QDROphile

Employer covered the cost of something for all employees as an employer expense mid-year. Employer decided late in the year not to take responsibility for determining that the expense was not taxable compensation and added the value (but no additionall actual dollars) to paychecks in the Christmas pay period. Withholding was based on the larger number (regular pay plus the imputed compensation), so the paycheck around Christmas time was lower than usual because of the greater withholding. I know you can say that there was no negaitve (assuming that the goody was taxable compensation) and it was only a matter of timing and apearance, but "negative Christmas bonus" is a much more provocative description. So do we have an equally inadequate explanation of a negative contribution?

And why do plans not have terms or QDRO procedures to provide a default features in the event that the order does not have an appropriate provision to cover the possibility?

Only if the negative contribution is a negative square root. What is a negative contribution? I have experienced a negative Christmas bonus, but until then I would not have thought it was possible..

The detailed analysis required to evaluate the situation and to determine the appropriate action, is beyond the scope of this forum, or at least beyond my limits.

The plan must be operated in accordance with its terms. The terms have to be carefully considered, and you may have to distinguish definitions of compensation that apply for compliance purposes with defintions that apply for admiistrative purposes, such as which sources of compensation may be charged with the deferral. If the terms exclude commissions (directly or by elimination), then no deferrals can be charged to commissions. If the plan terms are not very clear, a reasonable interpretation might apply that would include comissions in the source for deferrals even if the term "commission" is not used, but be sure that the interpretation is uniformly applied. If other commission payments for the participant or other participants have not been charged, then you have the same problem, other side of the coin.

Keep in mind that you cannot charge fees to terminated particpants as such. You can charge fees to participants, and the employer can pay the fees with respect to employees. That means the plan must have a real expenses that really get paid. The real expenses determine what can be charged.

If you are the TPA, then the guidance you need in the matter should come from the plan sponsor or the plan administrator.

If you do not have a plan document or written loan policy that covers the situatuation, fix it.

Why do you need to do anything other than report the facts and status? Are you the plan sponsor or plan administrator?

So the TPA has fidicuary responsibility for the travesty? Or the owners have separate authority to process distributions independent of the TPA?

With discretionary match, the big picture can be overlooked. The problem can be identified by reference to Gray's Anatomy, which will definitely show where the cranium should be relative to the rectum. Unfortunately, repositioning is only the first step toward an understanding that one should never even get to the question let alone to the point of requesting a citation for disposition of the question.Treas. Reg. section 1.401-(b)(1(ii) should be considered.

One way to look at the circumstances is that the employee participates at the first entry date with an election of zero unless another election is submitted (just like automatic enrollment would set the election at another level) and a new election can be submitted effective as soon a election changes can be made effective under the administrative rules of the plan. I cannot tell if that would be the "2nd payroll run" in your question. If election changes can be made effective each payroll period, then yes.

MoJo: Please discuss any authority you have for the statement below. I was under the impression that the plan fiduciary has an obligation to choose and IRA that is reasonable at the time of initiation, which includes reasonable fees. Even reasonable fees can eat up a low balance, given that permitted investments include low interest rate options, but IRA maintenance fees are generally quite low. I think it is an overstatement that the plan fiduciary has no responsibility "Fees taken by the IRA custodian are NOT the responsibility of the plan fiduciaries."

Another approach is to require that a fixed payment award be distributed immediately. The available balance is known at the time of qualification and the AP's amount is segregated and liquidated for distribution. If the balance is insufficient, the order is not qualified. This approach is necessary when dealing with the FIdelitys of the world, plus you have to invest the liquidated amount in a money market fund and ultimately distribute the wrong amount to the AP (at least it is wrong by excess, and not by much). Thanks again, Fidelity.

IRC 414(p) (3)(B)

The plan adminsistrator is responsible for interpreting and the plan's QDRO Procedures should address the circumstances, but they won't. Asking what was intended is asking for trouble. There is nothing wrong with strictly follwing the terms of the order and distributing the amount specified. After the 2008, we saw plenty of QDROs that were quite clear that they did not want earnings adjustments. They were avoiding the real possibility of losses.

Multiple employer 401(k) plans are not exempt from reigistration under section 3(a)(2) of the Securities Act and are not exempt from the Investment Company Act (I recall that 3(c )(11) is the usual exemption, but don't rely on that).

Yes, in accordance with appropriate plan terms.

If by "diversified investment menu" you imply participant direction of investment, I would assert that the absence is not adverse to the interests of beneficiaries. It is certainly not required by ERISA, if one looks that direction for guidance or wisdom. It is well documented that individual participant investment direction results on average in significant underperformance of the portfolio. If you mean that a common stock portfolio cannot be operated solely in the interests of beneficiaries, you need to make an argument for the position rather than issue dares.

In-service distribution provisions may be added at any time, subject to the controversy over permissible mid-year amendment of safe-harbor plans. It is possible that the amendment would violate section 401(a)(4), but unlikely if the amendment is maintained even if instituted because of the desires of HCEs. As observed by My 2 Cents, the terms of the provisions must be compliant with rules relating to in-service distribution, but you were asking about timing.

The termination will not be respected as a termination for puposes of distribution. That makes your other questions moot.

Have all expenses been incurred and paid? Final Form 5500?

The order should state how the payments should be made, but the plan can only pay an an alternate payee or agent. Typically a child support agency will assert that it is the agent, but sometimes not a lot of sophistication is demonstrated. Use the power of disqualification to make sure the order says what you need it to say. The particpant is responsible for the taxes, which makes withholding an intersting question. Smart QDRO procedures will require the order to speak to the question of withholding as a matter of detemining the amount to paid to the alternate payee. You can imagine some friction if the participant elected withholding at a very high rate.

Bravo!

Depends on the terms of the plan in effect in 2014. Were I in charge, I would presume no exclusion unless proven otherwise. Or maybe the SEP is invalid for failure to document if the liberal presumption does not save it. Pigs need to mind their Ps and curliques.