QDROphile

Depends on the nature and terms of the sale transaction ,to start.

The law says that payments are to be in accordance with terms of the order. You might argue that the order says that the PA has discretion to agree to other terms, but I would not buy that argument. There is a trend in the court cases to look at the PAs role is to treat the QDRO rules for qualification in checklist fashion. That suggests that PAs should be unwilling to get involved in resolving matters in which judgment or modification is at issue. This is consistent with general ERISA principles against the PA having any discretion over distributions. ESOPs are crazy different in some ways regarding distributions (and opinions vary), but I do not think this is one of them, especially if there is no PLAN term covering it.

jpod takes the practical approach. Why do it? Fred Reisch takes an impossible approach (which is contrary to the faulty basis of 404(c), so I have some sympathy for fighting fire with fire), which is the the fiduciaries have a responsibility to "know your customer" and gear all investment choices to the affected participants. He has something of a point when it comes to a limitless menu, as has been echoed informally by some DOL officials. Unless there is something weird about the investment option (as jpod questions, or worse), I think 404(c) throws participants to the dogs as far as investment risk goes, as long as disclosure and transaction execution rules are followed. Company stock is a different matter because of the weirdness of insider issues. And reasonable expenses (the only other area where fiduciaries do not get a free pass so far by the courts) are a different matter. That falls under a different prudence regime.

Comprehensive, succinct, and well put. I am not confirming on IRA -- I just do not know and did not research.

It would be more comfortable if you would clarify whether the AP's interest is a "separate interest" or a "shared payment" (to adopt the vernacular). First, my recommendation to plans is never to allow a separate interest award after an annuity benefit has started. But it does not matter if the plan (QDRO procedures, really) is unfortunate enough to allow such a thing (actuaries can solve everything relating to the numbers). Your instincts are correct either way. Can you come up with a legitimate reason not to pay the AP, given that the law is that the AP is to be paid in accordance with the QDRO? You have already argued well against my favorite reason for disqualification -- the order asks the plan to do (pay) something that the plan is not designed to do. You said that the plan could pay and has terms that say how to pay. Go with it. The payment restriction/dilemma will continue for the participant to the extent of the participant's future payments. The AP is not in the same position, so the restriction need not apply to the AP's payments. On behalf of the plan I would be curious about what the AP knows of the participant's whereabouts. It is possible to get a domestic relations order covering an absent participant. And maybe the participant will appear now that a possible reason for disappearance has resolved.

It is difficult to quarrel with a simple statement of fact about ERISA rights, but there is an implicit suggestion built into it. I think that a better understanding of the situation, or a conclusion that the plan is stonewalling, is warranted before calling on the regulators. Calling the regulators when there is not a problem will create problems. Also, wanting to put the residual distribution dollars to work (presumably to invest rather than save you from the wolf at the door) is not very compelling unless you are dealing with very large sums.

The IRS informal guidance on this is fairly well understood. It has a lot of moving parts, including the "segregation" and participant-directed investment feature mentioned by ESOP Guy. To illustrate the "lot of moving parts" aspect, one approach is to have the non-stock ESOP account of former employees maintained in a 401(k) plan to achieve the segregation and investment standards. There are some other hooks, too, relating to the ESOP distribution rules. The answer is that it can be done, but it is complicated and is not susceptible to a short description in this forum. From where you stand, it appears that the ESOP would have to be amended and lawyer who is hired to assist with the amendment can work the sponsor through the options and maze to determine first if the sponsor has the stomach and the pocketbook to proceed with implementation.

Other than delay in the abstract, what is your concern? You can request distribution of the balance of your account and force the issue into the formal claims procedure. The plan will have to be more specific and forthcoming about delay in distributions as long as you pursue the claim correctly. The process is not designed for immediate gratification. You will have to be persistent and it will require some work on your part. The plan is required to provide a copy of the procedures on request, and they might be in the summary plan description already.

I am working from a very rusty recollection here and have not gone back to check details. I obtained favorable VCP results for a nonprofit that had improperly adopted a SARSEP for its sole employee. The improper part (maybe) was ineligibility of the organization to adopt the SARSEP. EPCRS has correction procedures for bad IRAs. Although the specific disqualification was not addressed, it was addressed with a specified fix that was very close in principle. The IRS allowed the fix that was essentially the same as a prescribed fix, thus rehabilitating the individual IRA without any taxation and proceeding properly with a 403(b) plan. The problem arose from bad broker advice (have you heard that tune?) and I was not shy about laying that blame. I think you can get any result that was allowable if properly executed, including that the actions stayed in bounds for what could have been done under legitimate options. You do not quite fit that, based on the implication that the government was also not eligible for a 403(b) plan, either. So the problem with the weird IRS approach to 457 plans under EPCRS. I would be optimistic anyway because I view the problem as friendly and the IRS as not eager to beat up on governments. However, the declining quality of the agents seems to parallel the willingness to be practical and flexible, so prediction is difficult.

I advise plans to determine that an order is not qualified if it has terms that allow either or both of the participant or alternate payee to modify (with or without the participation or agreement of the plan) the terms of the order. Or, if the offending language is not truly central to the order, to qualify subject to the interpretation that the offending language will be given not effect.

Are you asking a question? Here's a thought with a question: Any time a plan is administered contrary to plan terms it may be a breach of fiduciary duty. But who is the fiduciary? Most service providers, such as your loan administrator, claim not to be fiduciaries, and their contracts say so (for what that is worth). Failure to carry out functions properly may be a breach of contract. Consequences of breach of contract and appropriate remedies can be interesting.

The relevant standard is that the election change must be on account of the status change. At some point the election change is questionable in its relation to the status change because it is no longer proximate in time. Certain changes have prescribe deadlines (HIPAA). Plan administrators are wise to prescribe deadlines so they do not need to make uncomfortable determinations or get into administrative messes.

The literal among us might argue that it is the plan that needs to be put in the same position as if no violation occurred, so they would not be at odds with the practical among us who would just stop the violation and run for luck.

Is the "option" to apply a true-up whenever the employer chooses, or is the option just an optional provision that may be adopted in lieu of the payroll-by-payroll provision as a matter of plan design? I would be skeptical of the former as impermissible discretion and if the latter, the provision for true-up is not effective unless properly adopted. The plan administrator has to follow plan terms. If the plan terms say match payroll-by-payroll without room for reasonable interpretation that the plan means true-up, then a true-up will disqualify the plan.

I was taking a track (the ERISA track) from the confusion generated by the references to election. If the other track is the true track, no one needs to follow the ERISA track.

If ERISA applies, ERISA requires written QDRO procedures and requires that the SPD (also required by ERISA) either 1) summarize the QDRO procedures, or 2) state that a copy will be provided on request (and without charge, I think). I recommend #2. The 403(b) providers are such bad citizens that we got the extensive IRS regulations under 403(b) to attempt to achieve legal compliance when the 403(b) providers abdicated. The 403(b) regulations made the DOL prevaricate (or maybe even lie) about the definition of ERISA plans, making a big mess for everyone. So do not expect the 403(b) providers to be stepping up to compliance or to be truly helpful.

Credit for service for non-sponsor (or controlled group) employers, “imputed service,” is subject to rules. They are rather liberal, but rules nonetheless.

Back to my point after your discussion about how FU it is to try to cut out employees from elective contributions a based on less than FT employment. It is not a wise policy decision at many levels in most cases. An employer must have a really good reason to go there, and I have not heard many. The student exception is different.

When is the compensation included in income for tax purposes? What can an employee or former employee do with the stock when it vests? Sell it to anyone that the securities laws allow, at any price?

I disagree with the interpretation of the footnote. The footnote would require ALL <20 hour employees to defer if the plan did the right employment policy and allowed someone who dropped into a permissible exclusion category (<20 hours) to continue to defer. I am still not answering the question: Is it legal for the plan to exclude someone who has been deferring because of full-time employment to lose eligibility because of reduction of hours?

COLIs have a pretty shady history, although the IRS has forced some clean up. Not for the inexperienced, if one has any integrity or sense of shame.

What is the MOA? What has non-ERISA status? Your question has no basis in your facts.

I have no objection to Larry Starr's practical approach of contacting the person who submitted inconsistent domestic relations orders (the divorce decree is a domestic relations order, too), but it involves more work and responsibility than is required of the plan. The advantage is that the plan might be saving itself some grief in the long run by forcing resolution of a potential dispute before the plan acts officially. If a dispute arises about state law issues after determining an order is qualified, the plan is likely to get involved in (but not responsible for) the resolution in some way that makes for extra work by the plan. Certainly if the plan receives a draft DRO and the inconsistent divorce decree for review before submission of the DRO to the court (please do not ever use the term "prequalification"), the plan's response to the submitter should include a statement that the plan is only considering the DRO and will formally expressly disclaim any review or effect of the divorce decree. Or, the plan could add informally that it noticed an apparent inconsistency that might benefit from attention before the actual DRO is submitted, as suggested by Larry Starr.

The plan rules on whatever is submitted as a domestic relations order for qualification. The plan should look at nothing else. If a separate decree, dated earlier, is submitted, the plan should expressly state that the decree is has not been considered in the consideration of the DRO. Same for an other ancillary information. Any latent claim about state law validity or interpretation, or a subsequent order or modification, can be addressed under claims procedures.

And it is not just about legal compliance. In most situations I have experienced, it is really stupid employment practice to bounce employees in and out. Does the employer value them as employees or not? Also, it emphasizes the stress endured by employees when the hours line gets crossed back and forth because of employer needs.