QDROphile

I would explore a bit what the particpant is "being told" just as I would explore the details of a lender's notice that a payment has been missed on the mortgage loan and the default makes the property is subject to foreclosure. Often such notices do not mean the action is imminent. I agree that the circumstances fall into the safe harbor category for reason for withdrawal.

Do you think that HSA contributions are "pre-tax deductions"? First, I never trust the term "pre-tax" because it does not have a precise meaning. But my notion of pre-tax deduction as commonly used is along the lines of elective deferrals under 401(k) and salary reduction under 125, not employer provision of nontaxable benefits under section 105 (except to the extent provided under 125). The auditor apparently believes that employer HSA contributions (not through section 125) are not W-2 compensation (do we all agree on that?) and not "pre-tax deductions". Hence my question, what is a "pre-tax deduction"?

See ERISA sections 201 and 4(b).

Put your reading glasses on again. If the plan terms follow the language of the statute, the participants will direct the trustee to vote only with respect to matters that are submitted to the trustee (as a shareholder) for a vote. If state law and the corporate documents allow voting by written consent and the non-ESOP shareholders have enough votes to carry the day without involving the ESOP, the ESOP's vote might not be solicited. If no vote by the ESOP, no instructions on how to vote by the participants. The corporate law side of the question is determinative unless the ESOP has some contractual right to vote even in circumstances that do not otherwise entitle the ESOP to vote. The contractual right could be in the plan document, but extraordinary shareholder rights are usually in a shareholder agreement. If the ESOP trustee is not included in the voting, the ESOP trustee had better know why and agree. Voting rights are assets of the ESOP and the trustee or other fiduciary is charged with managing them properly and in accordance with plan terms.

Shame on the plan's lawyer for many reasons, including being the architect and drafter of the domestic relations order (grade in fiduciary considerations: F)and apparently not giving any consideration to the issues behind blithely substituting the life of one survivor annuitant for another (grade in actuarial considerations: F). Grade in understanding the law in the applicable federal circuit at the time: F. I am a bit more sympathetic on the last point because I thought the Fourth and Fifth Circuits were wrong until the Ninth Circuit declared the winner between QDRO law and QJSA law.

Time to explain the facts of life to the participant. All of the expenses of maintining the plan will be borne by the plan and charged to participant accounts. Give the participant the numbers to do the math -- $$ of expenses, one account. And wouldn't it be a good idea to have an audit of the plan each year just to make sure everything was being managed properly? Maybe an institutional trustee and fiduciary would be a good idea since the sponsor really wants to have as much distance from the plan as possible. A more compassionate approach would be to transfer the benefit to another plan maintained by the employer, but still charge the account for identifiable expenses that go with the greate complexity of maintaining the acount in a different environment. You did not say there is another plan.

I would really love to know what the thinking is behind the proposition. I can clearly understand many points that got no thought -- primarily the point correctly made by 401king. However, the match is not a solution, even if the plan is a safe design plan harbor plan. Safe harbor design plans are also the product of not enough thought, both in the option itself and in the adoption by the plan sponsor. However, adoption of the safe harbor design is not as cynical as the proposition about modification of compensation.

In other words, there are no 457(b) plan funds to invest. It is the employer's money to do with as the employer is allowed.

Assuming the plan is not an ESOP, the lump sum status is probably a red herring. You should be more interested if a distribution is an eligible rollver distribution. The law about rollovers has changed from focus on the lump sum concept. The plan should be concerned about refusing to distribute when a participant is entitled. Appropriate plan terms might help, but they would be unusual and they would probably not work for someone who is past retirement age.

The plan may need to be amended depending on what it says about investments. A plan must be operated in accordance with its terms.

Failure to comply with the rules has the prescribed consequences without regard to fault If relief is not available under EPCRS undre the circumstances, the participant will suffer the tax consequences. It would be appropriate to consider some mitigation by the employer if there is employer fault.

You might start by figuring out how you would explain that there is no prohibited transaction under sections 4975©(1)(D),(E), or (F). I am not saying that there are no legitimate explanations, but personal co-investing with your retirement plan is very touchy, keeping in mind the words "direct or indirect" and that a benefit or interest can be tangible or intangible (at least according to the Department of Labor). There are other issues with real estate investments discussed in many past posts.

See Treas. Reg. section 1.403(b)-5.

Good luck. You did not provide details, but it is entirely possible that the arrangement is not qualified and who better than lawyers to appreciate the reality. The other reality is what you have observed. There is no bright line and the IRS has let the grouping issue get away from them completley to the point of tolerance of just aobut anything. Adding the abuse that goes with partnership accounting does not seem to inspire the IRS to climb out of its hole. Despite no bright line, at some point the arrangement, and how it is conducted, can't stand up to challenge, but there is so much potential factual nuance against a background of IRS abdication that it is unlikely that the IRS will try to enforce unless it encounters egregious behavior. Someone has suggested that law firms are the biggest abusers (some very prominent names are on the list) and the IRS would like easier prey. It will probably take significant law reform to address the abuse. That is how we got 409A.

It might be instructive to see what EPCRS says about 403(b) plans and 401(a)(9) violations, if anything. I think that, at a minimum, the employer is responsible for certain formal requirements. That means that the plan document or the contracts that serve the plan must have 401(a)(9) language of some sort in them. If the language is not included, the arrangment fails to be covered by 403(b). It is logically plausible that it is the particpant's responsibility to comply in operation with the language and the employer has no responsibility for actual distributions because of the ability of the participant to aggregate contracts and choose the source of the distribution.

Offhand, only regs 1.403(b)-3(a) and -6(e) and the focus is on the contract meeting requirements. Does that refer to formal requirements rather than operational? Employers are specifically mentioned only in -6(3)(3), but are responsible for the plan's compliance with 403(b), whatever that may mean. It seems that at a minimum the employer has to assure that the contract/plan has some appropriate words in it for 401(a)(9), but we have no specific guidance concerning appropriate words. The newly revamped IRS website for 403(b) does not highlight 401(a)(9) complaince. I don't know what the LRMs for 403(b) plans say on the subject.

I think that best practice is for the employer to oversee the required distributions with respect to its plan. I think the employer properly discharges its responsibility if it receives a representation from the particpant that the participant is receiving a distribution from another contract and specifies a distribution amount that is greater than the required distribution amount that is calculated with respect to the plan account balances. One can argue what the 403(b) regs require by way of determination that the "contract" meet the 401(a)(9) requirements.

The employer is responsible and the subject should be covered by the information sharing agreements so the employer is able to manage its responsibility. The employer can can hire a manager, and the manager can be one of the annuity providers, but I have never seen that work out in practice.

Wouldn't it be nice if the plan document had adequate provisions to cover the situation and answer the question? Next time you are in the market, take a look at the USERRA provisions and then ask how much more you will have to pay to learn how to adminster in accordance with the law. Add that to the price of the free document. The United States is almost always at war, and USERRA covers almost all military absence, so anticipate some need. The plan should cover imputed service and imputed compensation. The post is unclear if the plan has a 401(k) feature. If it does, the plan has to provide deferral opportunity with respect to the military leave.

What does your contract make you responsible for? If your engegement includes assistance with the Form 5500 and you become aware that something is inaccurate, at a minimum you need to report the inaccuracy to the person responsible. Even if Form 5500 is outside of your engagement, a word to responsible person is a good professional courtesy, but don't make it your responsibility by how you report. An an auditor might pass on the net of zero between the two years, but it does not mean that everything is square on taxes.

What kind of plans are you talking about? This issue can be dealt with by an understanding of the rules and appropriate plan terms and communications to participants. Those elements are missing from the mass produced documents and asset based marketing practices that prevail today. You might better argue that the rules should be changed to accommodate the market realities. The potential abuses pale by comparison to what is now passes for legitimate plan design, so removing the complexities would not do great harm.

I think one can say that there is a substantial risk that there will be no change in control in the next three years (depending on the circumstances, fo course). I think it is tougher to say that there will not be a change of control or dissolution in 20 years. A family-owned business might have that stability. An early stage tech company will not.

One way to look at the arranangement is that the compensation is subject to a substantial risk of forfeiture. That means it is not deferred compensation. The employer can accelerate the vesting at will (the employer has chosen to state a limitation on that ability) and pay at vesting. That puts a lot of pressure on the change of control as a substantial risk of forfeiture. I would not accept an unlimited time frame for the vesting event.

Principle #2: The record keeper is not the boss unless the record keepr is a fiduciary (ask and watch the backpedaling). The determination of eligiblity is a fiduciary matter and the fiduciary must act in the interests of the participant, which may mean no arbitrary restrictions, but reasonable administrative standards are also permitted. If there are administrative restrictions, they should be described in the SPD. Better to have them in the plan document to take pressure off the fiduciary.

The design is not compelled by law, but such designs can serve well. Without more details, the purpose and benefits can't be evaluated. It is posssible that the design has become corrupted or no longer serves its purpose, or the desire behind the design has changed.