QDROphile

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.

This is a question that should not have to be asked because it is a reprehensibly stupid thing for an employer to contemplate, even if the employer is willing to skate on the thin ice of the 20 hour rule. Are we going to hear about the Big Bad Budget Wolf?

You seem to saying that your plan has 4 types of "employee" contribution that will be matched by the employer: 1. "Pre-tax" elective deferrals; 2. After-tax employee contributions ( "Basic"?); 3. Supplement -- you will have to explain that, the word does not conform to usual notions of employee contribution; I suspect "Supplement" is an employer contribution and not subject to matching. 4. Roth contributions. You seem to be asking which one, or combination, of the "employee contributions" you should choose, given that they are all matched equally by the employer. If that is the question, you cannot get much of an answer here. The choice between "pre-tax" deferrals and after-tax (both traditional after tax contributions and Roth contributions) depends very much on individual circumstances (e.g. income and wealth, use of Roth IRAs, section 529 accounts, and HSAs), assumptions about future effective investment earnings rates and after-retirement effective tax rates, and plan differences among the options, such as eligibility for loans. A common conclusion is that, other things being equal, Roth contributions are preferable to traditional after tax contributions because the earnings on traditional after tax contributions (the increase in value of the after tax account over the basis) are subject to taxation at ordinary rates while the earnings on Roth contributions are not subject to federal income tax if distributed in a qualifying distribution. But that conclusion is a generality. You really do need to explain better. I hope my attempt at unpacking your post gives you some framework or ideas for better communicating your circumstances (what the plan options are) and your question about what to do or choose. I repeat that you are not going to get any specific answer that is backed by high confidence. An entire sub-industry exists to help individuals with the choice between "pre-tax" and after-tax elective contributions. The optimal choice may also change with time and circumstances.

Private employer securities in the account of an owner of the plan sponsor very often involves some dirt along the way somewhere, which is why extrication can be difficult. One path to resolution is to distribute the securities, being very careful about valuation. But that requires a distribution event.

Nonpublic stock of the employer is about the MOST sensitive asset for purposes of prohibited transactions. "Qualifying employer securities" actually enjoy some exemptions from some PT rules. What does this mean: "If these participants elect to change their RO investments to cash and get out of the stock, could the plan then sell it to the FA?" How does stock "change" to cash without a sale or exchange? But to answer your question, one type of PT is a sale or exchange of property between a plan and a party in interest. A person who provides services to the plan, such as valuing the stock, is a party in interest.

I agree substantively with Larry Starr. However, any time a participant or beneficiary asks for a benefit, such as a loan without a specified hardship as provided by the plan, and is denied informally, there is always the consideration of reminding the person about the plan's formal claims procedures. This will avoid a later assertion that the plan denied a claim for benefits without following the plan's claims procedures. The explanation that the loan is not available should be in writing, or confirmed in writing, with the explanation that the negative answer is informal and the person may wish to submit a formal claim as described in _____ of the SPD.

The person is asserting that the plan document should not have that feature, contrary to the belief of the poster, who is somehow involved in administration. The poster should not have to scour to educate a plan participant who happens to hold a false belief. The owner of the false belief has the responsibility to support that belief with authority. The process of finding support for that belief will reveal both the falsity and the unreasonableness of the belief -- not the administrator's job.

Burden of proof is on the person who asserts a restriction on plan design.

Just so you have some perspective, a lot of what you are concerned about is a matter of state corporate law and is not directly governed by ESOP considerations. The ESOP is a shareholder (being a majority shareholder is nice; minority shareholders just get screwed). As an ESOP participant, most of your rights relating to how the business of the company is run is derivative of shareholder rights. Shareholders of private corporations have surprisingly few rights and most state corporate law gives management a lot of latitude (the "business judgment rule") about how to run the business, albeit tempered by conflict of interest rules. Majority shareholders have the right to control management by electing or dismissing board members, not by evaluating business decisions. ERISA and ESOP rules come into play through the fiduciary. The shareholder rights of the ESOP are exercised by a fiduciary, who is charged with acting in the best interests of the shareholder (the ESOP participants). If the fiduciary is not attentive or is not properly exercising its rights (electing and dismissing board members) based on prudent attention, thus allowing management to go beyond the usual disgusting bounds of greed, the the fiduciary may have liability and the Department of Labor may be interested in fiduciary malfeasance. The Department of Labor is particularly sensitive about ESOPs, but not always very savvy about limitations on ESOP rights based on corporate law. You may not like what is going on as business conduct, but it may well be within corporate law propriety. If it is not, and the fiduciary is either not paying attention or is one of the band of thieves and not taking appropriate action to replace the wrongdoers, the DOL might be of some assistance or might be a saber to rattle if concerned participants want to confront the fiduciary or management. The DOL is also interested in inappropriate valuation of shares, but valuation is a very mushy subject.

If you are interested in protective practices, for both hardships and loans for home purchases, the distribution/loan arrangement should be included in the closing escrow for the home purchase, with appropriate conditions and escrow instructions. If the sale fails, there is a much better (I think winning) argument that the conditions of the distribution/loan were not satisfied, so there was no distribution or loan. The return of funds to the plan is not reversing a distribution or repaying a loan. Of course, this requires real plan administration, not the automated, no brain, arrangements that many employers get with the bundled package of documents and services.