QDROphile

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.

The plan loan secures itself and a participant should not be able to withdraw amounts that seure a plan loan. This is all part of the principle that plan loans are supposed to be repaid and a participant cannot turn a loan into a distribution. If it were so easy, then the plan would not meet the rules that restrict in-service distributions. I realize that the "loan secures itself" and "amounts that secure a plan loan" are quaint notions that do not resonate with anyone and cannot be found in typical plan documents. But most peple also think that elective deferrals have to be suspended for six months after a hardship distribution. I agree that if the participant is eligible for a distribution that the entire loan can be distributed at the election of the participant, subject to plan terms concerning distribution.

1. Everybody is overlooking the securities law aspect of the circumstances. They should be considered if the arrangement is going forward. 2. What new terms does the plan document need to allow the arragement? If new terms are necesary, is it going to be necesary to have a retroactive effective date? The IRS position is that retroactive amendments, with very limited exceptions, must be effected through VCP. Based on a VCP filing for an employer that had members of the controlled group fail to execute participation agreements, the IRS believes that particpation agreements are plan documents with plan terms, and retroactive adoption is a retroactive plan amendment. 3. Forms 5500 have not be done correctly.

Should be concerned with a plan administrator that simply allowed the particpant to elect to default? The loan was issued with the understanding that it would be paid. That understanding is based in part on a payment mechanism, such as payroll deduction. The repayment expectation and terms behind it are part of the loan assset. The plan administrator has responsibilities with respect to that asset. I do not think the plan administrator can turn its back and allow default without consideration of reasonable actions for collection. For example, payroll deduction authorization should be irrevocable.

Surrender fees might be a valid expense, but it would likely be unreasonable to allocate the surrender fees with respect to an account to be allocated in any way except to the account. If not an expense, the surrender fee is a factor in investment return, likewise allocated to the account that holds the investment that is subject to the fee. Using forfetures is improper, but I don't think "discriminatory" would be the correct term for the impropriety, although the term does get across the idea of improper allocation of the forfeiture amounts. If the employer wishes to cover the cost of the surrender fee, you might explore the idea of a restorative payment. See Rev. Rul. 2002-45 and PLR 200317048 among others. Beware the narrow circumstances. The IRS is not giving a "get out of surrender charges free" card.

"The point of getting indemnification from one’s employer (or the business organization that asks one to serve as a plan’s fiduciary) is that such a person can indemnify its indemnitee for conduct that an employee-benefit plan cannot exonerate." While it is true that the plan sponsor can indemnify a plan fiduciary for liabiities that the plan cannot, the point that I was trying to emphasize is that there are public policy limits on indemnification. In matters governed by ERISA, I suspect that public policy would restrict indemnification if the fiduciary were not acting in good faith or in the interests of the plan participants and beneficiaries. I am not arguing about general limits or conditions as a matter of corporation law on the ability of corporations to indemnify. Those standards stand separately and are a separate public policy limit on indemnification. The two should not be confused. I think the ERISA concerns are the more relevant for a question about indemnifying an ERISA fiduciary in terms of what the ERISA fiduciary can expect by way of coverage.

When it comes to indemnifying fiduciaries, the standard is acting in the interests of the participants and beneficiaries, not in the interests of the employer. A small slip in a quickly worded message, but an important point under ERISA.

Compliance with 402(g) limit; not so many misunderstandings more recently. Timing of matching contributions. Definition of compensation subject to deferral elections.

1. If your model for bundled services is ADP, I hope your plan administrative services are not the same abomination. 2. There are certain areas in which payroll services and retirement plan administration services can conflict, especially if the retirement plan services involve consulting. I have never had a client change payroll providers because the payroll provider failed or refused to accommodate a recommended plan feature, but at least I felt that I could give appropriate advice without restraint. If I were associated with the payroll provider, would I consider giving the advice that would effectively be shot down on the payroll end?

No comment.