QDROphile

Joel: Almost every time I try to respond helpfully to your posts, I regret it. You know just enough to be dangerous and your attitude is always annoying, or worse. Read the responses carefully and then reframe your questions so they are not so insolent. You did not provide enough information to determine if the "after-tax plan" is a qualified plan. That point can be determined by you after inquiring elsewhere now that you have been provided with the question to ask. I think we can be relatively sure that it is not a Roth plan, as thoughtfully explained by Tom Poje, which is the basis of your first question. With respect to the rollover part of your question (and the off-putting presumptuous follow-up question), no one said that a distribution (if from a qualified plan) could not not be rolled over to a Roth IRA .

The disposition of a loan during the term is all about administration. The loan must be administered in accordance with its terms (including any permitted modification or replacement) and the terms of the plan, which includes the loan policy if the plan has a compliant written policy separate from plan terms).

Loves401(k) idea is a good one, and expand it to the general disclosure (SPD equivalent) of the after-tax plan. If you want to be more analytical, the first question would be whether or not the after-tax plan is a qualified plan. If not, no rollover. If so, then it is likely that the earnings on the contributions would be subject to taxation if rolled over to a Roth.

Are you saying that posting a single payment as multiple payments when due on respective future scheduled payment dates is proper or improper?

You have to look at the terms of the loan to determine the payment schedule (which must provide for at least quarterly payments), and, more important under the circumstances, the treatment of prepayments. Applying a prepayment to future amounts due as they become due is unusual, and perhaps improper for a 401(k) plan loan. I would not know what to do with the amounts not yet applied to the loan. More conventional is that the excess over the amount due reduces principal, which then shortens the payment schedule, but does not change the requirement to make a payment on the next scheduled payment date. If the loan terms treat a prepayment in the conventional way, the failure to make a payment on the next payment date (not more than a quarter after the January 2017 payment) is a default. Then check the terms concerning default. Allowing the loan to be "paid up" until April 2018 probably violated loan terms, no matter what the good intentions and apparent lack of harm or shortfall of payments. That is the likely problem, not a violation of the "at least quarterly" payment rule. That rule is for design of loan terms. The loan was probably designed properly.

I think the regulations relating to the transition in eligibility approaches speak to what happens to a person who has accrued service under the prior approach. I also recall the regulations are generous in the treatment of such persons. Be sure those regulations are understood and respected.

Mike Preston: One runs into this all the time. I think it is a questionable excuse. I advise clients to put the record keeper on notice that if the "inability" is successfully challenged the plan will look to the record keeper to be made whole.

You should be able to accommodate, but I understand that it may not be possible under whatever system you use. I recall that evil Fidelity will not accommodate, and Fidelity is not alone. If the system will not accommodate and you are bound by the system, then the plan administrator or other QDRO fiduciary should determine that the order is not qualified. Then the appropriate person (the QDRO fiduciary) should the QDRO Procedures (you did consult the QDRO Procedures, didn't you?) to deal with the phenomenon; there are several reasonable second-best options. The solution, other than the better solution of having a system that functions properly, is in the drafting of the domestic relations order, but most of the drafters out there are not sophisticated enough to achieve the result that is proposed in this case within the limits of the record keeping systems. I think it would be very interesting to pursue a claim that the plan is legally obligated to implement the terms that are vexing you, but the stakes are usually so low that such a pursuit is not economically feasible. The plan should be safe in determining the order is not qualified.

As long as it has not been executed. For example, if payment has been made or has started to the alternate payee pursuant to the QDRO the plan is unlikely to accept the new or modified order.

Does everyone involved understand that the "Flexible Spending Plan" is a 125 plan? Your post suggests that someone thinks otherwise. Section 125 has coverage and discrimination testing. From a distance, the favoring of part-time employees with a cash or benefits choice for health coverage while full time employees do not have the choice (and why not if you have the plan anyway?) seems unlikely to run afoul, but you have to count noses and classify employees to determine. A "benefits person" will immediately be interested in any kind of discrimination, but not not every instance is a violation - something that an inexperienced benefits person would overlook. I suspect many details of the situation and comments have been lost in the train of discussions. I do not believe anything.

ESOP Guy: True, but there is a relatively (measured in years) new disclosure requirement to let participants know what the consequences are of NOT leaving funds in the plan. Both the DOL and the IRS are remiss in guidance about the disclosure, but one issue I think must be considered is that if a participant rolls a distribution (to avoid taxation) to avoid the imposition of plan expenses, the participant is likely to incur maintenance expenses in an IRA (typically small) and may be unable to get the best expense arrangement, even if the IRA investment menu is exactly the same as in the 401(k) plan, because the individual account balance does not qualify for the best rate. That may be a significant financial factor. An indication of significance is that failure to get the best available rate for a particular fund is about the only successful claim so far against fiduciaries with respect to construction of investment menus. Of course, the disclosure will go over the heads of almost all participants, even if they read it.

Yes, but the answer in the QDRO Procedures will not likely explicitly cover the circumstances; the answer will be implicit. Also, be very careful. If the QDRO Procedures require the plan administrator or other QDRO fiduciary to take into account the possibility of a domestic relations order before the receipt of a domestic relations order, the QDRO Procedures are outside of the terms of the statute (both tax and ERISA) and the QDRO fiduciary must carefully consider if the QDRO Procedures are in line with appropriate consideration of participant rights . The adoption of QDRO Procedures is a fiduciary matter and the interpretation of the QDRO Procedures is a fiduciary matter. The primary fiduciary duty under ERISA is to act in the best interests of participants and beneficiaries.

As a condition of the loan, independent of the payroll deduction mechanism, the plan can require an assignment of wages under state law concerning creditor security. The assignment has to be done at the inception of the loan and must be in accordance with state law, e.g. UCC and community property laws. One might wonder if a plan administrator is required to take such precautions to prevent the loan as a scam to get around the in-service distribution proscriptions (mentioned by others above as a troublesome aspect of voluntary renunciation of authorization of pay withholding).

Normally I am chary about this response, but the lawyer asked for it: This is an accounting issue, not a legal issue; you won't understand. And there is no citation.

Forget the marital relationship and participant status and follow plan terms for dealing with beneficiaries. The one wrinkle you might face is if the beneficiary (coincidentally the participant) elects to roll over the deceased's account and wants to roll over to the participant's account. Then also follow plan terms pertaining to rollovers to the plan by participants.

Only if the FSA is designed not to cover impermissible medical expenses: a "special purpose" FSA. For example, the FSA could cover dental expenses. This response assumes that the employee is otherwise eligible to have an HSA

With the goblin lawn ornament as Attorney General and the prevaricating pumpkin as President you cannot predict what will happen with tax treatment of a business whose very existence is a violation of federal law. It might help to get an update update on how these businesses faring with banks. There was a time that banking within the fed system and federally chartered banks was a problem, forcing the businesses into cash. I have not kept touch with progress or resolution.

Count me out on all of us agreeing.

You can ask for whatever you want in a VCP application. A proposed plan to plan transfer for all former B employees involved in the transfer as the "should have been" target for correction should be well received by the IRS.

Paragraph #2: the IRS says that the participant may not roll over the distribution, notwithstanding that it is taxable. I cannot recall when and in what form the statement was made -- I think it was not within a release that may be formally relied upon by taxpayers, such as a revenue ruling or even a notice. This is not an issue for the plan. As you point out, this is something the participant would do with an IRA and out-of-plan money. Paragraph #1: Allowing the the participant to exercise the payee's options for withholding at the time of distribution is exactly what will make a mess for the plan administrator. What would the administrator do when the participant elects withholding of 100%? The alternate payee would surely complain. The administrator can strong-arm the issue as a matter of qualification and should do so.

A well-advised plan administrator or special QDRO fiduciary will require the order to speak about how the withholding will be administered, primarily whether or not the distribution will be net of withholding. If the distribution is to be net of withholding, then the order should specify the applicable withholding percentage, both federal and state. If these terms are not established in the order, the matter is open for controversy at the time of distribution. This is a qualification matter because if the terms do not specify (or allow the plan administrator to compute by formula) the amount the AP actually will receive, the amount awarded is ambiguous. The plan administrator doe not want to be in the middle of resolving disagreement over the actual amount to put in the hands of the AP at the time of distribution. The plan administrator controls the issue at the stage of qualification.

That would be my first guess, too. ERISA parrot will check whether elective deferrals are a condition of getting the loan assistance. It may be that participation in elective deferrals is not required, but receiving loan assistance will nix getting the match on whatever the elective deferrals are. Another thing to consider is that a choice of loan assistance appears to be an election against a match. So reframe the question to ask if it is permissible directly or indirectly to elect a taxable benefit in lieu of a matching contribution.

Yes, the plan needs to hire a valuation expert who is competent with respect to the asset. The comments of My 2 Cents suggest that some competent adviser or independent fiduciary consider whether or not the investment and the maintenance of the investment (such as the valuations used for past years that have affected distributions) involve a breach of fiduciary duty. I am not suggesting it is; that would be determined by the circumstances. The plan seems to be a bit small to carry significant illiquid real estate investments.

My approach is to consider the plan to provide two mutually exclusive benefits, the "regular" retirement benefit and the death benefit. The AP gets no part of the death benefit unless the QDRO says so expressly and says what the AP's benefit is. Of course the AP gets the portion of the regular benefit that the order describes. But the plan pays no regular benefit if the participant dies before starting benefits. It might help to understand that there is really no such thing as a true separate interest under a DB plan. "Separate interest" is not a term under section 414(p). It is an imprecise label that carries with it incorrect implications.

Read IRC 414(p)(5): "To the extent provided in any [QDRO] ... ." I read the statute to mean that the order (if otherwise a QDRO) may award a portion of the surviving spouse benefit to the AP. The portion is not prescribed or limited. The terms of the order have awarded of a portion of the QPSA and instructions about how to calculate it: 50% of the regular benefit awarded to the AP. The question for the actuary is whether or not this could be more than the entire surviving spouse benefit at the time of death of the participant. The order would be fine if it had awarded the lesser of the 50% or the entire spouse death benefit.