QDROphile

It is a judgement call. The evidence goes both ways, but I am troubled by the change in story. If he had elected $5000 (which would have been caught becuase it exceeds the limit, but it is an illustration) and said he wanted $500 again, I would be inclined to go for it. At this point, I am suspicious that he may have had some big expense in mind but backed off. I am not convinced. Arguing ADHD does nothing for me, but I don't know ADHD. What is your plan year? If it is late in the plan year, so much the worse for him.

Kudos to you for appropriate fiduciary concerns and caring in general. Sympathies, too. I am not optimistic that you will get much relief from the sources. For what it is worth, some courts have observed that it is nigh impossible to achieve both (i) complete and accurate description, and (ii) easy comprehension, of complex plan arrangements. But don't let that distract you from your quest.

You might be able to have one staple but you would still have two plans of different character.

There are other discussions of this phenomenon on the Boards. There are theories that support return of the funds; some theories denpend on specific circumstances. There are suggestions about more savvy ways to avoid the problem from recurring. Savvy is a good quality in plan administration just as it is for participants. One way to make the uncertainty of closing less problematic is to deliver the funds to the escrow agent, with appropriate instructions. If the cloaing fails, it is much more comfortable for the plan to take funds back and take the position that funds were not distributed.

The safe harbor for compliance with catch-up contribution availability requirments is 75%.

I agree that you can get to the hierarchy result by interpretation of plan terms. It would be a good idea to have the interpretation memorialized an maintained in administrative records.

You also have to take into account employee share of benefit costs, whether or not delivered through a section 125 plan, and there are all sorts of state and local payroll taxes that can come into play. One approach is to establish a hierarchy of amounts that are charged to compensation (whether or not compensation is reduced for income tax purposes by an amount), and the elective deferrals are probably last on the list.

The participant's claim for benefits is not a challeng to the amount of child support. The participant's claim is that his benefits have not been correctly determined because of some mistake in interpretation, qualification or application of the domestic relations orders. A plan administrator should not be checking with a state court about status or substance of orders. Once that happens, the administrator is not going to be able to draw appropriate lines around the plan's responsibilities and duties. I do not think this matter is an exception. Just as the claim is a device for delay to allow a legitimate challenge to the state court procedural matters, the processing of the 5th domestic relations order is a device for delay to get questionable matters resolved within a reasonable time frame and the applicable standards. Especially for a DB plan, one would expect, or at least consider, that all of the QDROs must be taken together to determine the correct effect on the alternate payee's benefit and the participant's benefit. Once a benefit goes into pay status, it is not usually modifiable. It is very difficult to get at what is going on with the orders and the plan apart from the participant's assertion, but I would take a closer look at some of the basics of QDRO administration in what is a complex situation even without the particpant's claim. To put it in very blunt and direct terms, the plan needs an excuse to give the particpant a reasonable time to get the state court to do something to put the brakes on the effectiveness of the court orders. If the plan is lucky, the court will suspend the orders while the participant pursues his issues with the state court, and some clarifying order will eventually be issued. If the particpant fails to get some sort of immeditate suspension, which is likely, then the plan will have to examine its own behavior in the process, which won't be comfortable. For example, I am still stuck on how the plan now thinks the address for the participant was obsolete and yet got no indication of failure to deliver multiple notices about the QDROs. Plus the plan will have to rethink its interpretation of the orders and its determination that the orders were, in fact, domestic relations orders. For example, were all of the orders certified as correct copies by the court clerk (a filing stamp does not count!)? A final oservation: What do you think a deadbeat dad is really going to do by way of going into court on the subject of overdue child support?

The participant should be given a reasonable time to assert a claim for benefits and that should be done under the plan's claims procedures. If the participant can get orders from the state court to the effect that the orginal QDRO's are stayed until resolution, that will give the participant more time; the consideration of the claim can be affected at least to some degree by the procedural posture of the state proceeding. The claims procedures are not for the purpose of arguing the substance of the orders; the claims procedures are part of the fiduciary duty to assure proper payment of benefits. If the participant cannot get the state court to hold the orignal orders in abeyance while the state court considers the state law aspects of the claim, the plan should proceed with distribution in accordance with the claims procedures. The plan will want to examine its records concerning notice of qualification. It sounds odd that the address would be seriously obsolete and yet there are repeated failures to be notified that the notice was undelivered. The speed of processing the fifth order can also affect the timing of all the payments. The considerations will also be affected by the plan's policies about revising benefits after the start of payment -- the plan could make payments pending resolution of the stat court issues and then revise benefits later in accourdance with the resoultions, but that will involve some very serious and complex decisions.

Please explain how the Trust does not hold all the money. Even if accounts are managed by a financial advisor, the arrangement should at least be a custodial arrangement with the trustee, and it is an invitation to trouble even to have custodial arrangements where transactions are not run through the trustee.

Depends on the terms and circumstances. But even if it fails as a QDRO, it might be permissible under other federal law. Search for some posts by mbozek, aka mjb, about 42 USC 666 and related state laws.

If you argue that it prevents eviction, would you require some sort of contractual arrangement that gives the participant the right to live in the house? Normally the prevention of eviction is solved by money becuase of the contractual relations that center on money. But if this person is not paying rent, the person probably has no right to the housing -- Mom could evict and money would have nothing to do with it. If the participant is preventing eviction with the hardship money, shouldn't there be some assurance that the payment will protect the ability to remain in the house to the extent the house is kept out of foreclosure? An how far and long would that right extend?

Is it reasonable to assume that the tax foreclosure will lead to eviction?

See Treas. Reg. section 1.411(a)-11(e) and work backwards.

It may be a bit old fashioned to deliver stock certificates but it is really the most tangible way of transferring assets in kind. The certificate should have included an assignment or transfer power. The trustee can hold the certificate after transfer of title on the book of the company (deal with the trnasfer agent) or arrange for custody in electronic form, perhaps with a depositary arrangement. If you rearrange via selling and repurchasing, you may incur unnecessary transaction costs and that has fiduciary implications. Maybe you are not in a position to accept in-kind rollovers. If not, do not accept the rollover of the shares. Better to stick with your policy than botch the transfer and custody.

bobolink: A registration violation gives the investor (plan participant) rescission rights. I have always given up on figuring out the consequences of implementing a rescission, but one of them appears to be disqualification of the plan.

At least 30 days before the distribution, your spouse will receive information about the tax effects of the distribution. Or you can look at IRS Notice 2009-68 to pick up the information in generic form. You will have to get information about basis of the stock to be able to evaluate the option that allows some of the distribution to be taxed at captial gains rates, if a stock distribution option is availabe.

Your thinking, in the abstract, is correct. Next you apply the thinking to determine what the alternate payee will get. Since this is a common situation, the plan's written QDRO procedures should provide the details, including that the division of benefits will take into account the loan balance unless the order otherwise provides. The QDRO procedures should also say that the alternate payee's award will be satisfied out of assets other than the loan. If you get any complaints that inclusion of the loan was not intended, then the shame is on the complainer for not reading the QDRO procedures and you will have no qualms about any need for the draft to be rewritten or the order to be amended, whichever applies. The response from the plan should state that the calculaton of the alternate payee's benefit includes the loan, but the alternate payee has no interest in the loan.

Although nonelective contributions are not subject to the same rules for in-sevice distributions as elective deferrals, when it comes to hardship as a reason to allow the distribution most plans still apply the 401(k) standards because of greater comfort that the 401(k) standards will comply. The other rules are not as precise, so borrowing from 401(k) feels better and administrators are more used to applying the 401(k) rules. Some nonelective contributions are subject to some of the restrictions that apply to 401(k) deferrals.

The document can be written to avoid the 6 month suspension if the adminisrator does not rely on the 6 month supension for a distribution to be deemed as necessary to satisfy the immediate and heavy financial need. The adminstrator is required to determine that alternate resources are not available to the participant. Treas. Reg. section 1.401(k)-1(d)(iv)© is available to the administrator. The determination about the car being an immediate and heavy financial need is another subject and a different safe harbor is involved in the determination.

See Rev. Proc. 2008-50.

Government 401(a) retirement plans are not subject to discrimination rules of the sort cross testing addresses unless applicable state law or plan terms provide otherwise.

The plan still needs a value of the assets for reporting the distribution even if the distribution is rolled over directly. But one might apply the two part test to decide what standard to use for the valuation.

The plan will need an appraisal for determining the amount for reporting and calculating the wihholding. There are IRA providers out there who will hold LLC interests for a price. The Dr. sounds like someone who doesn't like price.

That does not mean that the plan is not required to file under VCP with respect to the retroactive amendment. The requirement for application for a determination letter is a separate requirement that applies to some, but not all VCP filings.