

If you take a new loan within a year after all loans have been paid, the law may reduce the maximum amount of the new loan. The design of your plan may have more relevant restrictions, so you need to check with the plan administrator. The summary plan description, or a separate written loan policy, for your plan should also describe limitations. There is no sure one-size-fits-all answer to your question. You have to learn the rules of your plan. My guess is that most plans would allow a new loan as soon as the prior loan is paid, subject to the limitation on the amount outstanding in the prior 12 months. Some plans allow more than one loan, so full payment is not necessary to originate a new loan.

Keep in mind that such a policy is simply a feature of the service provider's product, not a legal mandate. I maintain that such policies create risk of violation of the law, but good luck getting a change. It would help protect the plan if such a policy were reflected in the plan's written QDRO procedures. But good luck on getting really helpful QDRO procedures. You won't get them from the big investment/service providers.

She will be unable to roll Roth money to a 401(k) plan that does not offer a Roth account. Also, even if the plan offers Roth deferrals, the plan does not have to take Roth rollovers. Check with the plan administrator of the recipient plan in advance before ordering the distribution.