QDROphile

You can argue fair all you want. The rule has a lot of logic. One looks at the vehicle that holds the funds to determine status. Record keeping is thus simplified. Record keeping for carryovers is a lot more work. “Unfair” can be counterbalanced by well-informed planning. Open a token Roth IRA when contributions to the Roth 401(k) account start. Then the rollover has the benefit of parallel aging. Not everyone can open a Roth IRA, but I shed no tears for the disqualified wealthy. And hindsight is 20/20.

There are prior posts relating to withholding on distributions to APs that are not spouses or former spouses. They do not cover the question as posed, but they deal with the relevant rules and principles. Some of those have been touched on already in this post piecemeal, but not in a particularly coherent way for an overall picture. It is a matter with little prescriptive guidance in the literature and requires understanding of both the relevant local domestic relations law and QDRO law and federal tax withholding law in order to achieve a particular outcome. Competent counsel is required, but it would be enlightening to wait for Larry Starr to return and ‘splain it all for y’all. Mike Preston holds one key — the ability and willingness of the court to order the participant to elect zero withholding on the distribution (and do not overlook state tax withholding, BTW), and to enforce the order. But his is an example of a post that does not express the concept in a prescriptive manner.

The investment adviser should provide the authority, not you.

Making decisions other than ministerial decisions will make someone a fiduciary. Is that your job? A ministerial act is to follow plan terms about what happens when an employee terminates when the appropriate authority certifies that an employee has terminated. If the service provider suspects that all is not what it seems on its face, then a fiduciary should be consulted for guidance.

And that is only the beginning of the questions. If you are asking about plans, plans are only interested in the terms of the QDRO. What are the terms? Payment to an alternate payee until remarriage is a very unusual term, and the terms of the QDRO should specify how the plan is to be notified about remarriage. No sane plan administrator is going to take responsibility for monitoring status or evaluating veracity.

"hard to detect" meaning that the IRS audits few plans and the reporting done by plans and employers does not flag very well the suspicious circumstances for closer scrutiny.

There are other issues with reimbursement, depending on how it is done.

But the question is whether the reimbursement is a contribution subject to section 404, section 415, and the allocation provisions of the plan. Generally, reimbursable “TPA expenses” that are reimbursed by the employer are not contributions and are deductible as business expenses under section 162.

It leads to another question. Are you concerned about the prohibition in IRC section 4975(c)(1)(F): "receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan." ? Determining qualification of a domestic relations order is a fiduciary function; a fiduciary is a disqualified person. Receipt of payment for assistance to the lawyer who is drafting/submitting a domestic relations order is receipt of consideration for your personal account,* in connection with a QDRO, which may be a transaction involving the income or assets of the plan. I have not researched the meaning of "transaction" under section 4975(c)(1) (F), but I imagine high scrutiny is applied under the self-dealing provisions of the prohibited transaction rules. Also, payment by the for your services in administering the QDRO could be a "transaction" involving plan assets under (F). There is an exemption for reasonable compensation for necessary services. That covers pay to a QDRO fiduciary for the services to the plan relating to the QDRO. I do not know what happens when that gets tangled up with other compensation to the disqualified person relating to production of the QDRO. *The opportunity for personal outside-the-plan compensation is solicited from another plan fiduciary, which would make me nervous in context and by itself, but that involves further consideration and the prohibited transaction maze make my head hurt.

When the order comes in, who determines whether or not it meets qualification requirements?

Yes, thank you for the response. I am always curious about ways to implement QDROs effectively and efficiently for everyone involved, including the plan. The domestic relations lawyers, by themselves, generally do not do a very good job. The combination of your technical expertise and your knowledge of the plan certainly is a shortcut to the goal. How do you establish contact with the lawyer who wants to submit an order to the plan of your client? Often the first the plan knows of an order is the submission of a draft order. And you can call me Querly. Now if we can only find Moe, we may have an act.

There are several threads about this situation and "killer" statutes. The plan may need a lawyer to advise about the existence and applicability of such statutes. ERISA says to pay the designated beneficiary. ERISA says nothing directly about killer statutes and the statues are state law, which sets up issues about what the plan should do. The plan is not going to be able to rely on what you may learn from this board; the issues are too complicated. The plan should also have a lawyer to advise about the appropriate way to address the claims for benefits that have already occurred. The plan is required to have a claims procedure and the procedure should be followed in response to any request for distribution. Proper handling of the claim is essential to avoid fiduciary liability.

The amendment should specify how it applies. That is part of the effective date terms.

Mr. Starr, please elaborate on "I am drafting QDROs for (for my client plans) ... ." Are you drafting orders that will be applicable to the plans that are your clients, plans that you represent? Who is your client when you draft an order?

If you represent the plan, the plan should not be looking for a way to accommodate.

Yes, learn the rules for QDROs, at IRC 414(p). The rules state what a plan must do when a domestic relation order is received. "Domestic relations order" is also defined, and I doubt that your "sample QDRO" fits the definition, but I am speculating because "sample QDRO" has no universal meaning and your post has no description of the procedural status. Unless the plan is ill-advised enough to have QDRO procedures with unnecessarily-added rules about what to do when it receives evidence that a domestic relations order may received, the plan should do business as usual until a domestic relations order is received. If the business includes termination and liquidation, then that should proceed without regard for the "sample QDRO."

The status of the order is still confusing. Are you reporting the the order has not been issued by the court? Your comment that the judge will not sign unless your ex signs suggests that the order was presented to the court as a "stipulated" or agreed order or settlement, and the judge is waiting for your ex to express agreement by signing before issuing the order. This is a matter of local law and procedure. The plan will not do anything with respect to the terms of the order until it is issued by the court, although the plan seems to recognize you and acknowledge that a domestic relations order in in the works. What the plan is actually doing as a result of being on notice is uncertain and you cannot rely on the plan protecting your interests. You may have to change the approach to a contested matter and force the judge to adjudicate rights and issue the order whether or not your ex agrees or cooperates. Again, this seems to be a hang-up in your divorce proceeding and is not a matter for the plan administrator. I am speculating because your explanation lacks sufficient information for an assessment.

The plan administrator is not going to make the second loan (and why bother?) so soon after a voluntary default.

It is possible that a special opportunity for rollover from the terminating cash balance to the 401(k) plan was afforded to cash balance plan participants. That may have involved an amendment of the 401(k) that does not show up in the obvious 401(k) plan “document”.

Please clarify. Are you asking if the taxable pay for some or all of the COBRA premium can be reduced and applied to the COBRA coverage? That would be a question for the employer's section 125 plan and negative if the employer does not have a section 125 plan or the plan does not expressly permit it. If you are asking if funds from the last paycheck can be used to prepay the COBRA premiums, the answer is (1) money is fungible, (2) it depends on the health plan administrator's policy about timing of payment of COBRA premiums, and (3) it depends on the payroll administrator's policies about cutting multiple checks. I illustrate my interpretation of this question by envisioning two final paychecks (net of applicable withholding): one in the amount of the premium and the other for the balance of the pay. The check in the amount of premium would be endorsed and delivered to the health plan. Or just cash the check and write a new one to the health plan, depending on (2). Your focus on the paycheck implies a question about something other than funds movement, as addressed in the first paragraph.

Leveraged repurchase by the plan?

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.