QDROphile

Ask the ESOP fiduciary how it views being treated as a shareholder.

The executor stands in the shoes of the participant. The plan should respond to an inquiry from the executor as it would respond to a particpant whether or not the benefit is payable to the estate.

A governmental qualified plan is not subject to the discrimination rules, either.

Have you determined that FICA taxes were not paid as the benefit accrued? I suspect that most 457(b) plan designs call for FICA taxes to be paid as account balances accrue. Compliance is another matter.

I just got a stupid checklist comment from an IRS reviewer who requested that "retired" be substituted for "terminated employment." The client was willing to suffer fools, so I amended the terms, but I informed the IRS agent that the amendment also included a definition of "retirement" to mean "termination of employment after age 70 1/2" because the plan did not otherwise use the term and nothing in the law defined retirement despite the IRS having authority and many years to do so.

The six month suspension after a hardship distribution of elective deferral amounts is only a function of plan provisions (not law), so you can be confident that only plan terms would be the source of restrictions on account of other distributions.

Many plans stop installment payments after rehire. Subsequent distribution is treated as a new distribution election and is governed by general distribution provisions. Other plans continue installments and account separately for new accruals. Tom's message is a good reminder to consider section 72(t)(2)(A)(iv), but your facts involve section 72(t)(2)(A)(v).

Just for starters, at best you will have facts and circumstances sensitivity under section 4975©(1)(E) or (F).

I was just asking about what was at stake in the matter. You have seen examples on these Boards of serious battles over what is right or who is right, and that is all that mattered. Sometimes you need to know what is right because you are responsible for some sort of compliance or reporting, and not getting it right can have adverse personal consequences or liability. Sometimes you don't have direct personal consequences riding on what is right, but you don't want to be associated with something that is egregiously wrong. You think something is wrong and seem to care a lot when it does not look like you have any potential liability for following instructions based on the wrong position. I was hoping to learn if I was missing something about responsibiity for following instructions. For example, if you are a fiduciary, you usually cannot rely on instructions and have to be satisfied that you are taking reasonable actions. Or you might have responsibility for reporting and cannot take a postion that you do not believe is reasonable. Or you might be so digusted with your client (or afraid of its judgment and recklessness) that you are considering firing the client or putting the client at a greater distance. Also, I like to know what makes service providers tick, so I can either work with them better or fight with them better.

Are you asking for citations out of curiosity, concern for compliance with some rule applicable to you, or because you are the sheriff of something?

Mistaking tules for rools.

Who is advising the plan administrator about how to handle the situation?

Just the opposite. The court said the plan administrator had no business second guessing the bona fides of a state domestic relations proceeding. Years earlier, the Department of Labor reached a different conclusion about sham divorces in an advisory opinion.

Section 403(b)(12) brings in section 410(b) with respect to nonelective contributions.

Yes.

I assume that the poster is certain of facts and wants the optimal result, which could not be achieved by cycling the money via rollover. If you can get all the money back in the plan conventionally, then I agree that extraordinay actions should not be taken. You point out some of the questions that must be answered before taking the agressive approach. I agree that a change of mind will not justify the extraordinary action and the plan administrator has to be wary. I think the plan can accommodate remedial actions for a victim of fraud, even though the formalities of communication with the plan were conventional. If they don't have enough hair (or the right facts) to conclude it was fraud and take actions accordingly (including reporting the broker), then they should follow plan B and live with the outcome. People ask for ideas in this forum. The counterpoints provided by other members of the community provide balance and perspective, lest anyone think they are getting fully baked advice.

Kevin C's observations are a pointer to the probablility that the provision is not legitimate. You might consider that analysis as a way to eliminate the provision rather than treat it as subject to the protected benefit benefit rules. The suggestion is not for amateurs or the faint-hearted.

Reverse everthing to the extent funds are available. Do not recognize the legitimacy of what happened by taking any action (such as a subsequent rollover). Treat this as a correction, not as a plan B recovery. File amended reports and tax returns. Report the broker to the appropriate regulatory body.

The participant gets to include the amount distributed to the child AP in the participant's income. The after tax economics are not 50/50, and don't forget to take withholding into account. The withholding is credited to the participant.

Section 125 requires that salary reduction elections be determined before the coverage period, which appears to be June 1. The earlier deadline was probably determined based on administrative needs. The deadline may be included in plan terms. Exception to the deadline or change depends on policy and plan terms. "Corporate" is telling you that that "corporate" does not want to do what it needs to do to accommodate. The accommodation may involve formal requirements (such as plan amendment) and implications (such as opening the door to accommodate every flake in the company) that are not obvious to you. If "corporate" is the policy decision maker for administration and plan terms, then you cannot gainsay, whether or not you think "corporate" is being reasonable. You can try to change someone's mind.

If you think the beneficiary issue trumps the 401(a)(13) restrictions, then you might determine that the domestic relations order was not qualified because the order requires the plan to not provide an option that the plan is designed to provide. That does not really square with section 414(p)(3)(A), but who is going to press the plan? It is no skin off the participant as long as the the participant's remaining account is not involved, such as for security for the alternate payee's loan. You had better work out the loan details in advance because an alternate payee is not like other beneficiaires. The alternate payee's benefit is derivative of the participant's benefit and the participant is still around with full rights for part of the original benefit. That may be a problem or not. I do not think alternate payee benefits are separate from participant benefits, but you might be able to distinguish enough for purposes of the loan rules. What would you do if if a participant had a loan and the alternate payee was awarded part of the loan as part of the alternate payee's award? Think about the implications and how that might inform what you decide about alternate payee loans generally. I am not going to comment further on the point becuase it requires too much thinking. GMK might like the exercise.

It would be interesting if the plan document enumerated rights of an alternate payee, but I think such an attempt would be ill-advised. (I think extending loan rights is ill-advised in and of itself.) The plan would be interfering with the divorce court's authority and ability to assign property, including a dispostion that includes balancing various assets. Perhaps a loan right does not seem so offensive, but where do you stop? How about a plan that says that an alternate payee is entitled to half of the participant's benefit? Remember that this all starts with section 401(a) (13) that says no right or benefit can be assigned except though a domestic relations order that is qualified. Section 414(p) says what a domestic relations order must do (mostly formalities and clarity) and what the order may not do (require the plan to do anything the plan does not otherwise do) to be qualified. My perspective stems in part from the premise that a plan would want to do anything for an alternate payee because of the needless administrative burden. Loans are terrible enough if you can get them paid through payroll deduction. For defined contribution plans other than ESOPs, the various interests are best reconciled by allowing alternate payees to receive payment immediately. Any extraordinary benefits from staying in the plan are generally not desired by alternate payees -- most take distributions ASAP -- and they are privileges that the alternate payee did not have before the divorce, as you observed. I am not arguing against tax deferral or investment elements of staying in the plan. You get credit for asking if the emperor has any clothes, but I think you are looking through the wrong end of the telescope, aided by a questionable plan design. If my take on QDROs is too superficial, I propose that it is an appropriate reaction to a bad plan feature and an antidote to an inappropriate extension of implications of a bad plan feature.

Where does an alternate payee first get any rights that might be said to be taken away?

But seriously, you need to recognize that the employee coverage is not part of the cafeteria plan. Only the part that that involves a choice between a nontaxable benefit and the cash is subject to section 125 and its discrimination rules. It would be difficult to make sense of the arrangement if the employee coverage is not mentioned in documents, and the employee coverage is a health plan that needs documentation. How you configure the documents does not change the substance or character of the benefits. A well-drafted document will make the proper distinctions.

The baseball reference would be strucknine.