QDROphile

Although I was ambivalent about it at best, I had a client that restricted distribution to discourage what the client said was actual experience with raids on the retirement plan via sham divorce, e.g to buy the recreational fishing boat. This was long before the sham divorce cases were decided. The very sad economics in many divorces is that the (usually female) former spouse has to (or does, in any event) take distribution in order to pay the divorce lawyer* and otherwise get by after the divorce. *This gets us into the completely unrelated topic of attempts by divorce lawyers to be named directly or indirectly as a payee or otherwise get first crack at the QDRO distribution, which is troublesome for the plans.

Last pragraph: One person’s scare is another’s marketing effort, but I agree that both deserve skeptical consideration

And if the contract says fees can be charged, but the administrative fees were covered otherwise as a regular practice*, the practice could have reformed the contract, so the contract term to charge the fees to the participant account is no longer effective and cannot be resurrected. *This is potentially an interesting issue -- possibly a disguised contribution.

Yes, breach of contract.

If the business is conducted in the US and has US employees (or other eligible US domiciled employees), it is likely the the US business is a subsidiary of the PLC, organized in a recognizable form under US state laws and tax law: e.g. corporation, S corporation, LLP, LLC, and the check-the- box option for tax treatment is available as appropriate.

My first inclination is to mostly agree with Larry Starr and say the the order can specify that the alternate payee's subaccount(s) can be created as of a specified date by designating x% the participant's mutual fund portfolio and y% of the participant's pooled fund account (or dollar amounts from each, which can be translated into percentages). Part of my approach assumes certain limitations on the mutual fund platform. Fidelity,for example, has lots of limitations, to the point that I think Fidelity puts the plans at risk of violation of the law. I would modify depending on exactly how the mutual fund platform and pooled fund worked and what the participant is able to do by way of transfer of funds. System capabilities are a big factor. For example, if the pooled fund is valued only annually, then any division of the participant's pooled fund interest would have to fit with what the plan is able to do administratively with pooled fund balances. At the extreme, the AP's pooled fund interest would have to be specified as a dollar amount or a percentage of the balance as the the valuation date. If the mutual fund platform has great administrative capability and flexibility, then the plan should be able to accommodate even a specification of the AP's share of each investment. The limitation is IRC section 414(p)(3)(A).

I saw nothing about 403(b) in Spatel’s post.

And they are barred.

The elective deferral limit is personal (401(k)); The 415 limit is based on the employer. You should get advice about what type of retirement arrangement would be best for your presumably separate business.

What is a revised QDRO going to do? The plan is out of the picture with respect to money distributed under the original QDRO. If the former spouse rolled over the distribution (or enough of it), it may be possible to get the domestic relations judge to order a transfer of a corrective amount from the former spouse IRA to an IRA of the plan participant.

Thanks to Larry Starr for focusing on the question. I see now that you are asking from the perspective of the plan, and I am refining my response accordingly. As Larry Starr confirmed, the plan follows its terms and pays the designated beneficiary in regular course (no special speed up or slow down -- just follow usual procedure; well, maybe speed up :-)) unless the plan receives a DRO before the distribution. If the plan receives a DRO then distribution to the beneficiary is suspended while the plan follows the rules of IRC section 414(p), and determines if the DRO is qualified or not. Then proceed accordingly and there is now quite a bit of law about what that means. Make sure you understand what a DRO is. It does not have to say "I want to be a QDRO" on it. For example, the child support order could be a DRO and could be submitted (knowing that it will not qualify) to delay while the plan processes according to legal requirements and plan procedures, including notices, and the proponent tries to get a "real" DRO that could qualify. Now for one of my favorite subjects. The Department of Labor does not understand the law governing QDROS and is of the mistaken belief that if the plan knows that someone is trying to get a DRO to submit to the plan, the plan has to hold any distributions in abeyance to the extent the would-be QDRO would succeed in capturing some or all of the balance of the account. If the plan is ill-advised, it might include the DOL's faulty position in its terms or written QDRO procedures. If the plan is unfortunate enough to have done this, then the plan has to follow its own terms and procedures. Result: if the plan reasonably knows that someone is trying to submit a DRO, it has to delay distribution to see about it. What is "knows" and how long to wait? The plan makes its own bed by introducing the bad concept into its terms or procedures, so the terms or procedures should answer all the questions -- HA!

It depends first on state domestic relations law. One must have a DRO before getting a QDRO. Child support could be encompassed in a state’s domestic relations law. There is also another approach that allows states to enforce child support through orders, again based on state law. There have been posts on the subject. I forget the cite to the US Code. Search for posts by Mbozek. How the law treats post-death enforcement will be an issue and will depend on applicable state law and rule of the child support agency. Beyond state law, you have a timing issue. The plan is going to pay the designated beneficiary unless timely stopped. A DRO will suspend a pending distribution, at least until qualification can be resolved. Nothing in QDRO law prevents a post-death order.

A QDRO is part of a property settlement, however: 1. Whether or not a property settlement or domestic relations order can precede the finalization of a divorce is a matter of state domestic relations law. I suspect that in most states finalization is not required. In practice a QDRO usually is attended to at or after the finalization of the divorce or legal separation, and after the property settlement has been finalized, see #2. 2. Most domestic relations orders that want to be QDROS are derivative of property settlement terms that are established in some other domestic relations document, such as a property settlement agreement or the divorce decree. QDROs are usually not stand-alone statements of the property settlement relating to retirement benefits; they may provide extra detail especially relevant to the retirement plan. We see many questions about what happens if the QDRO is or wants to be inconsistent with the property settlement terms expressed in another court-approved document. This post is way beyond the relevant discussion for the original post, but it reinforces the comments above that the matters relevant to property division are still kicking around in the domestic relations proceeding in state court. To focus on "QDRO" is premature.

That is not what RatherBeGolfing stated. The rollover from the plan to your IRA is not taxable. RatherBeGolfing should address the loss of the QDRO exemption from the 10% penalty by rolling over to the IRA. That is why you want to stay in the plan and take distributions as you like. That game appears to be over. The plan’s forms of distribution probably do not include “whenever you want” and it is not required to disclose the forms of distribution it does not have.

I know I have dragged you beyond your interest level at this point, but I am curious about what "disagreement" there may be. I do not say the the plan design (or loan policy design, if that is how one views the loan provisions of the plan ) must be as I described and I acknowledge that prototype plan documents will not provide the option. The protocol does increase administrative burden up front at loan initiation. Are you saying it is not legally permissible? Your use of "handcuffing" suggests that you think "forcing" the participant to repay the loan from employer compensation is unwise. Is that the disagreement?

Can you say AFLAC?

Of course this is irrelevant in a check-the-box document world that is populated by automatic, machine-processed, and on-line administration. I was merely offering you an example of how one can "force" payment of a plan loan when the participant is still employed. I prefer not to look at it as "forcing" anything. Instead, it is a way of assuring that the plan and its fiduciary come out on the correct side of compliance without having to face various issues involving state payroll law and expectation of payment at the time the loan is initiated (which is based on qualification rules, in particular the rules against in service distributions, and prohibited transaction rules). To elaborate, let's start with the legal requirement that the loan is not to be made unless payment is reasonably expected. This requirement is based on the limitations on in-service distributions. If the loan is not paid because of elective termination of the payroll deduction, an in-service distribution will occur. Having adequate security for the loan is an assurance of payment. Fiduciaries do not want to through the same drill as commercial lenders in reaching a conclusion that the loan will not go bad, including credit checks and having some security that requires expense and effort to foreclose on the security (like repossessing a car for car loans). A common requirement for a loan is a payroll deduction authorization. Payroll deduction gives the fiduciary some assurance that the loan can be expected to be paid as long as the participant is employed (and the restriction on in-service distributions is in effect). On that basis, the fiduciary does not have to check credit/finances of the participant, which would be annoying to everyone. Because of realities and doubts about state law on irrevocability of payroll deduction authorization, payroll deduction is weak. If the participant can simply cancel it, the fiduciary can then be in a bind and will be faced with decisions about if and how to enforce the loan contract by some extraordinary means. Defaulted loans also complicate administration of loans and may result in the plan having to account for basis if loan payments are made after a taxable deemed distribution. If the plan requires an assignment of pay, all of the issues relating to participant discretion over payroll deduction and possible consequential default are avoided. The assignment of pay is a much stronger basis for expecting payment (no longer at the whim of the participant), assurance of compliance with qualification requirements and fiduciary duty, and avoidance of administrative complications arising out of in-service defaults. Also, assignment of pay is a feature that is more like what is found in commercial lending and the regulatory agencies operate (in appearance, but not in effect) on the idea that plan loans are supposed to look like commercial loans (witness all the discussion and fretting over interest rates). The aspect of the regulatory agencies is another matter.

Bird: Here is one way it works, which is not required by federal law, but is consistent: The loan program requires assignment of pay as part of the loan conditions as security for loans. This is done under state law, but assignment of pay is a feature of most or all state commercial codes. Community property states might require the spouse to consent to the assignment. A payroll deduction authorization can be part of the picture as well, but the assignment of pay avoids the issue about whether or not the payroll deduction can be irrevocable under state law. If the payroll deduction authorization is revoked, the plan (as lender and secured party) relies on the assignment of pay to have the employer continue to set aside the payment amount each period and deliver it to the plan to cover the loan payment obligation.

If the participant is not eligible for a distribution under the terms of the plan, a distribution would be grounds for disqualification (failure to follow plan terms) and the fiduciary could have liability (same reason).

State law that governs may well require spouse consent because of influence of federal rules or similar independent policy considerations.

Government plans are susceptible to all sorts of funny ways to value and account for costs and benefits. Maybe the judge will know that, especially if it has been a public issue, as it is in many states as the states (or other government bodies) start feeling the realities of underfunding that cannot be disguised or hoped away any more. Larry Starr is correct about the process in a divorce proceeding.

But ERISA preemption is lost, so state law may be relevant, although not usually because states either do not get involved, or at least not with church plans (they enjoy exceptions). State law tends to be a mess and it can be difficult to determine for sure if state law applies in some way. Government plans get caught up in state law.

A "sale" of the company does not necessarily mean the ESOP terminates.

I would love to see a vendor agreement that has a clause like that.

Extra step on top of what? If the "what" is prudent, then the interview by the committee is not compelling. For example, if the committee is advised by an investment adviser and the adviser, as part of the adviser's practices, interviews the fund managers before recommending a fund (QDIA or not), then the committee need not interview if it is reasonable to rely on the investment adviser. Also, reliance on the investment adviser might be reasonable even if the investment adviser does not interview the fund manager -- under many circumstances an interview is not not necessary. But the committee needs to know what the due diligence is under the investment adviser's practices and recommendations.