QDROphile

Never trust the Department of Labor with respect to any of its thinking about QDROs. It has an absolutely shameful record of incompetence and indolence. While the quoted text above is correct as far as it goes under the most conventional of circumstances, it would be incorrect in others. The "as if the alternate payee were the participant" is the problem. It fails to capture correctly the language in the statute. The Department of Labor seems to be unable to understad or imagine how plans actually operate or how they might be designed. As fat as this thread goes, it is irrelevant. Distributions to alternate payees are not required by law to be rolled over.

Thank you for providing the best available statements; reliance or not.

Please identify the statment(s) of the DOL to the effect that fees relating to a QDRO cannot be charged.

If the intention was not that the employer would advance funds for payment of plan expenses and then be repaid (a loan), then what was the intention? If the employer was just going to pay the expenses, and now opportunistically decides to recoup, then I think it would be a prohibited transaction. If the loan was intended, then it is a prohibited transaction (a loan), but it may be exempt under PTE 80-26 if the conditions are met. I imagine that one of the conditions is met: no interest charged. Also be aware of the role of the fiduciary in all this. There may be a nice breach of fiduciary duty to reckon with.

Become familiar with PTE 80-26.

I don't think the correction for the 10% person should be labeled "QNEC"

We have a special defintion of what compensation will be charged for elective deferrals in EVERY plan where we can convince a client to do it. Among other things we do it for clarity of communication. If a particpant is electing some percentage of compensation, you want the participant to have the "correct" compensation in mind for the sake of carrying out the partcipant's intent and avoiding surprises. For most particpants, the compensation they have in mind is regular salary/wages (and overtime) and bonuses, so the next question is whether or not to have a special election for bonuses. If the definition is bigger, and includes non-cash amounts, the take home pay is smaller than anticipated and that is the type of surprise that draws ire.

Paid out? How much more confusion could be created? The arrangement and disclosure appear to be a disaster. It is bad enough with the health plan elections, which are annual elections. Are the 401(k) elections annual? I do not see how this can make any sense to the poor particpants if the election rate can be changed during the year.

Which part is ridculous? My vote goes to this: "the original plan was to merge the two together with the added step of first paying out everyone who otherwise would be ineligible for a distribution in the event of a merger"

Do the participants know which 24 pay periods will have a reduction? Is the election annual?

Possibly regulation section 1.409A-2(a)(5).

The summary plan description of your plan will describe when distributions can be made from the plan. You must have a distribution to be able to roll over funds. At age 30 it is unlikely that you will be eligible for a distribution if you are still employed by the plan sponsor. Thank cold, thoughtless, and cowardly reaction to section 404© of ERISA for you investment complaints. Or look closer to home.

Thank you for the correction.

" I think it's reasonable to take the position that none of the premium is taxable." Despite the logic, I think the position is aggressive.

The 20% withholding applies only eligible rollover distributions, not to distributions to nonspouse beneficiaries. If state tax law says withholding is required, then withholding is required. Most states have rules parallel to federal rules.

Is all this wheely necessary to respond to the question?

Multiple employer 401(k) plans have securities law issues that are relatively obscure (but potentially devastating), so they are usually overlooked or disregarded. But even becoming a scofflaw should be undertaken advisedly.

What you describe is feasible if everything is designed and documented correctly. However, it can get uncomfortable, such as the circumstnaces you describe when some serious thinking needs to be done about managing the investment (e.g. how long to wait to foreclose or whether or not it is worth it to spend enforcement money based on prospects of recovery. Also, a very watchful eye is needed with respect to prohibited transactions. Then there is the valaution issue. This is not for the unshophisticated or the timid.

Fidelity has the attributes of a 900 pound gorilla except for the understanding and respect for ERISA rules, to which it applies the attributes of a hookworm. The only way to deal with Fildeiltiy is to fire it. And given the trouble the plan has now had with Fidelity's faliure to assume its proper role and Fidelity's interference with the fiduciary, the fidcuciary must at least consider firing Fidelity to avoid a breach of fiduciary duty. The fidcuciary cannot allow a service provider to interfere with the fiduciary's judgment.

A loan should not be made if the fiduciary does not have a reasonable expectation that the loan will be repaid. First, it should be unusual for a loan to go into default if the particpant is still employed by the sponsor, so I would be looking for an explanation about what went wrong (like a bad loan program design, including no concept that a fiduciary is responsible for determining if the loan should be made or not haveing adequate security - and I am not referring to adequate account balance). Second, given the first default that has not yet been covered, what is the expectation of repayment of a secon loan?

RPG: Consider if that is a prohibited transaction because you are using the assets of Plan A for the benefit of Plan B (achieving the break point). There is no exception for practicality or logic under the PT rules and there is not a "no harm no foul" exception.

Plan structure is not a fiduciary function. Assuming that the "minimize expenses" theory is legitimate (I think there are some matters to discuss), the best the fidiciaries can do is to recommend an amendment to the plan sponsor. One of the matters to discuss is how it looks for a fiduciary to be scheming to avoid an audit -- which one might presume is a legal requirement designed for the protection of participants. Perhpas it is better to let the plan sponsor make decisions aobut the plan structure without the advice of the fiduciaries for avoidance of the audit.

The participation by a plan participant (doc) in the LLC with personal money needs a really hard look for prohibited transaction issues, including those in the Flaherty's Arden Bowl v. Commissioner cases, even if the particpant is not a named fiduciary. The ability of the doc to effect the investment as a practical matter would probably make the doc a functional ERISA fiduciary anyway. PTs possiblle even without the personal money and it is a terrible idea in any event. This is the sort of circumstance that make physicians the butt of more than half of the viable jokes among ERISA practitioners. There are not that many viable jokes.

Generally a partner in a partnership cannot be an employee of the partnership. If the LLC is taxed as a partnership, then a member cannot have W-2 pay. The exceptions would involve unusual membership interests that are probably not in this picture.

The commonly understood meaning of "FSAs" for medical expenseses involves a "cafeteria plan" under section 125 of the Internal Revenue Code. Plans under section 125 are established and maintained by an employer and involve salary reduction by the employer. They are not arrangements established or maintined by employees. Your source either did not decribe the details of operation corectly or the plan is being operated incorrectly. For examples, employees do not reimburse themselves. They submit claims for reimbursement that are evaluated for eligibility for reimbursement. And here's the most important part: healthcare premiums cannot be paid or reinbursed through an FSA; they are not eligible medical expenses. It is possible to cover group medical plan premiums under a cafeteria plan, but not individual premiums. The arragnement described to you is not permissible. It was somewhat controversial to cover individual health policy premuims under section 125, but the practice was not uncommon. The idea has now been directly and expressly addressed by the IRS and it is not permissble.