QDROphile

I was just curious about all the securities law violations that are occuring. There is also a way to avoid the question with properly crafted diversification terms, and having publicly traded stock helps. But I am going to be stinky and only offer that the plan seems to have a multiplicity of legal issues for which it needs some experienced and sophisticated professional help.

Is the stock publicly traded?

The employer is picking up expenses relating to some accounts and not others. That may well be impermissible depending on the expenses and the circumstances of the participants. For example, it is permissible for the employer to pick up expenses allocable to the accounts of employee participants, but not former employee participants. Also, the employer cannot pick up commissions.

Bird, your message looks exaclty like a bogus message!

The match essentially has a short plan year. Check the section 401(a) (17) regulations for details on prorating the compensation limit for the short period. It is relevant to match formulas that include some function of compensation, such as a limit on the match to a certain percentage of compensation.

Mistakes get corrected one way or another, usually the sooner the better but not always. True up is not a correction procedure. Existence or absence of true-up provisions does not speak to a mistaken excess contribution.

If you want $1000 pro rata from five accounts that have a total of $5000, you get 1/5 from each account. Account 1 has $1000. You get $200, which is 1/5 of the account. Account 2 has $2500. You get $500, which is 1/5 of the account. Account 3 has $250. You get $50, which is 1/5 of the account. Account 4 has $500. You get $100, which is 1/5 of the account. Account 5 has $750. You get $150, which is 1/5 of the account. If the account balances change, you still get your $1000 unless the sum of the account balances has dropped below $1000 when the accounts are charged. So if you want $1000 from the accounts and the total is $6000, you will get a different fraction of the acocunt (1/6) and a different dollar amount from each account, but the total for you will be $1000. If the total balance in the accounts is $1000, you get 100% of each account. I am not dealing with with liquid/illiquid or house vs. retirement plan. I am addressing from the point you know how much you want from the retirement plan. I assume that all the accounts are liquid. No comment on the reference to the 10 percent except that if I were trying to understand the big picture, I would ask more about that conclusion. I am not addressing issues if loans have been taken from the accounts.

Except for the fact that you are dealing with TIAA-CREF, where none of the laws or logic of human or nature apply, using your numbers (you are entitled to half of the total balance), you would get half of the banlance of each account.

What does the plan document say about how and when the the match is determined? In other words, how does the plan administrator know what the employer has determined the match rate to be, in its discretion? This is an interpretation problem for the plan administrator, assuming the the plan administrator has the usual authority to interpret the plan. Based solely on the facts that have been posted, it would be difficult to conclude that the rate is less than 100 percent, subject to the 3% cap.

How can the PLAN ADMINISTRATOR continue the periodic match if the EMPLOYER does not deliver funds periodically? The post identifies the plan administrator as the villain who is allocating periodic matches against the terms of the plan document and against the will of all the right thinking players. The plan administraor cannot allocate what the plan administrator does not receive. If the plan says that matches are annual and the employer does not want to contribute periodically (with a true up at year-end) then the employer should contribute only at year end. I suppose the plan administrator could allocate the contribution based on matches calculated per period, but what would the plan administrator do with the part of the contribution that is the true-up?

A plan can be amended prospectively by following the amendment procedures of the plan, making sure that no accrued benefits are reduced by the amendment. The amendment will do nothing to remedy failure of the plan to operate in accordance with its terms prior to the amendment. One cannot tell from your post if the plan failed to operate in accodance with its terms, but periodic matching contributions are often not in accordance with plan terms if the plan provides for matching on an annual basis. How can the plan administrator continue the periodic match if the employer does not deliver funds periodically?

Most references to "ESOP" mean a plan that is a qualified retirement plan, and your indirect description fits. Sometimes people use the term "ESOP" to mean something else. Contributions to a qualified retirement plan for your benefit and payment to you from a qualified retirement plan are not treated as wages for FICA (Social Security) purposes. Section 3121(a)(5)(A) of the Internal Revenue Code. The inclusion of the ESOP distributions in your income for income tax purposes is a matter separate from FICA taxation and Social Security payments. This goes beyond your question, but the elective deferral amounts under a 401(k) plan are included in wages for FICA purposes even though they are not included in income for income tax purposes in the year of the deferral.

It is purely an administrative issue. You do not have to accommodate, but someone else will be willing.

I think you should think more. The distribution is one thing, and the exemption applies to the extent the distribution is a prohibited transaction. The transaction that generates the cash is a different transaction; it does not involve the disqualified person and the same concerns attend for distributions to persons who are not disqualified persons.

The sale of shares by the plan to the company is a prohibited transaction and must find an exemption no matter who the distributee is. In other words, a contemporaneous valuation is required. If the ESOP holds cash and exchanges shares allocated to the participant for the cash in other accounts (if that is what you mean by liquidation within the plan), there is no prohibited transaction.

I think you may take some comfort from the application of of 457(b) to an "eligible deferred compensation plan" and the application of 457(f) to a plan that is not an eligible deferred compensation plan. Also, I think the regulations in question relate to eligible plans. Compare 1.457-11.

The answer may not be apparent in the 415 amendment because of the choice made about the option described in the 415 regulations. See other posts on the subject.

What aggregation rules are you concerned about?

The factual determinations in the arbitration may help. The use of informal correction is subject to a lot of judgment and not all errors are elgible, to the extent we have indefinite informal guidance from the IRS.

What is the "catch-all" exception? The plan has to follow the law or suffer the consequences. An arbitration can order an employer to do something, but it cannot change the the tax consequences of circumstances. In order to comply with the order, and employer might have to provide the economic equivalent of the impossible literal terms of the order and incur unanticipated (by the arbitration) cost to comply. The arbitration may have included some factual determinations that the employer could work with to give effect to salary reduction elections that are delivered after the beginning of the year and be tax-compliant.

The ESOP and the sponsor should get competent professional advice about options and requirements. Most people believe that intallment payments of the purchase price for shares under a statutory put option must be secured by tangible assets or thrid-party credit support.

Reg. section 1.415©-2©, Items not includible in compensation. Subparagrah (1). Depends on plan terms. Amounts paid after termination of employment are addressed separately under paragraph (e).

Given that the IRS has stated that 457(f) arrangements are subject to 409A and the the principles of 409A will be reflected in the 457 regulations, it is risky to use a coventant not to compete, not to mention scumbag behavior that that was part of the reason we got section 409A. But scumbags can probably still take some refuge in audit and policy roulette.

Or you can be part of the population that wants to engage in improper transactions, as the original post suggests.

First, this is a matter for the plan administrator, not the employer or sponsor. The employer might be the plan administrator if it is not well advised. Second, the agency order might be a domestic relations order, so it might need to be treated with the appropriate formalities, and the order might be revised to cover all the qualification requirements and be effective as a QDRO. Hint: The definition of domestic relations order is not limited to court orders. The agency might not be savvy enough to work with all of its available tools, but the plan had better be receptive to appropriate extraordinary approaches.