QDROphile

From an experience years ago, and involving an IRS letter ruling, I recall that the one-time irrevocable election concept under 401(k) also applied to 403(b) plans as well. I have not thought about what may have happened since in the law (other than the employer must have a plan document). That might not fit where you want to go or the timing elements. The person could be made ineligible for the match and discretionary contribution without participating (recorded opting out), subject to discrimination rules, and a risk that the negotiation would be treated as a CODA. Done properly, the CODA risk should be very small.

See ERISA reg section 2550.404a-5(d)(1): ... furnish to each participant or beneficiary on or before the date on which the participant or beneficiary can first direct his or her investment, and at least annually thereafter, the following information ... Employer securities are subject to special standdards.

The underlying issue (prohibited transaction) is the maintenance and use of plan assets by the employer, a party in interest/disqualified person. Segregation from employer assets and delivery to the trust is the key event, not loss of earnings to the plan. Loss of eranings to the plan (and value to the employer of holding the funds before delivery) are relevant only to correct of a prohibited transaction, not determining if there is a PT. There would be no PT issue if the funds were delivered promptly to the trust, but sat unallocated and uninvested for seven or eight days. The timing of investment of plan assets is a fiduciary issue. At some point uninvested assets become a fiduciary concern. If the roles of employer and fiduciary are properly assigned and observed, the fiduciary has no responsibility for investing plan assets until receipt by the trust unless the fiduciary did something to delay the receipt. I express no view about how to count days between payday and delivery or how to apply the safe harbor.

You create a document that that describes and effects the spin off and then the employer who is the sponsor of the spun-off plan adopts a restatement of the same pre-spin plan document for the spun-off plan. The original effective date of the spun-off plan is still the original effective date of the pre-spin plan (or consider the original effective date of the spun-off plan as the date the renegade employer adopted the pre-spin plan). The effective date of the restatement is the effective date of the spin off. Don't forget to attend to the related trust issues, including transfer of assets if there will be a spun-off trust. This assumes that the spun-off plan is going to be exacly the same as it was before the spin off, at least for a while.

Then certain record keepers can tell you the source of the requirement or they should be scorned.

Whether or not a state law of general applicability "relates to" a plan has been a troublesome question.

I am not sure that one can transfer (as opposed to roll over) amounts from an IRA to a qualified plan. Confusion abounds in the discussions, but I think you should find some authority for a transfer. An interesting test will be to instruct the IRA custodian/trustee to transfer to the plan, with insistence that it be a transfer and absolute clarity that it will not be a rollover. I expect resistence, bewilderment, or disregard by the custodian. By disregard, I mean that the custodian will report the transaction as a rollover despite talk of transfer.

Not enough information has been given to respond correctly. An elective deferral must be made on the basis of a salary reduction agreement and must go "through payroll." Elective deferrals and after-tax contributions are the only types of "personal" contribution allowed. The owner may not distinguish well between personal and company contributions. The plan can be designed to allow the company to make make a contribution.

The VERY respected consultant is correct. The outcome is determined by the plan document and good arguments can be made for designing the plan to exclude severance pay without regard for timing.

Were it not for what I infer is a gap in contributions, the best approach would be to spin off the portion of the plan that related to the nonparticipating employer to form the "new" plan, automaticaly retaining "all aspects of the prior plan." It still might be the best approach. I am troubled by the gap in contributions under any approach. It might be better not to resume anything until January 1, and then the spin off should be a serious consideration, but I have not thought through the repurcussions of ceasing contributions mid-year.

So what are you going to do about the difference of opinion? Are you going to go find a different document provider because the document provider proved incompentent and the document was inadequate or do you now think that the consultant is only very respected instead of VERY respected?

I do not think you are dealing with an "excess deferral" within the meaning of Rev. Proc. 2013-12, nor are you dealing with an ineligible participant. You have a faliure to follow plan terms, and I think that means you have an "excess amount" subject to the following provisions of Rev. Proc. 2013-12 (but you should read the Rev. Proc. yourself to determine what is appropriate, including applicable provisions that are not included below; I have deleted some imbedded images that will not post, so you are looking at an altered copy of the text that might have unintended alternations): "A distribution of an Excess Amount is generally treated in the manner described in section 3 of Rev. Proc. 92-93, 1992-2 C.B. 505 (relating to the corrective disbursement of elective deferrals ). The distribution must be reported on Form 1099-R for the year of distribution with respect to each participant or beneficiary receiving such a distribution. Except as otherwise provided in section 6.02(5)©, where an Excess Amount has been or is being distributed, the Plan Sponsor must notify the recipient that (a) an Excess Amount has been or will be distributed and (b) an Excess Amount is not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan under § 402©(8)(B) (and, specifically, is not eligible for rollover)."

Despite the IRS use of the term "transfer" with respect to direct rollovers, direct rollovers are still rollovers and they are under the control of the participant. A rollover is what a participant does (or directs a plan to do) with an eligible rollover distribution. If there is no distribution, there is no rollover. Disposition of a distribution is entirely within the control of a participant. Whether or not the participant is eligible for a distribution or will get a mandatory distribution is subject to plan terms. Whether or not a distribution is an eligible rollover distribution (not whether or not it will be rolled over) is a matter of plan terms. For example, required distributions are not rollable. A plan would not comply with an instruction to directly roll over an amount that is a required distribution. Your questions should start with, "Is a participant eligible for distribution (e.g. because of plan termmination)?" Then, "Is the distribution an eligible rollover distribution?" Transfers are another matter and are easily confused with direct rollovers. Since you are already overloaded to confusion, you need not bother with learning about transfers for your mission. Transfers are not permitted between 401(k) and 403(b) plans.

A QDRO can provide that the AP is to be treated as a spouse for purposes of the QJSA beneft. That means that the AP is entitled to the plan's standard form (usually joint and 50%) unless the AP consents to a different form. The AP can consent to a joint and 100%. The court, in an order that is a QDRO, can order the participant to elect a joint & 100%, but that is not for the plan to enforce. In the order described, the participant shoud elect a joint and 100% annuity if the participant does not want trouble with the court. The AP can decide whether or not to consent to the joint and 100% annuity in lieu of the regular QJSA form. The order may be imperfect in its award of the QJSA benefit to the AP, but that is going to be a matter of interpretation for the plan adminstrator. I think the plan adminstrator should be accommodating and apply its superior understanding of the QDRO rules to give effect to the clear intent of the order.

Looking to pre-approved document language for what the law is or what one can do is foolish if that is the end of the inquiry. Unfortunately, many consultants think the universe is the product and the client is none the wiser. Why do so many think that elective deferrals must be suspended after a hardship distribution?

There is no rule that says you cannot set up a new DC plan within a year of terminating a 401(k) plan. What is the rule that you think is violated?

Plan terms, which are based on qualification requirements. I suspect that the only permissible ways to a credit a participant account are (1) allocation of employer contributions, (2) allocation of investment earnings, (3) loan payments, (3) possibly employee after-tax contributions, and (4) corrective or restorative contributions. I do not think a payment to a plan by a former alternate payee is a corrective contribution unless there has been some error, such as distributing to the alternate payee more than a QDRO provided. That is where we got started.

"Failure to make the RMD is a problem for the plan as well as the Participant I believe." Yes, and this is why the lost participant circumstances need to be addressed timely and completely, not just with each year's required distribution. The first place to start is the plan document. A common approach is to forfeit the account balance. You should also become familiar with Field Assistance Bulletin 2014-1; it deals with plan terminations but has broader implications.

Perhaps you should state the sucessor plan plan rule that concerns you and how it has been violated.

Go for it! You should take this opportunity to look at your QDRO procedures and your notice practices to make sure that what you do avoids problems and backs you up. I agree that you should not have to question every word of an order. However, there are certain circumstances that arise with enough frequency that you can anticipate them and get out ahead of them to avoid trouble, or a least liability.

It is not qualfied and therefore will not be given effect. It asks the plan to do something the plan is not designed (or permitted) to do in violation of IRC section 414(p)(3)(A), and possibly (B).

You have not provide enough information to convince me that the original distribution was in error. "Error" means "not in accordance with the QDRO or not in accordance with plan terms," not "not in accordance with an unexpressed or poorly expressed intention of the alternate payee." If the reason for the proposed "correction" is that the original intent was not achieved, there is nothing the plan should do unless what the plan did was wrong, such as use the November date when the order said the February date. If this is not the plan's error, the plan should not try to get involved in the solution to a problem that is not the plan's problem. This is akin to someone requesting an in-service distribution and then 100 days later deciding that the amount they asked for was more than they wanted. Tough cookies. Are you now questioning your interpretation of the order? Stick with it unless the interpretation was unreasonable. The plan's QDRO procedures should have default provisions that apply (such as earnings and losses will accrue from the effective date of the division unless the order specifies a different date or diffrent terms for earnings and loses) and the plan should include in its notice of qualification the basics of how the order will be implemented (in this case: earnings and losses will accrue from November 2010 until distribution) and wait for a time (30-60 days is typical) before acting. There are decent solutions to this if the AP rolled over enough to an IRA, but they do not involve the plan and I am not going to venture them because the plan has no business even proposing a solution that does not involve the plan.

Then what is the problem? If the participant got all the assets under an in-service distribution, there is no problem creating a new plan for new contributions. I question that it is really a new plan anayway under those circumstances.

Individual tax matters are confidential. There is no data base that makes closing agreements acessible. Some accounting firms purport to have enough experience that they have empirical insight. There are also informal understandings about the IRS bidding when it comes to proposing the figure in a voluntary negotiated settlement vs. an audit settlement. PLRs and some other IRS internal policy documents became available after FOIA requests, but I don't think there is a way to get to individual tax matters.

Why is the second plan at risk rather than the first? The first plan made an improper in-service distribution. What failure occurred with respect to the second plan? I would be tempted to ask the IRS to approve a transfer from the IRA to the second plan, with whatever restrictions would apply to the transferred amounts as if the transfer had been from the first plan. For example, the transferred amounts would be subject to the 401(k) in-service distribution rules, not the distribution rules for rollovers. The effect would be the same as if there had been a plan merger as of the date of the original distribution. That would make the Form 5500 correction rather strightforward if the second 401(k) plan had an effective date no later than the original distribution date.