QDROphile

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.

Although indemnification may cover litigation and defense costs, one should consider having the indemnitor cover the defense costs (subject to favorable outcome, or ?) up front, or to defend the fiduciary, because such costs may be substantial and an indemnity operates only after the fact. Indemnity is subject to public policy limits. Under ERISA, that probably means, among other things, that actions not taken in good faith or not taken in the interests of participants cannot be indemnified. The Department of Labor has a special view about indemnification of ESOP fiduciaries.

Assuming that you are interested because of a qualified trust, more information is needed about the what the trust owns. For example, if the trust owns C corporation stock of a company that owns oil wells and the trust gets "oil well income" in the form of dividends on the stock, then the income is not UBI. If the trust owns an oil well and gets "oil well income" in the form of sales proceeds from the sale of oil produced by the well, then the income is probably UBI.

My recollection is that if the plan is subject to the QJSA requirements, then spouse consent is required for loans. It was many years ago that the specific question was examined.

Depending on how bold or imaginative you are, you might believe there are other circumstance involving an election that fall short of a cash or deferred election.

The plan is a contract. Whether or not one party can unilaterally change a contract depends on contract terms and contract law.

Can you do what you want or are you stuck with an inflexible administartive system/provider?

It is still an ERISA plan, which generally means that the participant is entitled only to what the plan provides. As for "contribute," a lot of plans are poorly drafted and a better term would be "credit" to the bookkeeping account that measures the employer deferred compensation obligation. Leaves open the opportunity to dispute the meaning of a term that has no meaning under section 457(b).

The deferred compensation arrangement is a contract. The employer needs to evaluate the prospect of breaching the contract terms. Your message touches on some of the considerations.

Nonqualified plans are not subject to ERISA or tax code proscriptions that apply to qualified plans. All the more reason to get professional advice.

I bet that your plan administrator does not know. The plan administrator relies on a financial services provider, such as a mutual fund company (think Vanguard, T. Rowe Price), insurance company, or other provider (Flying Spaghetti Monster forbid, ADP) perform the calculation based on the instruction to compute related earnings. The financial services provider has a methodology that is usually some sort of algorithm. It would be good for the plan administrator's soul to understand and explain the methodology and break it down for you with actual numbers applicable to your account. You can frame your inquiry as a claim under your plan's claims procedure if the plan administrator is not forthcoming informally.

Many states have payroll laws that forbid withholding without employee consent. There are law firms that specialize in bringing class action suits for the statutory penalties involved. If I were of such a mind, I might assert that failure to deliver to the retirement plan as directed means that delay in refunding the money that could not be used in accordance with the consent is a violation of the statute. Withholding money and then not paying it until it happens to be convenient for the payroll system does not present a nice picture.

While a plan can get away with whatever it wants as a practical matter, and mistake is the rule with respect to "holds" (there is really no such thing under the law), if a plan is presented with a domestic relations order it is required to determine qualification "promptly" and provide a reasonable time for correction of qualification of defects. If defects are not cured, the distribution should proceed. If the plan does not have a domestic relations order at the time of application for benefits, the plan should pay the benefits. Even the mistaken plans will need to assess what is has by way of a "hold" and require some diligence in processing. I infer that you are in California and the California abomination of "joinder order" is in play. It is interesting that AT&T is a named party in quite a few reported QDRO cases -- mostly getting it wrong. Your problem is that you will need representation by someone who knows that stuff and you won't want to pay what it will cost -- that is why the plans can get away with whatever they want. CADMT's bottom line is is the most practical approach, even if I disagree with the other details.

The sad reality is that a lot of small plans (and others) rely on a bundled service provider for all advice about maintaining the plan because the advice appears to be free. The advice is often worth exactly what is paid for it and it often makes the provider a functional fiduciary, which is a problem both for the provider and the named fiduciary.

To be able to change coverage becuase of a change in status, the change in coverage must relate to the change in status. Most plans require the election to change coverage to be made within 30 days of the change in status event, some go out as far as 60 days, as a matter of determining that the election relates to the event.

See IRC section 402(g) (1) and (3) concerning aggregation of elective deferrals for limit applicable to the individual.

You also have to follow plan terms. You hope for a a provision that allows a choice of any permissible definition of compensation for testing.