QDROphile

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.

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.