QDROphile

Sorry, 409A is just too touchy for me to be make off-the-cuff comments based on incomplete information. I do wonder if the “fix” takes into account the difference between capital gain income, which could have been a feature of an appropriate and timely equity arrangement and ordinary income, which is the norm for deferred compensation.

Who provides the Forms 1099-R and where does that person get the SSNs?

I am quite curious about “could become effective”. Do you have any authority under ERISA for giving an effect to an act that is ineffective (not just not effective) when performed? Please exclude acts that authorize something and designate future effective dates, such as plan amendments. I would not be confident that an ineffective act would be given later effect because of interim events that, if they had occurred prior to the ineffective act, would have allowed the act to be effective.

I am curious about who the attorney represents and what the pushback is, but don’t bother with extra work just to satisfy my curiosity. If the attorney represents participant, too bad. I assume that you do not represent any individual, so you have no obligation to convince or educate the attorney one way or another. Even if you work for the plan, I don’t think you have any obligation to argue for the correct answer. As a courtesy, you could say that the plan follows its terms, including any beneficiary designations or waivers done in accordance with plan procedures, and will give effect to qualified domestic relations orders. You might go so far as to say that a marital settlement agreement is not something contemplated by the plan or mentioned in the plan’s policies and procedures.

To take it one step further, the plan cannot be required to pay benefits in a form other than, or an amount excess of, what the plan is designed to pay as a regular benefit. That allows the plan to interpret in a manner that allows consistency in administration, and making sure that, however it interprets its terms, it does not have to pay a lump sum amount, in the aggregate, greater than the plan was designed to pay if there were no QDRO. If the DRO asserts otherwise, it is not qualified.

An AP is not a separate participant. For ERISA purposes, the AP is a beneficiary. Even a “separate interest” is part of a single benefit. I am not addressing your question directly.

I think your point is valid, but it depends on an entire reading of the plan document and written procedures, which include the forms. I can imagine that the fiduciary could interpret plan terms and written procedure terms to apply default provisions to “fill up” the difference between the sum of designated percentages in the form and 100%. The scope of imagination must be based on a an intelligent and complete reading of the documents, and a reasonable interpretation. Then, as noted in my prior message, anyone who is aggrieved can appeal, first through the plan’s claims procedures, and then to court if it needs to go that far. If you throw things first into court, you might be losing an easier and cheaper solution that is acceptable and most beneficial to all involved, the errant plan participant be damned.

Yes and the interpretation is first the duty of the plan fiduciary, especially if the plan has a decent description of fiduciary authority and responsibilities. I agree with david rigby that the fiduciary should take it as far as possible. Resorting to the courts is not what ERISA intended. A colleague of mine used to give a speech called “The Fearless Fiduciary” as a way of reassuring that ERISA was not out to get them, and offers plenty of protection for a fiduciary who acts diligently and reasonably. Anyone who is aggrieved to can then go to court.

Your divorce property settlement terms, specified in the divorce judgment/decree/settlement, determine what the domestic relations order - DRO - (to become a QDRO) will apply to. You stated that "your retirement" was to be the subject of the QDRO. That rules out anything else, but you provide no information about what your what your "retirement" is, as specified in the divorce judgment/decree/settlement. Assuming that your "retirement" is some kind of qualified plan, the divorce judgment/decree/settlement should also specify what part of the plan benefits were awarded to your former spouse. Usually the award is based on amounts and benefits accrued at the time of the divorce and a delayed QDRO will not change that. But the award might include additions and accruals under the plan(s) after the divorce date. That would be unusual. Your new spouse's assets should be safe, as well as your assets (after giving effect to the divorce judgment/decree/settlement) acquired after the divorce, except your "retirement". The former spouse would have to go back to the court that issued the divorce judgment/decree/settlement to get more. A QDRO is almost always derivative, but the plan will follow whatever is put in the QDRO that is issued by the court and should not look to the original divorce documents. It is your job to make sure nothing more is added to the terms of the proposed DRO that is submitted to the court.

I am confused by which years and what maximum(s) you are asking about. Absent an unexpected clarification, I agree with justanotheradmin.

You should not have to do anything new with a domestic relations order that has been submitted. The plan is required to process it. However, the new "processor" might derail what was on track for qualification and decide it is not qualified. Then you have to resubmit within whatever new legitimate administrative policies and limitations apply under the new processor. Or you can challenge. The decision might rest, unfairly, on the style and arrogance of the processor. We could talk about how a lot of the processors, like Fidelity, suck to the point that the plan may not comply with the law. And we could speculate about whether or not your DRO can be whipsawed by changes at this point. But the plan usually holds the better cards unless you have either lots of resources or a a very confident aggressive competent lawyer who is willing to work for an attorney's fee award. If you have submitted a DRO, just wait for the plan to make its move based on the determination of qualification that it is required to perform, and then decide what to do. You will have to be given a written explanation, which you can challenge, or you can choose to conform. Don't listen to informal buzz outside of the actual terms of the formal determination, the Summary Plan Description, and and written QDRO procedures. If you are somewhere else in the process, such as having informally submitted a draft DRO for "pre-qualification" (it pains me to use that phrase) then you might get jerked around more. The plan still has to follow the written QDRO procedures. You are entitled to them. Check them against what you are being told. By the way, the plan's written QDRO procedures probably also suck. Sorry. This is not an area where third-party providers (the big ones, anyway) are very enlightened. This is also an opportunity to gratuitously knock the Department of Labor. It just can't get QDRO stuff right. But at least its bias tends to be against the plan because it gets asked for help mostly from would-be alternate payees, and plans -- especially union plans -- can be obtuse), so for you it might be considered an ally. You probably don't have a fight yet, and chances are the DOL is not itching to get in one with you.

Pardon me for not answering your question (because I do not think it can be answered generically, among other reasons) and instead offering unsolicited advice. It sounds like what you need to do is explore and understand what your interest in the benefit is and how to secure it as best as possible beyond the mere award under the terms of your divorce document that you mention. That will first involve understanding what sort of 457 plan the former spouse has. In the course of understanding the plan and what you can do to secure your interest, you should encounter information about your right from the plan’s perspective to check on the benefit and your interest in the benefit. That effort should also answer your question about permissible, distribution timing and options, which, to me, is the least important feature of the plan for you at this point. You will probably need someone with expertise to guide you through all this. You will not have the convenience of procedures and disclosures that apply to division of qualified plan benefits (so called “QDRO” stuff). BTW, mention of “reckless behavior” and its details are irrelevant and not endearing.

It is a little bit more complicated for nonqualified deferred income.

Sorry, to me that statement is self-contradictory. A marital share is a portion of a benefit (a way of establishing the value of what was awarded), and I tend to read “any” as inclusive, so your former wife received a portion, as well as everything. Perhaps some more context would help. I am suspicious of “any benefits”.

You do not provide enough information for an informed response, which you should not rely on anyway and you need legal counsel if you object to what is happening currently or do not understand it. I can tell you with respect to the 401(k) plan that federal statutory law is silent about time gap between a divorce judgement and the submission of a domestic relations order that is intended to effect that judgement with respect to the plan. The plan is unlikely to look askance unless certain things have happen under the plan in the interim. However, that DRO does have to be issued by a court and that court and relevant sate law may have questions. I do not speak to Maryland domestic relations law. Whenever there is a very long time between the awarding of a right or benefit and the actual assertion of that right or claim for the benefit, one may consider asserting equitable defenses either in the state court or to the plan -- but don't expect much protection from the plan. "Equitable defenses" is for your lawyer to explain.

What do you mean by "who will pay"? What was the division of the presumed ERISA pension plan defined benefit? Were forms of benefit identified? Was actuarial value mentioned?

mal: Assuming that the plan is an ERISA plan (and if a DC or DB plan makes a difference in various details), the plan might consider acknowledging that the plan has received a domestic relations order in accordance with its assumed appropriate QDRO procedures (because the divorce decree IS a DRO) and notify the parties that it has determined that the DRO does not meet the requirements for qualification. The notice should then explain what the plan will do next, based on its determination that the order is not qualified. Because I do not know what "your" plan does next after a negative determination, it is difficult to suggest what to do next within the plan's framework. However, as a matter of my interpretation of the law and preferred principles, the plan should explain that the benefit is "suspended" (I will leave what that means to the plan) for a reasonable time to allow the submission of a domestic relations order that purports to meet the requirements for qualification. That puts the former spouse (estate) in a position with reasonable time to capture whatever is actually available under 1) state law - and there may be nothing for the deceased former spouse, and 2) federal law - yes, posthumous QDROs are possible but the devil is in the details, especially under DB plans. And shame on the Department of Labor for its completely useless efforts to comply with the Congressional mandate to provide guidance concerning posthumous QDROs, especially for DB plans. When the new DRO is submitted, it will be evaluated, and then either qualified or not. Keep in mind at that point the qualification requirement that the plan cannot be required to provide an amount or benefit that the plan was not designed to provide. Honi soit qui mal y pense.

How is it that you come to ask this question? From what perspective: plan, participant, former spouse (estate)? The plan should do as little as possible with respect to anything other than processing the receipt of a domestic relations order in accordance with it's written QDRO procedures (which reflect and are compliant with the law). If the written QDRO procedures provide for the plan to do more than that, shame on the plan. There are some things the estate can do within the framework of the law to assure time to present a QDRO-worthy domestic relations order, if it can get one from the state court, and the QDRO administrator can cooperate within the minimalist approach described in the second sentence.

If it was not a permitted distribution, what is so problematic about looking at reversing it as a correction, or the greater part of the correction?

The establishment of a nominal Roth IRA in anticipation of rolling over a Roth account later was also done to be able to get the Roth money out of the qualified plan before it got caught up in required distributions. The change in law that allows Roth accounts to be excluded from the required distribution calculation obviated the need for the technique.

I am glad that you owned up to being unable to explain why interest payments on both defaulted and undefaulted loans, all originating outside the plan, would have different treatment for tax purposes once paid to the plan by the participant. I am sympathetic to the additional complexities for recordkeeping, but I think that treating the interest as “pre-tax” in the plan as is all undefaulted plan loan interest would be simpler compared to the alternative. However, I have never had to do recordkeeping, so I do not know how accounts are best set up to track sources and earnings. The basis of the repaid defaulted loan alone is a monkey wrench in most plans. Interest on a regular plan loan does not smell like a deferral, though much has been argued about how plan loans are more or less tax favored in the repayment. I haven’t seen that argument in a long time and hope to never see it again.

Lou S: I am going to take an uninformed and unresearched shot at guessing that interest payments on the defaulted and taxed loan are “pre-tax” amounts, just as are regular plan loan interest payments, and also earnings on other after – tax amounts, such as voluntary contributions (excluding Roth).

And if the participant pays the loan, the plan will have to track basis. Wheeeee!

Plans do not run on undocumented intentions. You say there are no relevant documents submitted. What does the plan (and relevant participant documents, such as beneficiary designations) say about payment of benefits on the death of the participant, taking into account that the participant was subject to required distributions in 2023?

A 401(k) plan can be designed to allow investment in individual stocks. It depends on the product that the provider is offering. Plans with fewer assets and fewer participants tend to have fewer options and less flexibility because they cannot support the related greater administrative complexity and attention - or greed of the provider, depending on your point of view. This is a subject that an adviser should cover. The first questions should be about what you want or are trying to accomplish.