QDROphile

Piling onto what others have offered, it is a drag to try to determine numbers that fit the concept of how you want the benefit divided when you have inadequate records to check those numbers. However, rather than just apply a knee-jerk concept, the parties or their lawyers should have considered the availability of data in the first place and crafted a division, based on either what you know and can agree to project backwards or simply arrive at some sort of equitable division rather than cement an impossible-to-apply formula into divorce judgment/settlement. It is unreasonable to expect you to have thought of it, but the lawyers, if you had them, should have. Unfortunately, if you did not have lawyers in the divorce proceeding with an eye on an eventual QDRO, and most divorce lawyers do not have that perspective, you missed the best window and are going to have to go back and rethink how to make sense of what you do know based on records that are available. It is the responsibility of the plan to provide records that it has or reasonably should have. If the plan has terminated, or has changed administrative service providers, it is likely that the available history does not go back far enough to suit your needs. I would try on the idea that the lawyers owe you some accommodation in trying to collect and put the pieces together to come up with some solution, albeit artificial and somewhat arbitrary in some of its aspects.

Always beware that there are things that people in the “forefront”* of ESOPs know that ain’t so. *And in the backrooms of the ESOP Association.

This appears to be a matter of state (CT) law, as is the concept of “automatic orders”, and would be strange to most everybody who participates in this forum. Maybe you will get lucky with a response by someone competent with CT law. The only thing I can offer you, after hesitation and some misgiving, is the principle that the statute of limitations is commonly “tolled” (essentially meaning that the running of the statute is suspended) if the breach is concealed (you mentioned collusion) but only until the victim learned, or should have learned, of the breach. However, the application of the statute of limitations is determined at the trial level, and if not brought up at trial, it might an issue that the appeals court will not consider. Furthermore, this is a highly technical, legal argument, the details of which are beyond an untrained person. The explanation of the principle is not legal advice. At best, it is a suggestion of something you might get legal advice about. Unfortunately, the system is difficult (if not impossible), complex, and expensive, especially when you are going back in time to undo or re-examine something that was decided in the past. But you know that already.

Could you elucidate on what you mean by the “make whole” principle/rule?

Speaking of partners, which you did not, are there any other ERISA lawyers in your organization? They should be your first consult after doing the fundamental work and then hitting a snag. If your organization environment is based on fear and criticism (which might be making you averse to seeking in-house guidance or assistance) rather than cooperation, camaraderie, and mutual advancement, you don’t want to work there. Maybe it had been determined that nobody else knew the answer, either, and you got the short straw. Still, reporting back for consideration by others after your analysis and learning should not be shameful. If you are on your own, then bless you. ERISA legal expertise and practice is awfully difficult and scary to develop by yourself.

To expand on "go back in time" (a great answer), a common approach is to terminate the plan of the acquired company before the closing of the acquisition and encourage the participants to roll over into the new plan. I am not a big fan of this, but it somewhat alleviates concerns about inheriting problems of the acquired company's plan and eliminates the grandfathering. I say "somewhat" because the acquiring company is probably stuck with the aftermath anyway (many plan participants will now be employees of the acquirer) unless unusual special arrangements are made for someone else (the stock sellers?) to be responsible for any post transaction problems. I don't like tempting participants to take distributions early because of the opportunity presented by the plan termination.

I can understand why an employer would like to limit withdrawals, especially in-service withdrawals, but if the plan is designed to allow the plan to be used as a bank, let it go. There are no regulatory concerns if withdrawals are in accordance with law (e.g. after age 59.5) and plan terms. I am a bit queasy about individual counseling concerning the wisdom of in-service withdrawals, but have no problem with a general statement that includes information that discourages withdrawals by pointing out the immediate and long term negative consequences.

The answer is completely dependent on the domestic relations law of the state in which the court is located and the local court rules and procedures. Federal law, meaning ERISA and the tax code, has nothing to say about it. To be more precise, you are asking about a domestic relations order. The plan to which the order applies determines if the domestic relations order is qualified, and the criteria for qualification include nothing about signatures of parties.

Good for you David for reading more closely to determine that the employer with the pension plan of interest was not the fire department. The convoluted explanation and irrelevant reference fooled me.

Your message suggests that your former spouse worked for a government entity. If so, the pension arrangements are probably not subject to ERISA and the common knowledge that goes with the body of law under ERISA. The plan terms, which may be statutory, will determine survivorship rights. You will not be able to get your answers based on general knowledge and expertise, only specific attention to your situation and the related plan. It is possible that the employer was not a governmental entity, but a nonprofit organization instead, and ERISA may apply.

Yes. Some states in particular look at NQDC as investment contracts and don’t have exemptions available generally and some of the “indirect” exemptions don’t always apply. The program should always be evaluated by someone with securities law expertise.

An early recognition of the issue may have provided some opportunity for planning a more desirable outcome, such as taking a full distribution from the plan sooner (or right away) and rolling it into an IRA rather than waiting. I regret that I will not try to evaluate or explain the plan's actions or a course of action for the alternate payee to take now. For me it is too close to individual advice, which is not the purpose of this forum. Others have different interest and comfort levels.

That’s OK. I spend most of my time in the ditch, and none of my time contemplating FERS.

Also, see the third answer, above, from me. The regulations are difficult to understand. That third answer is your answer in a nutshell. The participant’ account is treated as a single account with respect to the required distribution rules without regard to the QDRO that makes it appear to be a separate account.

The relevant Treasury Regulations are at 1.409(a)(9)-8, Q&A -5, -6, -7.

How about you inform the attorney for the participant that a proposed order with that calculation would fail to qualify under IRC section 414(p)(3)(A). If the attorney can figure out how to express the desired results, mathematically within the plans procedures for calculating and distributions, then the plan will comply with simple steps and functions. The client, the plan cannot be called upon to figure out and implement the after tax results that are desired, at least as you have described.

It appears that a clarifying amendment is in order to implement the desired policy.

“There are some fancy techniques with some short term possibilities, but not for civilians.”

You cannot borrow from your IRA. It will be fatal to the tax treatment of the account. There are some fancy techniques with some short term possibilities, but not for civilians.

My only comment is that once the new spouse has “vested” because the participant has retired, anything that would defease the new spouse or “restore” the survivor annuity for an alternate payee could be adverse selection. The plan would look disfavorably on it and could assert that any attempt to add a benefit through a QDRO would force the plan to pay a benefit that the plan is not otherwise obligated to pay —,thus disqualifying the DRO. This is most starkly illustrated by your suggestion of the death of the new spouse as an opening to award some benefit to the former spouse (other than sharing the life payments to the participant, which can always be done). The untimely death of the new spouse is a great thing for the plan from an actuarial perspective. Why would the plan give that up?

One part of the answer I cannot give you in full is that one needs to look at plan terms and make sure whatever is done ultimate is consistent with plan terms, especially compensation definitions, taking into account any proper elections. I realize I am begging the question with respect to some of the question(s). Part of that exercise includes determining the tax characterization of amounts received from the employer in the year under the settlement agreement and otherwise in the same year. For example, does the settlement provide for an amount with respect to back pay?

Emme: You need to deal with the plan with respect to the payment of benefits on the death of the participant. The plan will be looking to pay benefits to someone, and someone else may be claiming those benefits. You need to take measures to make sure that benefits you hope to be yours are not paid to some death beneficiary while you get matters relating to your domestic relations order straightened out and submitted to the plan. There are various approaches to this, but you should not rely on any informal contact you have had with the plan concerning your claim for benefits.

It never hurts to be reminded that just because you can do some thing does not mean it is the best thing to do. Are you receiving advice about the wisdom of using your 401(k) money for the purpose you intend?

Somebody might remind both the employer and the provider that there is a fiduciary duty to process domestic relations disorders and determine whether or not they are qualified. The statute suggests an outside time limit (often misinterpreted), but the law requires that things be done within a reasonable time. The threat of fiduciary liability sometimes gets things moving.

I would like to underscore Peter Gulia's comments. Employers and plan fiduciaries* should not be giving any advice about the law that is not specifically required by applicable law. For example, a plan is required to provide an explanation of rollover rules. A plan should not go beyond the mandate even with respect to related aspects of the rollovers, and certainly not with respect to other tax matters. *Unless the fiduciary is professional and engaged expressly to provide the advice. Even then, the appointing fiduciary would have to be prudent in the engagement, including determining if the fiduciary were competent to provide the service/advice.