QDROphile

I suspect any limitations or disability would be a matter of the applicable banking regulations or bank charter. The tax code and ERISA are neutral. An employer can lend to its ESOP.

Also keep in mind that it is an employer decision about what contribution rate applies to different groups of employees, not individual decisions about the applicable rate. I cannot tell from the words used in the post what was going on or the level or collectivity of decision making. And usually an amendment or design or contribution rate decision is ultimately a matter for the board of directors, not the “executives.”

The IRS has historically shown that it does not understand what constitutes plan documents, plan amendments, or corporate procedures such as resolutions and delegation. The discussion above does nothing to clarify what constitutes plan terms and amendment of plan terms based on solid principles, therefore what is left is a confusing hodgepodge of apparent "separate" rules to ponder and try to remember and reconcile. 1. A proper and properly drafted corporate resolution can be a plan amendment. A lot is packed into "proper" and "properly" including respect for plan terms. That is not the best style for plan documentation. 2. Assuming the board of a plan sponsor has the authority to amend the plan, the Board should have authority to delegate the amendment function. The delegate must act properly, including act within the authority and within proper procedures for documentation. It would be nice if corporate and plan documents spelled this out rather than forcing reliance on generic corporate and agency law, but good luck with that in the world of pre-approved documents from vendors who mostly have concerns only for LRMs and their own internal administrative issues.

Usually the persons who want the legal opinion specify what they want the opinion to cover, and often with great specificity.

This is not going to help much. There is no definition of retirement. This comes up most frequently with respect to required distributions in situations where there is some wisp of employment that really should not thwart the policy behind the requirements, often in professional firms where the person is really self employed and the "employer" has not real interest in the employment status. But you are looking in a QDRO situation. I always thought AT&T v Hopkins was a crock (and so did the editors of the ERISA Litigation Reporter), until I was convinced by a Ninth Circuit case* (or at least conceded to its argument that at least made sense and Hopkins did not) . That case argued that in the "let's get Reagan re-elected" rules for the benefit of women, there is a tension between the QDRO rules and the QJSA rules, both relating to spouses and defined benefits. The point was not the definition of retirement. The decision resolved the tension in favor of the result in Hopkins, saying that the congressional intent tipped in favor of the QJSA spouse over the QDRO spouse in a close call. So be it. To me, that underlines that the rights of the current spouse are not "locked" until the benefit starts, which is when the QJSA is triggered. The QJSA is is not triggered at either termination of employment or attainment of retirement age. The QJSA benefits the person who is the spouse at the time the benefit starts. That could be the third spouse after termination of employment as far as the plan is concerned. The inquiry at the start of benefits is (1) is the participant married?, and (2) who is the spouse NOW who can consent to the form of benefit? That is also true under the bad terminology and incomplete thinking of Hopkins. The federal rules, unlike state domestic relations law, does not care who is the spouse when the benefits are accrued. Arguing that the spouse at the time of termination is "locked" is based (imperfectly) on the idea of when the benefits accrue relative to the marriage. *I thought Tise, but I looked and it was not; it was probably post-Tise.

What does “informally addressed” mean? Speaker at at a conference? Comments during an audit? FAB? Is it reproducible?

Is MEP a multiemployer plan or a multiple employer 401(k) plan? If the latter, the employer should get some assurance that the employer is not walking into a securities law violation.

Indeed.

I do not want to start this debate over again, but, subject to state law (and all the states I am familiar with are OK with this), the plan can be designed to effectively prevent an employee participant from electing to stop payroll deductions for loan payments. It is not generally done because of (1) ignorance about how to do it, which requires a sophisticated use of state law, and (2) it increases administrative burden, which the big providers are unwilling to contemplate and the sponsors (except for paternalistic compliance nuts) are unwilling to pay for directly or indirectly even if someone offered it to them. So if y'all agree to quit saying it CANNOT be done I agree to stop arguing that it in fact SHOULD be done to comply with the ERISA rules. But you don'f have to agree. This my final post on the subject because it matters to no one, least of all the regulators.

Possibly a loan failure, which would be a prohibited transaction, Certainly an improper contribution, which is a disqualifying event.

Are you referring to justifying the coverage of the investment "loss" based on a breach of fiduciary duty? That has been approved by the IRS before.

The loan payment schedule is usually a level payment amortization, so the sum of the scheduled loan payments is potentially much greater than the principal balance plus the unpaid actual accrued interest to the date of payment. I would not get too excited about the prepayment of interest through the end of the month of prepayment (meaning that the scheduled payment for the month* can be included in the prepayment) rather than calculating to the actual prepayment date. The unpaid principal balance has to be calculated and separated because it is included in the remaining payments along with the scheduled interest component of each scheduled payment. *I would have to think about a quarter for a quarterly amortization schedule.

I disagree. I think prepayment of the outstanding loan balance is acceptable (and probably must be allowed), but paying more than the outstanding balance (the sum of future payments as scheduled) is not acceptable. The IRS will treat the amount in excess of the outstanding balance as an illegal contribution. Look at it this way: When the outstanding balance is paid, the amount of the payment will be invested and will start to have investment return. The investment return (assume it to be positive for purposes of illustration) is not a contribution. But if the plan accepts more than the balance (the difference between the sum of scheduled payments minus the balance), the account will receive not only the balance, but also an "earnings" amount that is in addition to the earnings that the balance, as now reinvested, will receive (plus earnings on those earnings). Foul!

Engage a lawyer who understands how to get a division of retirement benefits in a divorce proceeding. Obtaining some portion of a spouse's retirement benefits has two steps. First, the property division in the divorce must include an award of the retirement benefits. That is a matter of dividing the property and is a matter of state law. Then, the award must be stated in a domestic relations order (the "DRO"), typically (but not necessarily) a separate document from the divorce/property settlement document, in a manner that satisfies the requirements of federal law. The DRO is submitted to the retirement plan for evaluation by the plan relating to the requirements. Many lawyers who handle divorces are not capable of dealing with the retirement benefits, especially pension plan benefits. A competent lawyer who is incapable of handling the retirement benefits will either engage someone (another lawyer, an actuary, or other professional) to assist with the retirement benefits or will refer the client to the appropriate professional to handle the federal law part of the DRO, presumably after not botching the state law first step. Your former lawyer may have mishandled the first step as well as not taking on the second step (the DRO and submission to the retirement plan). You need an evaluation of your entire divorce settlement/award to see what needs to be fixed or done next. With luck, you may need only preparation and prosecution of a DRO based on the award of your former spouse's retirement benefits in the divorce. In most states, there are lawyers who specialize in the DRO part after the original divorce lawyer obtains the divorce decree/settlement. Find one. Bar associations often provide referrals.

I agree with ESOP Guy’s clarification. I did not mean the employer would buy from the plan.

A prudent TPA would not provide any information to a participant that the TPA’s contract does not require the TPA to provide.

With some trepidation, i suggest that Luke Bailey’s comment is misplaced. It is a common practice in a stock acquisition to terminate the target’s 401(k) plan immediately prior to the merger. Analytically, the IRS accepts that the termination occurs in a different controlled group than the acquirer’s controlled group, so the one-year rule does not apply to the target’s employees after the merger. A transfer will prevent participants from an unfortunate choice in disposition of a termination distribution, but it comes with greater theoretical risk of problems from the multiple employer plan.

See my post above. It might make sense to you now. This might be a good opportunity for a full review of the ESOP and what it is meant to accomplish as well as how to accomplish it, since assistance of competent ESOP professionals is needed anyway to get over this bump in the road.

If the shares have not already been purchased by the plan, and plan terms allow, the employer can purchase enough to keep the plan purchase, and related contribution, for the year below the 415 limits. The employer can beef up the contribution next year by contributing shares if the idea is to keep a fixed number of shares in the plan. Not that I think that is a particularly good idea.

Getting another order from the court depends on state law and the status of the domestic relations proceeding. It is possible that if the matter is closed, the court will not reopen it for the convenience of the parties.

My post was entered without seeing the fmsinc post immediately preceding it. Upon cursory review, I think you have to fight the facts, if the facts are what people want or do not want. I have not enough experience with state domestic relations law to address the potential box of an unamendable property award and binding the terms of the domestic relations order strictly to the terms of the award. It seems wrong that an impossible outcome is locked in despite agreement by the parties to change it in order to achieve some resolution rather than suffer a completely ineffective judgment.

The QDRO fiduciary has determined that the order is not qualified, so a new order will have to be prepared. Everybody has to accept that if they want to execute a property division. It is the job of some lawyer who is competent to convince everybody else that the order has to reflect an amended award (however that may be accomplished under local law and procedure) that is capable of being qualified. In that quest, the lawyer is aided by IRC section 414(p)(3)(A). The lawyer may also make use of "actuarial equivalence" and that may be a difficult concept for the others to follow, but we have assumed a competent lawyer for the circumstances. Or maybe an actuary needs to be engaged to power the concept through despite the inability of others to comprehend/believe. I am in no way suggesting that fmsinc is incompetent; fmsinc is trying to rectify the accomplished exercise of incompetence. I think the answer is a separate interest QDRO and screw whatever crazy, vindictive, emotional stuff is going on with not wanting to have survivor benefits in the picture The pension is property. It has a value. That value is divided in the divorce is some way (maybe not 50/50). Once the value is divided, get over it. You don't get any last stab at the ex-spouse by dying. * Another tool is that if this solution is not accepted, other alternatives are going to be more expensive and uncertain. That tool only works with whoever is paying to effect the property settlement, but I bet both parties are paying in some way to some degree no matter what. If the participant does not like that, then start the pension payments and craft a shared payment QDRO that splits only the lifetime payments (form of benefit could ordered by the court, but it would have to be enforced by contempt because the plan administrator will not be bound to accept an election by other than the participant). An actuary might tell you otherwise, but there are some things you cannot do with a domestic relations order. See IRC section 414(p)(3). And the Rolling Stones would confirm that you can't always get what you want. I might recommend something else if someone know he or she is dying, but that comes with a lot of other complications.

Can you clarify what you mean by "workaround"? You imply that a rewrite of the order is not feasible, but that seems to be what is called for. Does anyone have any idea of what the parties, in their usual lack of understanding, expect? What is NRA and ERA for the plan? You used the term "shared interest" and I am familiar only with "shared payment" (which is what you seem to describe) and "separate interest" (which has a generally understood meaning even though there is no such thing as a true separate interest). Has the QDRO fiduciary determined the order is qualified? Is the QDRO fiduciary Fidelity? I assume you are aware that Fidelity has imperfect (to be generous) regard for compliance with QDRO law.

Conceptual addendum: A section 125 plan, especially the FSA part, is NOT like a 401(k) plan even though it is usually more or less conceived and treated like one by the providers. In a 401(k) plan, the assets are held in trust -- in the plan, of you will. The plan is its own entity. A section 125 plan is not a separate entity, self contained, with funds that belong to the plan for the benefit of participants. The spending accounts are obligations of the employer; there is typically no trust, although there may be some sort of holding account that is erroneously viewed as "plan assets." So a section 125 plan is not a thing in the same sense as a 401(k) plan -- the "accounts" that track the deferral and "spent" FSA amounts are assets and liabilities of the employer. That affects the transfer of the "plan" from A to B. For example, there has to be a transaction that addresses the assets and liabilities of A and B, not just an adoption by B of the plan (with its assets in trust), which is essentially all that happens for a 401(k) plan that does not change providers and fiduciaries. This means that details of the "plan" transfer are more intimately intertwined in the corporate transaction/reorganization. It is not simply a modular event that only requires an appropriate corporate.resolution and some cosmetic amendment of plan documents. But the helpful providers may suggest otherwise.

Since you are asking for us to indulge in speculation, let's imagine that the transition is accomplished by forming business B (empty, except for some capitalization) and then the assets, liabilities, employees, etc. of A are acquired by B either by asset purchase or merger. Assuming appropriate execution and documentation, the transplanting of of the section 125 plan can be accomplished essentially without missing a beat or any change that is apparent to employees. Appropriate disclosure will address the formalities such as name change, but there need be no direct economic effect. If business B is not essentially empty (such as having pre-acquisition employees and plans), the "appropriate execution and documentation" is more complex, but the same outcome in appearance to employees of A can probably be accomplished, at least for the remainder of the plan year, but that would be speculative.