QDROphile

Agree with Artie M (although and neither of us know what we want to know) that communication about proposed treatment and short deadlines for response is the right approach here. If the plan has been communicating directly with the lawyers for both parties, then direct things to the lawyers. If not, direct them to the participants.

This is exactly why plans should follow the actual law rather than the shallow, ill-informed, Department of Labor suggestion for the plan not to follow the law (to take action only upon receipt of a domestic relations order) and instead follow some some wispy notion or information that maybe there will be a domestic relations order someday or maybe there won’t, and thus the plan should interfere with plan terms and legal provisions otherwise clearly applicable.

The plan document should specify the beneficiary if there is no designated beneficiary. The plan document must be followed. So, no to your question. If the plan provides that, in the absence of a designated beneficiary, the eldest child of the participant is the beneficiary, and said daughter is the only child of the participant, then the daughter is the beneficiary, but not a designated beneficiary. I doubt that the plan provides that the eldest child of the participant as the default beneficiary. The plan might provide that the children of the participant are beneficiaries, and equal shares. The plan might provide that the estate of the participant is the beneficiary. If the daughter is the administrator of the estate, then the daughter will manage the plan benefit.

IRAs are not subject to IRC section 414(p). See section 408(d)(6). State court domestic relations proceedings determine the portion of a pension benefit awarded to a participant's former spouse. Assuming the plan is subject to ERISA, the award must satisfy the requirements for qualification under IRC section 414(p), including section 414(p)(3) (A), which means that plan terms matter. The Department of Labor website has a publication entitled "QDROs: The Division of Retirement Benefits Through Qualified Domestic Relations Orders." It has mistakes about the law, but is generally helpful.

“Peter, I can only say never underestimate the persuasiveness of investment salespersons.” Or the duplicity.

Multiple employer 401(k) plans do not have a presumptive exemption from registration under the Securities Act or the Investment Company Act. The relationship (not well defined at all) between/among the employers may be such that they still qualify for an exemption or a no-action position of the SEC. State securities laws often look to or parallel federal law exemptions, so registration under state law must be considered. If your multiple employer plan is exempt because of an ownership relationship (short of a controlled group, as you report) the exemption may be lost because the ownership relationship will gradually change as the ESOP gradually acquires more and more shares of the ESOP sponsor. But who knows? And who cares? I am unaware of any action based on failure of a multiple employer 401(k) plan’s failure to register.

You assert that the two employers are unrelated with respect to the ERISA and tax qualification aspects of maintaining the plans. Will the two employers remain related enough to avoid the securities law and investment company law issues with jointly maintaining the 401(k) plan as the ownership of A shifts because of the ESOP? There is a recent thread that addresses the uncertainties about what “related enough” means.

A competent plan document will deal with mid year distributions when there are questions about valuation of pooled assets. One of the provisions that goes with competent terms is the ability to perform a mid-year valuation at the discretion of the fiduciary. Liquidity is definitely one of the issues that should be addressed by plan terms relative to distributions. As suggested by others, you should be instructed concerning what to do pursuant to plan terms as interpreted by the appropriate fiduciary in accordance with that fiduciary’s prudent discretionary determinations.

I have an educated guess, but interpretation of plan provisions is up to the plan administrator or other fiduciary charged with the authority and responsibility. Check with them.

I have no argument about use of a promissory note as best practice. A promissory note is a device that facilitates enforcement/collection as a matter of civil procedure. It is not essential for creation of a valid, enforceable obligation to pay. As suggested by Lucky32, it is taken for granted in commercial lending practice, which is the standard for plan loans. So why would a fiduciary not employ one?

1. What do the loan documents provide? For example, is fraudulent application a breach? Does the loan have an acceleration provision for the breach? Does any fiduciary have any discretion over remedies for breach? 2. What do the plan documents, broadly considered, provide? Does the employer have any say in this? I know that everyone presumes that the employer is the, or a, fiduciary with such powers. I have asserted now and then that that is not a good design, especially for a larger organization. 3. Do you have any say this? What do your engagement documents provide? Or are you just curious?

Layering on Peter Gulia’s excellent summary, it is difficult to determine when the relationships among the participating employers not are related (or whatever) enough to qualify for the exemption from registration. However, in one arrangement in my experience, the decision was to disassemble and have some of the employers go their separate ways with their-spun off plans. I am not aware of any enforcement action or participant claim of violation.

It depends on what the PsOA and plan documents provide. Who or what do you think you represent or answer to? Any interested (directly or indirectly) fiduciary needs to ask if they need to engage an independent fiduciary. And what Bill Presson said. EDIT: Replaced “interested” with “independent”

Interrogation from the Language Police: “Also, thefts and other frauds were extraordinary.” Does this mean that the amount of thefts and other frauds was extraordinary, i.e. rampant? Or does it mean that thefts and other frauds were uncommon, and therefore extraordinary?

If it is not a controlled group or affiliated service group, you could have a multiple employer plan, which probably is not an issue for federal securities law purposes because of the relationship of the two companies, even though short of controlled group status. State securities law compliance is a separate issue but often parallels federal securities law. If what I am posting sounds strange to you, you are not alone.

This isn't really about a deliberate grab by the employer. The employer did not choose this outcome. It is more of a function of what pension plans are generally supposed to accomplish (retirement income for the worker and spouse during their lifetimes -- not wealth transfer) and how plans are designed and funded to accomplish it. The employer made some design choices from a limited menu of options, but probably had no idea about how they would work out in specific, and unusual, circumstances such as yours. The employer did nothing directly in this matter. It was all about administering the plan in accordance with the plan terms and the QDRO terms, plus the untimely death. From your side, it certainly looks unfair to have benefits that you earned go poof.

I agree with ESOP Guy under the assumption the the terms of both plans and the terms of both QDROs were effectively the same, which you imply. If there were differences in the terms of plans or of the QDROs, different correct outcomes are possible. There is no way of evaluating what is correct or incorrect without review of the actual plan terms and, more importantly, the actual QDRO terms. FWIW, I would interpret the sample language language that you furnished as providing a "separate interest" to the alternate payee. That means the participant effectively has no interest in the AP's benefit any more and that benefit is paid or not according to what is going on with the alternate payee, including disposition on the AP's death. For that, refer to #1 under Death Benefits. Nothing means nothing, including no reversion/restoration. A couple of qualifiers: 1) We don't get to see plan terms, so certain plan terms are inferred from the QDRO terms, especially #1 under Death Benefits. I am fairly confident of my inferences, but would never advise on that basis. 2) There is no such thing as a true separate interest, so I used the phrase "effectively has no interest" in my interpretation. This is not advice to you. I am dubious about any attempt to modify the order at this point, both as a matter of state domestic relations law and as a matter of QDRO law, but that is for the lawyer you hire to consider.

The terms “separate interest” and “shared interest” are artificial and derived. They are not used in any of the relevant statutes or regulations. I believe that their use in an order (or in written QDRO procedures) can create difficulties in interpretation. For people who know what they are talking about, the terms can be nice shortcuts in informal discussion, but they are terrible for defining an interest in a defined benefit. Nothing on the face of the decision appears to be wrong. The only way to quarrel would be to see the actual language in the QDRO that describes the alternate payee’s interest. I doubt that the ABC got it wrong.

Partially baked thoughts: If the order restricts what the plan would allow, the plan probably does not want to have to make a special case for the order and treat it differently or increase its monitoring. If the plan allows beneficiaries to to name beneficiaries (e.g. if alternate payee is allowed under plan terms to have an interest in the form of a J&S annuity, but the order says no new spouse can be named as contingent beneficiary), the plan probably does not want the extra administrative burden of determining if the named contingent annuitant is a new spouse (or whoever else may be disallowed by the order). The plan would want to follow the terms of any QDRO, so the plan would probably elect not to qualify the order, which it could rightfully do because the order would impose terms on the plan that are inconsistent with how the plan is designed to provide benefits.

Mandamus is not available to direct a private party to a legal proceeding (e.g. the two individuals in a divorce) to take action. Mandamus is for directing a lower court, a public official, or a public administrative entity to perform its prescribed duty. I doubt that mandamus is appropriate to force a private employer plan to determine whether or not a domestic relations order is a qualified domestic relations order. Mandamus is a pretty cool word, though. It also has a very distinguished role in United States jurisprudence: Marbury v. Madison.

There should be a plan of dissolution/liquidation to guide how obligations of the business are to be discharged. Things can get murky and informal especially with sole proprietorships, where personal and business matter can get unfortunately or improperly blurred. Are you asking what your responsibility is to trace/direct funds flow?

What you mean by “sold” matters. You might find guidance in a plan of disposition (sale agreement)/dissolution/liquidation.

I refrained from commenting on Effen’s original answer to the question about time lapse in submitting a domestic relations order to the plan because that answer is quite sufficient for practical purposes, and another more sophisticated and complete answer will be fraught with difficulties and complications involving matters of state law as well as what are called “equitable” concerns and principles. That won’t help you much. Furthermore, there are few regular responders in this forum who would venture to advise you about any specific action for you to initiate.Your situation is very dependent on facts and circumstances and lacking in adequate information upon which to act. The information you have been advised to pursue is relevant, but will be insufficient by itself to help you decide what to do.

First, be careful not to conflate “plan sponsor” and “plan administrator” even though it is a common mistake to name the plan sponsor as the plan administrator. If the plan sponsor is named as the plan administrator, it can still be important to make sure one understands the separate roles of the sponsor and the administrator, and make sure the right hat is being worn in any action or decision, even if the hats are on the same head. Next, your question is really bigger than whether or not plan documents are required to be provided under the circumstances. The choice about providing plan documents, even if they are not required to be provided is not trivial if somebody is looking for trouble. Perhaps that bigger question is not really your question, because it is really a question first for the plan administrator and you are probably not providing comprehensive advice about how to respond to the request for documents. Apologies for not giving a direct answer to your literal question, but your channeling of a definite answer might actually be a bad thing for the ultimate recipient. I will offer a footnote answer. If the former participant decides to make a claim for benefits (under a theory that the amounts actually received were the wrong amounts because of some mismanagement) the participant eventually will be entitled to examine plan documents under the claims procedures.

Mark: Nobody was advising you what to do or not to do.