QDROphile

ETA's response directs you to state law. Does relevant state law say anything about about contributions to a 403(b) plan or any other type of retirement plan (especially as defined to encompass a 403(b) plan) authorized by state law? Unless state law enables it, a government (school/school district in the case of a 403(b) plan) cannot maintain a retirement plan. To the extent enabled by state law, any kind of contribution to a 403(b) plan is OK as long as complaint with section 403(b), and you know 403(b) plans do not preclude matching contributions.

This is exactly the problem situation (or variation) that comes up regularly. If the IRS ever got into this, it would look abusive and scammy. Why push it? The whole tax-deferred savings aspect of the tax code is a huge benefit. The accrual is the big benefit, that is done, and the intended legitimate purpose has been achieved. Don't be a pig for purposes of estate planning or whatever greedy factor is at play .

Unique, indeed.

Owners (such as partners in a law firm) present particularly sensitive circumstances. One aspect to consider is whether or not: 1) the post full-time work is performed at the request/demand of the employer/firm or is fully discretionary with the individual. If the performance of services is not regular and substantial and is at the discretion of the individual, it should be given a hard look. Hobby employment should not be treated as a block to required distributions. The IRS would be faced with the other side of the coin: What is meaningful employment for the benefit of the employer/firm? Law firms and other professional service firms often give nonproductive partners various privileges that allow them to dabble, mostly for social reasons, in a way that yields token compensation. I think that amounts to retirement in many instances with respect to section 401(a) (9). Other clues can help, such as start of nonqualified deferred compensation and unavailability of certain other pre-"retirement" perquisites. I would go easier on a rank and file employees because an employer would be more likely to take a no-nonsense approach. If such an employee is keep on at a low or irregular level of work/compensation, then the employer is probably engaging the person for benefit of the employer. Yet we have all seen sham employment for various purposes convenient to the employer, whether the employer likes it or not.

There is no bright-line definition. I agree that the plan administrator has to figure it out based on all the circumstances. However, I suggest that a self-employment situation, including (or especially) a law firm, is full of opportunities to abuse, so the plan administrator should be looking for a hook for start of required distributions. In particular, any change in any perquisites should be examined. I have been through it, and it is not easy because the arrangements can be nebulous and not consciously abusive. What constitutes "retirement" of a venerable law partner is an issue for law firms beyond 401(a)(9). Remember the purpose of the law.

Exactly. One has to look at the definition of hardship. Availability of credit is a financial resource. That is why we have recurring discussions about exhausting availability of plan loans before hitting hardship withdrawal.

Please elaborate. You lost me. If medical expenses have been paid, even with borrowed money, how are they eligible for a hardship distribution?

Please clarify if the employee can choose to pay for medical premiums by salary reduction (looks like payroll deduction, but it is not) or if the payment of the premium by payroll deduction is required. This is to determine if the arrangement is really covered by section 125 of the tax code. If the arrangement is covered by section 125, a written plan document is required and I cannot believe that two pages suffice for what should be stated in a section 125 plan document. Also, participants do not sign a plan document. It is possible that the 2-page document is the salary reduction agreement document for an employee to choose "pre-tax" payment of medical plan premiums. Why are you not asking questions of whoever it is that told you to set up "a POP Section 125 Plan" and furnished the two pages?

I approach your question from a different perspective. First, a digression. A child support agency can get an order to have child support payments made to the agency by the participant's plan. There are several threads on the subject that discuss the law and its relationship to ERISA. One of the consistent contributors on the subject besides me (so you can search) was MBozek or Mike Bozek. If collection of child support arrears is what is really going on, then it should be addressed directly by the proper procedure. The distribution should be taxable to the participant. Unfortunately, competence of agencies is uneven, so there is often a backdoor attempt through use of a QDRO. And it is certainly possible to use a QDRO, but usually that is mucked up as well because the same incompetence of the agency spills over into pulling off a legitimate QDRO. I think you are faced with such a situation. Taking the plan's perspective, if the QDRO is styled as applicable to an alternate payee who is a spouse or former spouse of the participant, then the plan must distribute to the alternate payee and must not distribute to the alternate payee's lawyer (there are threads about that), or an agency, or any other designated payee. That is the end of the story for the plan, and the plan issues the Form 1099 to the AP (former spouse), who pays the taxes or rolls over the distribution. If the plan is styled as a QDRO with children of the participant as APs, then the plan can pay an agency representing the interests of the children, which is the same as paying some other legal representative of the minor(s). How the plan is to be convinced that the agency is the proper representative is another question, but plans should be entitled to rely on representations of government bodies concerning the state law applicable to the body and its functions and actions. If the distribution is to the agency as agent of the children APs, then the participant is the taxpayer. My comments about the plan paying only the former spouse AP under a QDRO applicable to the former spouse is based on applicable federal law, so no state authority can direct or advise the plan to pay the agency, rather than the spouse AP, based on state law.

Larry Starr has exceedingly high standards (or lack of imagination) for use of precise language in interpretation of posts, especially when jpod is posting. If removing the QDRO means issuing an order that effectively cancels the QDRO so you can substitute some other arrangement, yes, the Master probably can do that, subject to state law. And that is what needs to be done to clear the decks for any alternative, such as the IRA route.

Controlled groups know no international boundaries. Back in the 80s when we thought the Japanese were going to own us, some Japanese companies got into trouble because they did not recognize the controlled group relationships relating to US subsidiaries, which were in different businesses and in different parts of the country, and had no domestic relationships with each other. However, that high level response is not the only consideration for your question relation to U.S. foreign affiliates and employment of U.S. citizens.

Appears to me that the Board approved a written document -- that one. What did I miss? Does "signed/adopted" not include adopted? Is "that document" a hologram, not reduced to writing?

ESOP Guy is correct for practical purposes. If paid, some of "the attorneys on this forum" might have some interesting things to say about adopting the plan vs. signing the plan document.

A general recommendation is to file a tax return any time you have any income whether or not you would have any tax liability. The 401(k) plan will report the distribution, all the more reason to file a return. The IRS computers will be looking to match reported income with a tax return. Also, if the withdrawal is an eligible rollover distribution, which it probably is, the plan will withhold and you cannot waive the withholding. If you have no tax liability, you will have to file a return to get the refund of the amount withheld. If you have ever filed a tax return, some would say keep filing even if there is no income. At least until the year after the year you die. Somebody might explain avoidance of the mandatory withholding by use of rollover to an IRA, but not I.

The mortgage interest is materially different from the undivided interest both legally and economically. For example, acquiring the spouse’s interest results in the purchaser acquiring the entire property interest that the purchaser does not already own himself and divesting the spouse completely. Also, the spouse’s interest is a fee interest, the mortgage interest is not, so it is not accurate to describe a mortgage payment as [re]purchasing that part of the house. The analogy is not meaningful so the purchase rule informs nothing about the mortgage payment rule.

I think this has been addressed on this board before, and with reference to informal IRS guidance. I do not think a DRO is necessarily “the way to go” even though it could be achieved that way.

I think you are making a distinction without a difference. The reasonable conclusion presumes compliance with ERISA’s fiduciary standards. Since the ERISA fiduciary is always subject to the ERISA standards (which are mostly concerned with process), a fiduciary cannot come to a reasonable conclusion without regard for ERISA and ERISA informs, or even defines, what is reasonable. The point is that the fiduciary does not have a bright-line test (e.g. court-certified paper copy) and must make a judgment about what to accept based on the circumstances.

The standard is a reasonable conclusion that the order is what it is purported to be. That can be accomplished in a number of ways. In the beginning, a court-certified copy was the gold standard, but fiduciaries did not always understand was that was, so date stamped documents were accepted even though various courts will date stamp any document that is put across the counter for filing (whether or not a court order). In the days of sanctioned electronic signatures, nothing is compelling under ERISA or the tax code about hard copy, but hard copy may be comfy in this world of alternate facts. One could get comfortable with submission from someone who is reasonably determined to be a licensed lawyer if the lawyer states that the submission is an order of the court. Lawyers are officers of the court in most states and, despite reputation, are not allowed to misrepresent court matters. If a lawyer submits an order, electronically or in hard copy, with a statement that it is an order of the court, and it turns out to be bogus, then the fiduciary should report to the appropriate disciplinary body. With respect to civilians, e.g. in a do-it-yourself order, the submission should be viewed skeptically, but if it appears legitimate on its face and no other contradictory evidence of cluelessness or malfeasance is present, a fiduciary can conclude that the order is legitimate. Any uncertainty should be resolved in in a way that makes the fiduciary comfortable. One does not want to be completely subjective, but a judgment is required.

With the benefit of sleeping on it and the intervention of an actuary, I can see a DB plan that had improvidently allowed lump sum pre-retirement QDRO distributions would want to correct the error in judgment. Can you say “airline pilots” and “sham divorce” in the same breath.

Not true, but circumstances where such a plan would be tolerable for the owners are unusual.

The worst thing about TPAs is what they know that ain't so. Questions are a path to enlightenment.

And the practical reason for contemplating such a change is ... ?

Is yours a deferral only plan? The "Microsoft language" could still be helpful with respect to employer contributions.

S corp ownership and NQDC do not go very well together. Your question bothers me because of the implication that you are advising someone without the knowledge or experience to do so competently. I would feel better if you were an S Corp owner getting started on ideas about tax-advantaged savings and are exploring terminology that you have heard.

It depends on what you were awarded. If you were awarded a portion of each retirement payment and the retirement payments are suspended because of rehire, your portion might be suspended as well. X% of zero is zero. However, you should not “lose” your interest. When payments are resumed (and presumably in a greater monthly amount) your portion will resume. This would be an unusual situation. The plan might approach it differently. If you were awarded an annuity interest and started payments already (e.g. five years ago at former spouse’s retirement), your payments would probably be unaffected. I do not know what a statement of entitlement is.