QDROphile

Be careful about a plan or employer official getting involved in personal matters of employees, especially in giving tax advice. The specific requirements for plan disclosure about taxes, such as the rollover notice, are firmly established. Don’t go beyond them. I will let others address the substance of your question. That horse has been beaten to death long ago, notwithstanding never-ending attempts to keep riding it.

One approach taken on behalf of creditors is to challenge the qualified status of a 401(k) plan. ROBS plans are vulnerable to such a challenge. I suspect the reason that there are "many" ROBS plans is that the IRS does not have the resources to challenge them, so it may appear that they stand.

Yes the DOL is pretty useless (and often wrong) in this area, but plans are never required to review drafts; charging for a review of a draft is not a problem for the plan. Charging for review of something the plan is legally required to do gets more interesting, legally. However, plans are allowed to charge for expenses of administering an account and can allocate expenses reasonably. For example, someone chooses to invest in assets that are more costly to administer (e.g. private equity), the account can be charged the extraordinary extra out-of pocket expenses associated with the account activity. Not necessarily a perfect analogy, or dispositive of the question.

You do not want to rely on any prospective action by your former spouse with respect to benefits you expect to receive. That means you cannot count on an election of a QPSA or QJSA., even if the participant has been ordered to make the election. The plan will not give effect to the order concerning the election. It sounds like you do not want that as part of what you have been awarded anyway. More than that, I am not saying. You seem have some idea of the benefit options, but you also seem to be resigned to get what someone else says. Where is you lawyer in all this? I am perplexed about what is going on and what you want, so I am not going to speculate or fill the gap apparently left by your lawyer.

Beware of informed arrangements that use payroll deductions as part of the arrangement to secure loan payment. They are not part of off-the-shelf loan documentation and third-party administration so the risk of stumbling over them is small — but they resolve questions about employee participants electing to stop payments and they protect the fiduciaries.

Yes, but ignorance can be OK as long as the ignorant one recognizes it and the limitations it imposes under the circumstances. Active ignorance is another discussion. An HSA is a separate arrangement from a 125 (cafeteria) plan, but the cafeteria plan can connect to the HSA by allowing contributions by the employee to the employee's HSA by elective deferrals of the employee. This is essentially the same as a 125 plan connecting with an employer health plan to allow employees to pay premiums to the health plan for the employee's share of the cost of health coverage. Some people picture the 125 plan as an umbrella, under which the eligible benefit arrangements (health plan, HSA, dependent care plan, etc) operate and receive funding from the employee through the umbrella 125 plan. The employer is not required to provide for the opportunity to fund other benefit arrangements by elective deferral under the 125 plan. An HSA is not automatically connected to a 125 plan. The terms of the 125 plan govern the funding of other eligible benefit arrangements. You get into more complexity as you look at the documentation of the plans. It is possible to have a master document that includes the terms of the 125 plan and the participating plans, bound together with one (big) staple. It is possible to have a bunch of plan documents separate from the 125 document and have the 125 document identify and refer to the separate participating plans, each of which has ts own staple. The essence of a 125 plan is the ability of an employee to elect salary deferrals to fund participating eligible benefit arrangements, but more can be going on under the documents, such as employer funding of benefits.

Prescient.

I work with plans that address the circumstances. What does the plan say?

What impressed me first was the charge to the FSA. There are potentially two problems with that, the salient one is that in order to have the FSA pay an eligible expense (I am assuming eligibility for the moment), the expense cannot be covered by another source, such as insurance, or in your case, a support obligation ( at least to the tune of 65%). The concept is pretty simple: no double dipping. Or perhaps I did not understand the funds flow from your description. Plus, you should be concerned about leeena's point, but I am not opining on the subject. Custody and support arrangements are a complicating twist under the rules and careful analysis is required to sort out who is a dependent with respect to any arrangement (FSA, HSA)* as part of determining what expenses are eligible. One way or another something is not right here, at least to some degree because there is some double dipping going on. *Such as, is your child a dependent of the employee with respect to the employer FSA?

And that is the first, and probably best, argument, for allowing the loan. On the other hand, how much of the "hardship" concept is incorporated? Does it include, by implication, incorporation, or otherwise, the limitation that the amount for hardship is only the amount to alleviate the hardship? A broader inquiry into the plan language and related documentation, such as the SPD , is required. Another point worth making is that generally the fiduciary is to make decisions in the best interests of the participants. I would think that allowing a $1000 loan for a $900 medical bill is better than forcing a hardship distribution of $900, assuming that the participant is eligible for the hardship distribution. However, allowing a $40 medical bill to generate a $50,000 loan is a pretty hard stretch with respect to what may have been the intent of the settlor that chose the language to the extent the settlor really thought about it. Being a fiduciary is not always easy, but in many cases the fiduciary is given a lot of latitude if the fiduciary proceeds with appropriate care and consideration in the decision. This is one of them.

Then the fiduciary administrator is required to interpret the plan. That effort will take more into account than is included in the post. Based on the post only, my vote (which counts for nothing) is for no loan because the minimum is not satisfied. I could argue that a $1000 loan is allowed, and that would be a reasonable outcome, too.

In a 401(k) context, what rational borrower would take a demand loan? Which raises the question about whether or not such a design is reasonable, and I would not want to be the designer in a test case. And what fiduciary, charged with acting in the best interests of a participant, would call a demand loan if the participant did not desire it? A prepayment provision gives the participant all the benefit needed if the participant actually wishes to pay in full. I think you are just having some sport. You said said something yourself about smart benefits policy.

No to the “just got tired part” because the participant has contractual rights once the loan is made. The ability to initiate a loan is not a protected benefit. That does not cover breaching the terms of an existing loan. As for calling a loan in accordance with its terms, that addresses the contract issue, but such a term is (a) pretty farfetched, especially in these days of off-the-shelf documents, and (b) partly because it is so farfetched, I would inquire (which I am not going to do) whether or not such term meets the applicable loan standards. Last time I paid attention, plan loans had to be commercially reasonable (shorthand). If the plan is terminating and liquidating, the contractual right does not prevent or change the tax consequences of distribution.

A spun-off plan has all the provisions of the original plan. To eliminate the loan provisions would require an amendment. Even then, the outstanding loans remain an asset of the spun-off plan and the participants have a contractual right to continuance of the terms applicable to the outstanding loans. If you are baffled by the result, picture a plan that does not allow loans but allows rollover of loans into the plan. Do not take this analogy that includes the term "rollover"* to somehow lever the mistaken idea that you can apply any concept of "termination" to a spin off transaction. The whole point of a spin off is that the spun-off plan continues without missing a beat, subject to amendments. Ask yourself, with respect to a regular plan (no spin off or MEP confusion), "Can I amend out the loan provision, and what would I do, pot amendment, with the outstanding loans?" *Because rollover is relevant when considering plan termination or employment termination.

It is done with a wink, wink, nod, nod.

To expand upon Peter Gulia's posts just a little, remember that this is a statutory benefit for the spouse. Even though there is the express exception, the fiduciary owes a duty to the spouse/beneficiary and compromising the benefit is to be done only with appropriate consideration for the rights and appropriate diligence in determining that the exception applies.

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.