QDROphile

Your last paragraph illustrates why naming the employer as the fiduciary with discretionary authority is a bad idea. If the employer is the fiduciary, that creates a presumption that the directors and the senior officers are the warm bodied persons who are acting as the fiduciary (and therefore potentially have fiduciary liability) because it is through those persons that the employer acts in any capacity. If those persons do not know that they are potentially responsible for fiduciary matters, it is impossible for them to properly discharge their duties. I think the directors of a corporation would be totally surprised to know that they have some duty (and potential liability) with respect to plan administration, even though many D&O and E&O policies cover liability to some extent. Instead, the appropriate persons (the persons who really have the responsibility and should be attending to it) should be designated by name or office as a named fiduciary. For example, the CEO could be designated as the named fiduciary for the plan. It is likely that the CEO is going to be making discretionary decisions anyway (such as engaging the trustee and naming other fiduciary with specific roles), so make it explicit. You still have the problem that if anybody involved with the plan does not know their job or do it correctly, and oversteps into fiduciary action, that person is potentially going to have fiduciary liability. But if all fiduciaries are named and their respective duties defined, they have a fighting chance of acting correctly in their capacities and not overstepping into the province of another fiduciary’s responsibility.

The employer, other than a sole proprietor, should never be the sole or the discretionary fiduciary except to the extent of the initial appointment of the discretionary fiduciary. Your (dear reader) puzzlement or immediate vehement disagreement with this assertion is the best evidence that the proscription is not observed.

Because the critical aspect of my response has been emphasized, I wanted to reiterate the reassuring part. I doubt that it is your fault that the plan has rejected submissions. The plan will not give your ex spouse the entire retirement benefit simply because of firing before the plan accepts your court order as a qualified domestic relations order. However, if certain things happen, or fail to happen, after the firing and before the order is determined to be qualified, you could lose your entire interest in the benefit. It is too complicated to walk through the possible scenarios and touch on all of the procedural requirements to be able to say that you are completely safe. It appears that the plan has been engaged, has been notified of the domestic relations proceeding, has received communication about the award of an interest to you, and will continue to be engaged in processing what you hope will eventually be a QDRO. This probably protects you as long as the as qualification processing is being pursued diligently. The devil is in the details and there are many devilish details that we do not know. Next to incompetence, delay is your biggest concern.

If proper procedures were followed in court and with the plan, the pension is preserved and suspended for a reasonable time until resolution of qualification of the domestic relations order. However, having domestic relations order “sent back twice” does not bode well for following proper procedures or knowing WFT needs to be done.

I am surprised that the independent fiduciary is not already involved in various aspects. Perhaps it is a special purpose independent fiduciary with very limited scope.

This is a delicate situation. The fiduciary will want to have the benefit of advice of competent legal counsel as a matter of prudent administration and, separately and cynically, protection from liability. That makes any specific observations in this forum irrelevant. Gratuitous comment: ESOPs tend to provide the most difficult fiduciary problems because ESOPs have so many incompatibilities with ERISA principles.

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.