QDROphile

Please explain why the loan was not treated as an offset distribution after termination of employment.

You need to get back to basics to figure out what to do. The status change rules under section 125 address situations that allow an employee to change a salary reduction election, which is otherwise irrevocable for the year. The plan rules often coordinate with the health plan coverage rules, but the concern is the covereage rules. Take a look at what is changing and what is not. A change in ultimate income tax effect is not necessarily something that concerns the section 125 rules or plan coverage rules.

Reporting violations do not affect plan qualification. They are not covered by EPCRS.

One would need more information about the desgin of the plan relating to investments, investment authority, expense policies, accounts, and participant interests.

If the Code is clear, what has "someone" offered as an explanation for the assertion that causes you to be concerned?

The exemption from the ERISA pension plan requirements is not directly related to section 409A. The first concern is violation of ERISA. If the plan is an ERISA pension plan and not exempt, then the things that must be done to comply with ERISA, such as funding and maintaining a trust, would be incompatible with section 409A requirements. If you can live with the ERISA noncompliance, section 409A does not care who is covered.

Are you asking whether or not it is legal to quietly dispose of a plan document that has been adopted as if it had never existed?

I concur, but I can imagine circumstances for an excpetion.

My experience with regulators is that they are predisposed to challenge not counting, and only wonder about counting when the circumstances are unusual and favor HCES or structurally favor HCEs. The counting rules tend to be liberal in favor of counting. It is safe to interpret them liberally. If an employer is holding out a benefit and wants to provide the benefits to regular employees, including part-time employees, , I am in favor of it for philosophical and policy reasons. I see no risk in edging toward overcounting (except in unusual or obviously improper circumstnaces) and I see both legal risk and employment negatives in trying too hard to achieve a close shave. If the employer wants to count, that seals it for me. If you want to show you are an alert and competent professional, by all means confirm the employer's desire along with the advice that another outcome may be possible.

ERISA Opinion Letter 78-27A says that paying for health benefits during a period when no services are performed does not require hours to be credited. That is based on a specific provision in the section 2530.200(b) regulations. The opinion says that payment of life insurance premiums (not subject to the expess provision of the regulations) during the period demonstrates payment for hours not worked. If the employee can elect payment over the 10 months, that helps avoid the vacation pay conclusion, especially if there are no entanglements other than health benefits. One can argue that the 12 month option is a payroll courtesy rather than reflecting right to payment. I am uncomfortable with aggressive interpretations about not counting service. The service counting rules tend to be liberal. I would not be stingy unless it is very important to the institution and the institution can tolerate some risk.

Bypassing the dodge without further comment, I think you can justify not counting based on the definition of hours directly or indirectly paid, whether or not worked, if the 12 month payment is inviolable, even for someone who is certain not to work in the summer and certain not to return in the fall, i.e. the work period is really 10 months and the pay period is really 12 months and the summer is really irrelevant. But you might see about testing the premise. If the summer is paid time off, then I think you count the hours. What other compensation covers the summer months? How about health insurance? Is there a cafeteria plan? If you have other compensation running on a 12 month period and it would stop if the person were considered terminated, then I think the summer hours should be counted. I would look also to the regular faculty employees for any patterns or principles, especially if the part-timers are regular, but part-time. This is a 403(b) hot button The IRS currently has a fishing project going with academic institutions, so you know it is getting attention in addition to the universal availability rule.

How are hours counted? Do the employees punch a clock or submit time sheets? Or are they paid a salary that is based on the equivalent of 20 hours at particular rate? I would not play fast and loose with the actual hours standard if the payroll system does not really count hours. The resolution of the counting question may avoid any need to get into the school year/calendar year conventions for academic pay.

It probably is the larger conceptual problem. But if you analyze transactions from the larger conceptual problem perspective, then you may have prohibited trasactions. That is the genesis of the question. If one wants to get at the root of the problem, then the direction by the participant to have the plan "contribute" to the church is a prohibited transaction (at least for tax code purposes) rather than misguided navigation of plan terms and procedures. I am not so sure about exclusive benefit violations.

If one accepts that the payment is treated, as a first step, as a distribution to the participant, I don't see any violation of the exclusive benefit rule and I don't see any transaction or self-dealing that would be a prohibited transaction. A participant can do whatever the participant desires with a distribution as far as those rules are concerned. So much the better that the participant was eligible for distribution. That may counter the statemnt about the error being egregious. I still expect that the distribution procedures were not properly followed.

I agree that the crux of the language in 1.401(k)-1(b)(4)(iv) is the word "eligible" (two occurrences), which suggests that there can be another criterion for eligibility besides year of service or other statutory exclusion, but I am very nervous about that as the foundation for a design that allows all class A employees to participate in elective deferrals and safe harbor contributions immediately, but allows no class B employees to participate in elective deferrals (or safe harbor contributions) until after a year of service. Section 1.401(k)-1(b)(4)(i) tells us that 1.401(k)-1(b)(4)(iv) is the sole rule for disaggregation for ADP testing, and 1.401(k)-1(b)(4)(iv) lists only certain bases for disaggregation. The exclusion based on year of service is on the list. A distinction between class A and class B is not on the list. If class A employees without a year of service can elect deferrals, the class A employees cannot be disaggregated for ADP testing from the class B employees without a year of service. If the classes cannot be disaggregated, then if one class gets a safe harbor contribution, the other must. That makes no sense if one class can elect deferrals and the other can't. I know we can't have examples in the regulations for every imginable scenario, but when a regulation is, by its terms, exclusive, then one wants to find the fit somewhere in the regulation.

A loan cannot remain outstanding in the hands of the borrower. The loan ceases to exist by operation of law. The IRS overlooked this legal nicety in the rules about loan rollovers, but it was a very practical error that no one will challenge. A loan that rests with the borrower is another matter.

The "contribution" should probably be treated as (a) a distribution to the participant, and (b) a contribution by the participant to the church. The plan does not care about part (b). The distribution is improper under plan terms (at least with repect to the distribution procedures) and is subject to correction or plan disqualification. Correction should be under VCP because the actions were egregious.

A combination of 1.401(k)-3(h)(3), 1.401(k)-2(a)(1)(iii), and 1.401(k)-1(b)(4)(iv) and (vi) Example 2. I find no direct statement for my conclusion. I am omitting consideration of separate groups of collective bargaining employees and SLOBs.

Kevin C: Can you confirm that the eligibility that you describe can be used for an ADP safe harbor plan? The design is one that the IRS has approved as a failsafe in controversies over section 410(a) compliance, but I cannot conclude that it works for a safe harbor design. I think if you exclude anyone from elective deferrals based on a year of service, you have to exclude everyone.

I will leave you in the good hands of your lawyer.

Private loans amount to paying with fire. You should not proceed unless you are confident that you understand the applicable rules and potential consequences. For example, what will happen loan payments are not made on time? Then what happens if loan payments are not made on time and there is a need to value the loan? Exotic investments need sophisticated technical support and you cannot rely on the internet promoters of exotic investments.

Where in the plan does it ever provide for a stream of payments to continue to the payee's estate after the payee's death? If you can't find that, then a domestic relations order is not qualified if it requires the plan to pay the alternate payee's estate after the alternate payee's death. Even if you find such a provision, it does not mean that the order would qualify. An alternate payee is generally treated as a beneficiary. Does the plan provide for payments to a beneficiary to continue to the the beneficiary's estate after the beneficiary dies? In any event someone should fix the written QDRO procedures. Competent QDRO procedures will cover what happens if the participant dies or if the alternate payee dies when payments in a stream of payments are divided. I would also check to see if the plan allows the "shared payments" that you describe. Never mind the death question. Shared payments should be allowed only under limited circumstances, although that can be a matter of judgment.

A well-advised plan administrator of a well-designed plan would not allow payments to continue in respect of the alternate payee after the alternate payee's death. Among other more practical reasons, it dodges the legal question you posed.

Benefits subject to ERISA are listed at section 3(1) of ERISA. While many important benefits are listed, the list is limited. Long term care usually provides medical, sickness or disability benefits, all on the list.

How about where the TPA gets its authority? I am sure that they will be pleased to display and share their erudition, or you will be pleased to see them fall on their faces.