QDROphile

MIke Preston: First, the word "IF" and second, the absence of any statement that the separate rate groups are part of the plan document and tied to the allocation provisions. Everyone has become so infatuated with rate group testing as the answer to all impediments to abouse that they sometimes forget the basics.

The plan has a responsibility not to include a required distribution amount in a direct rollover.

Based on ignorance of the mysteries of testing, I would want to see plan terms with respect to allocation that said that different amounts could be allocated to different rate groups. To me, allocations are one thing and must be specified in the plan. Whether or not those allocations pass testing is another matter.

Agree. I depends on what the resolution says.

I try to focus on what the law is and how to comply with it. There is no reason to tax aspects of qualified plan benefits; the law is all artifice and policy. Those who want the benefits, especially if they want to maximize them, have to take into account that is all rules and no logic except some internal logic sometimes. They may also take into account that the rules are complex and enforcement is mimimal. Compliance can be a bother and I tend toward cynicism rather than horror.

With respect to "make sure" there is a special rule that treats all K-1 compensation as being received as of the last day of the year. That allows K-1 partners to have elective deferrals determined and contributed after the end of the year with respect to all compensation for the year, unlike W-2 employees. As we know, the elections still have to be made before the end of the year. Partners in businesses that have unpredictable results can "make sure" they stay within the limits by having the contributions determined after the end of the year after compensation is determined. Partners who have the luxury of different circumstances may "make sure" as appropriate under the circumstances. I don't think mistake of fact cuts it, but that is not the only avenue of return of the improper contributions to the employer. I am more tolerant of returning mistaken contributions to the employer under Rev. Proc. 2013-12 than a lot of the contributors to the message boards.

Greed: "self-employed individuals who take advantage of this opportunity to defer amounts during the year must make sure that the amount contributed during the year will not exceed the limits" What part of "make sure" failed here? If it is not a section 415 failure, it is still an operational failure: Improper contributions were made to the plan.

If amounts in excess of the 415 limit got into the plan, the plan has an operational failure. I don't think mistake of fact works, at least in the IRS view. This was not a mathematical error. Greed + rectal cranial inversion is not a mistake of fact. The idea that the correction is not a taxable event for the particpant has merit, but the anaylysis needs to be done under Rev. Proc. 2013-12.

For post-1986 after tax accounts, any distribution must include a proportionate share of related earnings. If the entire after-tax amount is distributed, the entire amount of related earnings must be distributed. Your analysis then shifts to the new rollover guidance to get you where you want to go. As always, plan terms matter.

One aspect of disguised service-based exclusion should be examined empirically. Look at the excluded group. Does it have a preponderance of limited service employees or some some odd pattern of service? How does that fit with the character of the work that is being performed? For example, on-call employees are often limited- service employees, but significant variations can occur (some may be effectively full time). But the character of their job is different from an employee who is not on-call, even though the actual work that is done by both categories of employee is the same. (e.g. unloading shipments). The IRS has respected the on-call distinction, but I think facts and circumstances will have a lot to do with it. For example, if on-call employees are not eligible for other benefits, such as health benefits, it helps. You can be assured that the scrutiny is higher, so you had better be able to cocme up with a good story and demonstration. Whether or not someone is a full time student is not relevant to character of employment unless the employer is the school or there is some other strange circumstance. If student status empirically coordinates with limited service, I think it will be a tough sell.

I thought the "loan interest is taxed twice" misconception had been laid to rest. Don't bother arguing. I am taking the same position about debate as Stephen Jay Gould did with evolution deniers. You can talk among yourselves.

I thought the "loan interest is taxed twice" misconception had been laid to rest. Don't bother arguing. I am taking the same position about debate as Stephen Jay Gould did with evolution deniers. You can talk among yourselves.

At some point an interest rate would be high enough to inspire the IRS to assert that the arrangement provided for disguised contributions. Goldilocks is a good role model and commercial lending rates (although there are no similar loans on the market -- some old posts go into this in detail) are the standard. The IRS is more likely to go after individual or small professional organization plans with respect to loan hijinks.

Welcome to the compliance club. It is very popular and appreciated, especially in an environment of noncompliance.

The plan document sucks. Ideally it would say that a participant may specify that all or a portion of a lump sum distribution will be directly rolled over. It has nothing to do with elective or nonelective accounts. The plan provides for lump sum distributions. To me, that means all account balances are distributed at once in "a lump sum." He cannot get a distribution of one source account and leave the other source account in the plan. Look at your document very closely again. If it does not prevent an interpretation that would be in line with the ideal plan terms, then interpret the plan that way. The service provider needs to be on board to handle payment of one portion of the lump sum distribution as a direct rollover and the other portion as a taxable distribution

Why associate "typically" with "bad idea"? A safe habor match with typically be made to the plan with the CODA (and therefore not typically made to another plan). There is less affinity between a nonelective contribution and a CODA, so when a safe harbor contribution is made to another plan, it will "typically" be a nonelective contribution. Sponsors with plans that have nonelective contributions may simply adjust them if necessary and use them as the safe harbor contribution to go with the CODA in the separate CODA plan. Sponsors "typically" do not have matches in a plan other than the CODA that is matched, so when they adjust the pre-existing match (if necessary) to achieve the safe harbor, the match stays in the same plan just as the nonelective safe harbor contribution stays in the same plan as before safe harbor. I read "typically" as empirical rather than qualitative. It is more about the statistical affinity of match and CODA than issues. But it never hurts to ask.

Even more important for hardship distributions ... .

You may be able to trace the plan through the annual Form 5500 that the plan files. The publicly available on-line records do not go back to 2001 but I think there are services that, for a fee, can retrieve the records and possibly could be more helpful in tracing the plan through various corporate and plan mergers because of familiarity with the information that a Form 5500 presents. See what Judy Diamond Associates does these days.

Why not repay the loan immediately? Is a new deal expected?

I think so, but I am not sure exactly what you want agreement about. I agree that if the employee has control over not providing addtional service (including by bad acts or nonperformance - "cause" for termination), there is not substantial risk of forfeture. I edited my first post to clarify.

If you are very sophisticated and appropriately cautious, you might consider the general doctrine of rescission. If you believe it applies under 409A, it might not be avaliable under the facts because the election was made in the prior year. The devil is in the details and the doctrine is fuzzy.

Second paragraph, section IV of Notice 2007-62.

A retirement plan is required to notify the participant and alternate payee "promptly" about the receipt of the order and "within a reasonable time" about qualification. You need that evidence. A surprising number of domestic relations orders languish and do not get deliverd to the plans. Individuals have to watch out for their rights. If "L" was represented, it is possible that her lawyer has retained the file that would have notices. It is a best practice for a lawyer for an alternate payee to provide for direct notices to be sent directly to the lawyer as well as the alternate payee.

Let's put it this way: You would not be alone if you concluded that involuntary termination by the employer without cause was a per se substantial risk of forfeiture. The IRS would not say that because the IRS always suspects skullduggery and the IRS knows what happened under section 83 with respect to noncompetition clauses. For example, if you were trying to shift a boatload of income from one year to the next and used involuntary termination as the risk of forfeiture, the IRS might argue that there is not a substantial risk within the time frame. But if the vesting date is five years out, I doubt that the IRS would blink an eye unless the person who controlled employment was the participant or a lackey.

The IRS has said informally that as long as the practice is regular, a pay period that crosses year end can have pay recorded in either year. A written policy would be nice. I would start to be concerned about a pay period of a month. What happened the year before?