QDROphile

First thought: What legitimate purpose or interest of the plan is served by such a policy? Given my inability to come up with a legitimate purpose or interest of the plan, my second thought is that absence of any statutory or regulatory authority specifically on the subject suggests that the policy it not permissible. I would look at section 414(p)(3)(A) and wonder how the order could fail to qualify if the plan allowed pre-termination/age 50 distributions to spouse alternate payees. Finally, I can imagine some illegitimate purposes that the policy would serve.

An IRS agent is likely to look at this as a disqualifying distribution rather than a good faith loan gone into default.

"If a participant comes to the plan sponsor (plan administrator) requesting a distribution, files the necessary paperwork, and receives the distribution, but the plan sponsor (plan administrator) later receives a QDRO notification, does the plan sponsor have any liability for allowing that distribution?" -Not unless the plan administrator has gone the extra distance to create unnecessary obligations and included them in QDRO procedures. "What if the plan sponsor routinely asks participants upon requesting a distribution whether they are married or not and the participant lies to them and says "no"?" -Same answer, but a plan administrator that asks the question without having a plan purpose other than QDRO concerns is on its way to creating unnecessary obligations. You start with the terms of the statute (both ERISA and the tax code) that speak only to what happens if a plan receives a domestic relations order. Then you disregard the completely unsupported (in fact, contradicted by a federal court decision)informal statements of the Department of Labor concerning what the plan administrator knows or should know about whether or not the plan might ever receive a domestic relations order. You probably will not find any authority that states the conclusion as directly as you might wish.

Rollover of loans is within the general direct rollover rules and a very practical acknowledged legal blind spot of the IRS. The IRS may not acknowledge the blind spot, but it has articulated its acceptance of direct rollovers of loans. The 401(k) plan has to be willing to distribute the loan in kind and the 403(b) loan must be willing to accept the loan. Neither of those two necessary elements are cumpulsory, and best practice is to have express plan terms. There are ancillary details that a receiving plan would like to think through and establish conditions before accepting direct rollovers of loans.

Generally no. If the request is in aid of submitting a claim (e.g. miscalculation of benefits), then the plan document should be given. Requests for plan documents can get tricky. Because of potential statutory penalties, the request should be refused only if it matters for some reason. The plan sponsor generally has nothing to do with providing copies of plan document to participants. That is a function of the plan administrator.

If the circumstances are not covered by plan terms, then a written interpretation or polciy should be adopted to describe handling. It would also be a good idea to have a description in the SPD or an SMM that is given to particpants in arrangements that provide for compensation that is not cash compensation. John might be put in a bind or might otherwise be unhappy about a short pay check. A more active approach would be direct contact in advance, with enough time for a change of election.

If there is an ability to pay the loan without compenstion from the employer during the leave, then the loan payments should not be suspended during the leave of absence. That will be the proof of the assertion.

The plan's written QDRO procedures should provide that the plan has no obligation to recognize anything, or take action with respect to anything, other than a domestic relations order. If the plan receives a domestic relations order, then the QDRO procedures should provide guidance about what to do. The Department of Labor's informal position about some vague obligation if the plan "knows" something about a domestic relations proceeding (past, present, or imminent) is not supported by law. If the plan has received the separation agreement, the plan must determine if it is a domestic relations order. If it is a domestic relations order, the the order should be processed in accordance with the QDRO procedures. If the plan adminstrator is in some dilemma becuase of inadequate QDRO procedures, this would be a propitious time to rectify.

The plan should have terms to the effect that the plan must determine that the loan is expected to be paid before making a loan. Usually that is an easy determination because the plan will require the loan to be paid through payroll deduction. The determination is not so easy when the employees is on leave and there is no pay to serive the loan debt. That could be the basis for a policy or a conclusion that a particant cannot take a loan while on leave.

I do not see anything in the definitions of party in interest or disqualifed person that says a participant is one by virtue of being a participant.

The difference between ERISA and the tax code is not about participants, it is about employees. Compare ERISA section 3(14)(H) and Code section 4975(e)(2)(H), so maybe the ASPPA piece is not so much an authority on this question. Also, ERISA says says that a participant who directs investment of the participant's account is not a fidiciary (for that reason); the Code says otherwise.

I agree that a plan may allocate expenses relating to a particular account to that account and perhaps should allocate that way. I am unaware of any authority that compels precise allocation to the source of the expense. In fact, many plans do not allocate administrative charges for QDROs to the account of the participant/alternate payee, and the employer does not necessarily cover the expense either. Is there authority to the effect that that QDRO expenses cannot be allocated as a general expense, and thus effectively be borne by all particpants?

Plan incurs $600 of legal or actuarial expense in interpreting and processing the order to determine qualification and the alternate payee's benefit. Must the plan charge the participant/alternate payee anything other than a prorata share of the $600 as a general administrative expense that is shared with all other accounts in the plan? Assume that all QDRO administrative expenses are treated the same. No participant/alternate payee is charged the entire $600 (or the actual expense, whatever it is). If the plan has a fixed fee of $500 for processing that is charged to the participant/alternate payee account, can the plan charge all accounts the additional $100 as a general administrative expense as described above?

How are you going to make the market? Who gets to sell and who gets to buy and at what price? Your question implies that participants make both buy and sell decisions.

"One thing that needs to be recognized is that plan must be made whole for value of services performed by TPA/attorneys in determining the QDRO valuation." Please elucidate. Are you saying that out-of-pocket expenses relating to QDRO administration cannot be included in the general expenses of plan administration and allocated across all accounts the same as, for example, auditor's fees?

Custody, liquidity, valuation, liquidation/distribution, possible prohibited transactions, UBTI (especially for an operating company), fiduciary issues because of the ERISA plan asset rules (for an investment vehicle). All of those concerns are manageable if considered and addressed. For example, the valuation concern may have been adequately addressed, at least for the present. Things change with these investments, especially if they are not successful. As a very general matter of prudence, an investment that is illiquid should not represent a very large portion of the plan assets.

Shame on whoever decided to get involved with ADP. It does not seem like such a smart, money-saving move now, does it? The plan is in for more unforeseen trouble in the future if the butterfly ever flaps its wings. Of couse there was no need to create a new plan. You might try to resolve the matter by addressing it as the documentation mistake that it was rather than a failure to file, as long as the problem is limited to the document formalities and did not adversely affect operations. One problem will be ADP. They will not be either helpful or accommodating if my several experiences with ADP hold true. Consider using the clean up of this mess as an opportunity to move to some other provider at the same time as part of the clean up.

This is a fiduciary issue. Who is the fiduciary? If the individual is the trustee with investment authority, what are you asking (or perhaps, why are you asking)? Does the individual need educaton about ERISA fiduciary standards to supplement his vast financial and investment knpowledge? The question about change to participant direction could be handled as a corporate function by plan amendment.

The written materials for the 9/7 program were delivered to registrants. There is a lag before the materials and program transcript are posted on the IRSS website.

Does the plan specify that the distribution must be in cash, or are in-kind distribution allowed? A loan rollover is an in-kind distribution. Sometimes you can finesse with the definition of eligible rollover distribution, which tends to be generic and the plan will expressly provide for direct rollovers of eligible rollover distributions. P.S. Or amend the plan.

In a public IRS telephone conference today on the subject of plan corrections the IRS made it very clear that its position is that the cure of the defect must be completed within the 5-year amortization limit to avoid taxation, and the 5-year clock starts at the time of the plan loan. The written materials are typically available on the IRS websie. The written materials state the IRS position, and the oral presentation removed any doubt about interpretation of the written material (i.e. "cure" means that all of the loan payments, as revised to correct missed payments, must be made within the original 5-year term.

Any election that offers the choice of cash or a contribution is a CODA. The amount elected as a contribution will be counted under the section 402(g) limit. Making it an all-or-nothing choice does not change the application of the rule.

An election to defer an amount from the profit sharing payment (instead of receiving the entire payment) will count against the inidvidual's section 402(g) elective deferral limit and the amount will be an annual addition under section 415.

"I'm still not sure that your use of the term "profit sharing plan" is correct. It sounds more like a bonus plan where people receive certain amounts and those amounts are taxable income. Am I correct?" Restart the conversation here. Don't get distracted by one-time election provisions. The original post created so much confusion that the responses have geneally been unhelpful. Provide details to describe the "profit sharing plan." It sounds to me like a bonus plan and you have a garden variety deferral question.

How has the DOL expressed its thought that investment education should be provided? All I remember is a preamble that very clearly stated that investment education was not required.