QDROphile

First question: Is the owner of the plan sponsosr a fiduciary? If so, is that fiduciary the fiduciary that made the dscision that the plan would invest in the LP? If both are true, the ice is extremely thin and I would not go there.

The plan's written QDRO procedures should address what triggers restriction of a particpant's account. If the trigger is other than receipt of a domestic relations order (not a draft order), the procedures should be very specifc and detailed about what the trigger will be and what will happen and for how long. You may wish to consider that the Department of Labor informal postion is contrary to the published federal court decision on the subject.

Distributions based on incorrect values of plan assets touch on some very serious issues and the self-dealing aspect only makes it worse.

The IRS has the power to audit the individuals of interest. What would be more obtrusive? And how would the university liek to explain why someone got audited? Any chance the university employees are physicians? The IRS does not like docs and the employer should have stepped up the game with docs. While I appreciate client loyalty and advocacy, you have to recognize the the enforcement landscape changed under the regulations. The employer should have taken serious steps to make sure that participants knew of the odd annual additions rule so the participants could take appropriate measures to comply. The participants would also have less to be upset about when the inquiry comes. If the employer acts diligently in the matter, the IRS is not going to beat up the employer. I don't think the IRS expects the nonprofit employer to supervise the employee's other plans. The attitude that the employer should not have to be bothered with any responsibility for addressing the issue is not going to get you any points and you should be concerned that the IRS might be in the mood to make an example out of a high profile institution. The IRS is fed up with noncompliance in the 403(b) arena. That is why we got the new regulations with focus on the employer. Cooperation is usually the best policy in an audit.

The sponsor can assess the risk and amend the plan without correction. In other words, don't amend with a retroactive effective date. The retroactive effective date will get unfavorable attention on audit and in determination letter review. A rollover account in a plan that has a rollover provision will not stand out for attention to the timing. Ideally the amendment would not be a stand alone amendment. The plan auditors (not the IRS auditors) may be more likely to observe violation. If the matter is taken up in an IRS audit, the penalty should not be terrible, but it would be lucky to get away free. If you take the rollover out of the plan, the you will have to contemplate asking for a letter ruling that the mistake does not prevent preserving tax deferral by putting the money in an eligible rollover vehicle, such as an IRA. A letter ruling would be just as bad or worse than VCP.

What does it matter what anyone thinks?

That will not cure the violation or avoid the excise tax. See Rev. Proc. 2013-12 for the currentl EPCRS guidance.

Another thought. The interpretation of an order and the determinetion of qualification are fiduciary functions. You may be expected to provide a recommendation, but the ultimate decisons about administration of QDROs are made by a fiduciary.

I have always considered the exception to the anti-assignement provisions of 401(a)(3) for assignment "pursuant to" a QDRO to mean that the terms of the order have to be followed, even if the terms of payment are more restrictive than the plan would allow. During the qualification process there are ways to avoid restrictive provisions that are the unintended product of incompetent drafting. Once the order is qualifed with terms that have an established meaning, variance from the terms is a difficult proposition. If a very careful reading (that does not mean a conserviative reading) of the terms of the order leaves you stuck as you describe, the only course is amendment of the order or occurrence of circumstances that fit other distribution terms. By the way, the "earliest retirment age" for a plan that allows distribution at termination is age 50.

Is the definition of "employer" the same under IRC section 408 as under section 401? A SIMPLE is maintained by an employer. Once you get past that question and its implications, you might want to look at the defintion of employee under IRC section 408(p)(6) (B).

I don't think so, CADMT. See Treas Reg section 1.401(a)(9)-8, Q&A--6. The benefit is still the benefit of the participant (sort of) for purposes of section 401(a)(9). Hence the administration of QDROs by Fidelity and others is not designed to comply with the law.

You have to follow their instructions for distribution. The discussion so far has presumed that the plan has not been given instructions after the plan has delivered the appropriate disclosure.

BG5150: I believe it is a bad design choice, unlike the two other design choices that I mentioned, which are more tolerable to me. The main point I was making is that interpreting TPA statements about what is and what is not OK must disinguish between what is and what is not OK under the law and what is and what is not OK under the plan. Those can be two very different things, and they often get confused. Too often, the common convention is considered to be the only option. In my experience, the 6-month suspension is often believed to be the only possible design for hardship withdrawal and not though is given to the alternative. The insistance that this is the only way annoys me greatly in an of itself, all the more so because I believe it is a pointless restriction. I was heartened by austin3515's perfectly correct and complete response and I have no quarrel that it was neutral about value.

You told them that because administrators do not like dealing with partial prepayments and there is not enough demand for partial prepayments to overcome that resistance. In most plans prepayments are not allowed, but not because there is a compliance problem. That is similar to accelaration of loans at termination. It is done out of administaritve convenience, not compelling legal concerns. I am not saying that either common practice is bad. Do you also tell participants that a hardship withdrawal will be followed by a 6 month suspension of elective deferrals? That is a common practice that I think is bad.

Depends on the plan terms and the applicable government law. If you are asking because of your familiarity with ERISA requirements for consents, ERISA does not apply as such, but the plan or other applicable law may have adopted requirements similar to ERISAs..

Notification of a TPA does not terminate a plan. If effective sponsor action was taken by 6/30 to terminate, then the plan terminated on 6/30. It sounds like the sponsor is not sophisticated enough to have taken effective action by 6/30.

You are not going to change the views of the critics of your analysis that this amounts to double taxation, so don't bother with the distraction to your inquiry. You either get it or you don't and you will either get a good economic evaluation of your options or you won't. References to double taxation will onlly confuse and distort the discussion.

A loan might be the best economic option, but I wonder about the ability to evaluate the economics if some of the advice refers to double taxation when referring to loans. Try an analysis with a lender other than the plan.

There are diferent answers depending on your interest in (i) fiduciary liability for which a fiduciary may be personlly liable, or (ii) plan qualification matters, which in the end are usually the obligation of the plan sponsor of the surviving plan.

No comment on the plan terms, which may be the cause of the problem. The Department of Labor issued a Field Assistance Bulletin on demutualization proceeds that might be of some help.

As long as there is no uncertainty or ambiguity about the plan that is identified by the QDRO, I would not disqualify. The notice of qualification should specify the new and old names, somethng like "ABC 401(k) Plan, formerly known as the AAA 401(k) plan." The courts have been very forgiving about failure to specify the correct name of the plan as long as there is relative certainy about the plan that the order intended to cover. Don't waste your time or the time of others on something that is not important. If there is some reason to doubt that the order is intended to apply to the plan, then you might need to be more demanding.

A plan can be drafted to allow less than the law allows. I doubt that the plan has such provisions applicable to the circumstances you describe. Why would anyone want to provide for proration?

But there is a foul, so the correction should be done in accordance with EPCRS, and SCP should be available.

Not necessairly. The custodial parent may have more need for child care after losing the child care capability of the spouse. For example, the noncustodial spouse may have worked part timre or may have had a non-overlapping work schedule that allowed for child care while the custodial spouse was working.

Consistencey rule.