QDROphile

My thoughts are to get straight when restriction is required (hint: not when the DOL thinks), get straight what restriction is required ("hold" implies a much broader scope that what is provided in the law), give high priority to determnation of qualification, and rethink what the plan should say with respect to the 401(a) (14) requirment. It may be too late to have the best possible provisions in the plan and QDRO procedures on most of the points. You may have to focus now most on what restriction is required and the best way to accommodate start of benefits.

My first thought is the same as yours. The fees paid to the provider reduced the investment return of the account. For custodial accounts with mutual funds or their scammy insurance equivalents, that is a pretty simple concept. The investment return for some insurance products is not quite so transparent and it is possible that fees relating to the product did not identifiably reduce value or benefits. Following that thought, the refund should be used to restore the asset that was charged with the fee and the account that held the asset. A less precise approach was taken by the Department of Labor with respect to demutualization proceeds, but the sponsor did not get the demutualization proceeds directly, either. Also, demutualization proceeds typically were calculated based on many years of ownership of group insurance contracts. Associating the proceeds with the individuals who were the participants was completely impractical.

Forfeitures are annual additions. Allocation to a participant that does not have compensation for the year of allocation will violate section 415. There may be more reasons not to allocate as desired.

See section 125(f) of the Internal Revenue Code for refinement of what a section 125 plan really covers.

Where is the requirement that an employee must get spouse consent to designate a beneficiary other than a spouse?

What has the IRS got to do with the SPD or SMM? That is not a qualfication requirement.

So what does ERISA say about spouses and employer sponsored life insurnace? Contrast the tax code that says, for example, that a pension plan plan participant cannot designate a beneficiairy other than a spouse without spouse consent.

The rules and procedures for changing deferral elections are the rules and procedures for changing deferral elections.

What do you mean by "Check for QDRO?" As a naked proposition that is a very dangerous thing for a plan to consider. OK if you mean check to see if the plan has received a domestic relations order. I suggest checking for plan terms that apply to circumstances of an unmarried participant's death. Some plans say that a former spouse (a beneficiary by default or designation) will not be the beneficiairy unless the designation is made after the divorce.

Then I predict that the IRS would not allow retroactive amendment and I think that the correction would be a garden variety improper exclusion, or a failure to implement if the employees submitted salary reducton agreements that were not given effect.

I think the problem is that the employer should have amended the plan to exclude certain employees in a particular job class, but did not. The employees were excluded. The plan was not operated in accordance with its terms. Now whta do you think? If you think the correction is to amend the plan to fit the exclusion, that cannot be done under SCP. It is also not the type of retroactive amendment that Rev. Proc. 2013-12 anticipates, but that does not mean the IRS will not approve it. I don't know what the proscriptions really are under under the circumstances, but I would be inclined to find a different approach to correction, even under VCP. I find it hard to believe that the contract prevented employees from deferring compensation that was otherwise permissible, but government contracts can be as stupid as union contracts.

Ask the CPA if the CPA knows the defintion of PT, then ask how it would apply to the circumstances. Maybe the alternate payee is a disqualified person, unlikely though it may be. Even if, I think a mistake can be just a mistake, but I don't have any authority for that.

Tidbit responses that do not address all the issues: A plan that fails formal requirements for the ADP safe harbor does not get excused from providing the benefits offered by the plan. For example, if the plan provides for a match art a certain rate, the employer must contribute the match. The failure means that the plan does not get the benefits of the safe harbor, such as a pass on the ADP test or on top heavy compliance. There is no legal reason that a rollover account in Plan A cannot be transferred from Plan A to Plan B as long as both Plans have provisions for the transfer. The Employer has two plans for 2012 but the elective deferral portion of Plan A may have been merged into Plan B effective January 1, 2012. No comment on whether that means that Plan B is treated as having elective deferrals before May 1, 2012. The documentation might be very interesting. It is possible that Plan A was frozen April 30. It is possible that employees could continue to defer under Plan A after April 30. The document history will tell.

Other than being of generally questionable wisdom, and subject to missing information in your post, the arrangements do not have any obvious flaws except as described in this statement: "may or may not have allowed participant distributions of the rollover contributions from the existing plan." The statement is confusing. Does "rollover contributions from the existing plan" refer to amounts rolled over from the first plan to the new plan? Rollovers cannot be made from the first plan to the new plan because distributions are not allowed from the first plan unless a participant qualified for distribution by termination of employment, for example. Transfers from the first plan to the new plan are permissible as long as the terms of both plan allow it, and transfer of elective contributions only is permissible. On the other hand, the first plan could have distributed amounts rolled over into the first plan from some other eligible retirement plan as long as plan terms provided for it. MIssing information includes effective dates. The new safe harbor plan should have started January 1 and the first plan should have been amended to cease deferral and contributions as of the prior December 31. It does not work to transfer elective contributions from the first plan was to support the mid-year start of the safe harbor plan by getting elective deferrals from January 1 into the new plan as though deferred under the new plan. The first plan can be terminated in one sense, but the plan cannot distribute benefits based on the plan termination. The plan would really be frozen rather than terminated.

The employer decides. The circumstances of the transaction will be important in determining what is as soon as practicable. I don't think the IRS would be overly exacting, but I would wonder a bit if the transaction closed tomorrow or was not scheduled to close until the end of January.

Are you trying to test the limits of the guidance in Treas. Reg. section 1.457-10(a)? If you can't find authority allows participants to choose timing of receipt of income, consider that the principlels are generaly against it.

Maybe you can get the investment provider to use the same approach as applied to QDROs. Still a lot of work for data entry, even under the best of circumstance.

Using 50% rather than 80%

The IRS in informal Q&A statements at an ABA session said that purchasing the remainder of an undivided interest in an individual's principal residence qualifed as purchase of a principal residence. I do not remember the year. The infomation was reference in the Message Boards, with a cite or link, more than two years ago. You might find it if you seach.

You can't correct under plan terms. Plan terms can only prevent a 415 violation. Once the excess has been deliverd to the plan a violation ocurs. You can correct under plan terms if the plan provides that if the annual addtion limit is exceeded notwithstanding the provisions designed to prevent the violation, the violation will be corrected under EPCRS.

Y needs to submit a claim under the plan's claims procedures. The plan administrator should deal with Y in that context. The proceedings will cover matters described by Andy, but it may not matter. The plan may conclude that the plan properly identified the spouse in accordance with plan procedures and the existence of another marriage does not matter. That conclusion might best be made with advice of legal counsel.

See Treasury Regulation section 1.403(b)-10©. Your description causes me to think that either (i) someone does not know the meaning of section 414(p)(4)(A), or (ii) the plan does not take a very practical approach to QDROs, but it is difficult to read between the lines. Is the administrator and employer person or an insurance company person? Subject to some unusual circumstances, the plan should (as a mattter of policy, not law) allow an alternate payee to receive the entire amount awarded as soon as practicable after the order is determined to be qualified. If that is what you want and you can't get it, I encourgage you to make youself such a pain in the ass with occcupying the plan administrator's time that the plan administrator gets some brains and figures out how to get rid of you by giving you your benefit.

Cynical, but rational. I have always alway enjoyed your tag line.

Cynical or sarcastic?

Treas. Reg. section 1.411(a)-11(e)