QDROphile

The cited case says the the tax code is independent of ERISA and it means what it says. There is no parallel provision in the tax code that says participants are not fiduciaries and even the ERISA section 404 regulations warn that the protections of the regulation do not insulate from consequences under the tax code.

Have you considered prohibited transactions?

Yes. Once the plan transaction (stock purchase) is completed, an independent subsequent personal investment should not cause either transaction to be prohibited. I think it is too much of a stretch to say that the second transaction is self-dealing with respect to plan assets. If one wanted to stretch, the subsequent loan has certain attributes of a disguised contribution, but that is not a PT question.

The (non)fiduciary status of a participant under ERISA does not take care of concerns under the prohibited transaction rules of the tax code. A participant is a fiduciary if the participant controls the investment of a plan asset. That difference does not cause me to reach a different conclusion in every scenario, but I think the package deal is prohibited under section 4975.

The exemption from the trust requirements with respect to "employee contributions" under section 125 is very narrow and most arrangements that I have encountered do not comply with the very narrow exemption even though the arrangers think they do. Department of Labor is not very interested in enforcing its rules, probably for practical reasons, so noncompliant arrangements are the rule. To expand upon the description of a trust if the trust requirments apply (and they probably do), the trust must have identity separate from the employer. It will typically have a separate tax identification number. It will have a trustee who is eligible to be a trustee under state law. That means that the employer usually will not be able to be the trustee unless the employer is an individual.

You wriote: "The Governement is not going to sue the government" is the standard response I am receiving. The standard response is a bit shallow. A government plan is not covered by ERISA so the U.S. Department of Labor is not involved in enforcement of ERISA requirements. However, fidudciary duty is what is owed by fiduciaries to the plan participants, not to the government. Even if no government enforcement agency is going to take action on behalf of participants, participants can still protect their interests. The fiduciary standards will be found in state statutory law and common law. The standards and the consequneces of breach may be a bit more difficult to determine without the nice ERISA package at the doorstep, but it is mistaken to think that there are no standards or consequences.

Good information. Attila the Hun, then. Lots of peaolple have the same middle name as Andy, and it's no secret (which comes from another song).

But you posted your middle name for all to see. You have the same middle name as Smokey the Bear.

Time of benefit payment is protected. The amendment could cause some particpants to be paid involuntarily earlier than the current terms. I used to think the age 70 1/2 rules were statutory requirements, not "benefits" of plan design. We learned that the IRS thinks otherwise some years ago when the rules were changed. The IRS gave some transition rules to provide some practical relief.

Elephant in the room. But most people don't recognize the elephant. If the elephant is pointed out to them, they still don't want to discuss it. If we had real enforcement, even the protoype junkies would be in trouble. But everone is relatively safe as long as everyone is relatively happy.

The tax notice that is given before the distribution election explains the rules, including what happens if the recipient does not give direct rollover instructions and then wants to roll over the entire distribution. The plan should say no more.

No 401(k) unless you can find a grandfathered government plan to tap into. 403(b) for school employees only. Look into a 457(b) plan as the government equivalent of a 401(k) plan.

Withdrawing amounts from an IRA to pay a settlement on behalf of the IRA (or paying a settlement of the owner's liability) and having the IRA pay a settlement are two different matters. Withdrawal from an IRA does not raise prohibited transaction concerns. While I am curious about how the IRA ends up as a defendant, it is possible. And that would be a different question from whether or not an IRA can be reached to satisfy an obligation of the IRA owner.

It will be very difficult to show that amounts paid by the IRA in settlement did not benefit the IRA owner in the owner's personal capacity. If the IRA paid less in the settlement, the owner would probably have to pay more.

A cafeteria plan provides a choice between cash (taxable compensation) and a non-taxable benefit (employer-provided health benefits for employees and tax dependents). The tax mechanism for implementing the choice is to reduce compensation (so-called "pre-tax" payments) in favor of receipt of nontaxable benefits. Health benefits for a non-dependent domestic partner are not non-taxable benefits. ERISA looks at the arrangement differently, but that is not relevant to a tax discussion. One can argue that "cafeteria" plans can provide for after-tax payments for benefits. While that appears to be true, the arrangement is not really a cafetria plan under section 125. It can run in conjunction with a cafeteria plan and can be included in the same document as the "true" cafeteria plan. So one can deliver domestic partner benefits through an arrangment that includes a section 125 cafeteria plan, but is is not really correct to use the section 125 mechanism of salary reduction to do so. Section 125 simply solves the constructive receipt problem of allowing a choice between cash remuneration (taxable) and tax-free remuneration. With respect to a choice between cash remuneration and taxable remuneration, section 125 is not needed because everything is taxable. Section 125 simply is irelevant and does not apply. I have no opinion about what the IRS reaction would be if it confronted a technically improper use when the tax outcome is correct because of the artifice of imputing income. I think the IRS would just ask for better formal compliance prospectively, or not be concerned. I assume that when you impute income, you are also imputing wages for FICA purposes and other employment tax purposes.

I don't think the mechanics using imputed income are consistent with the cafeterial plan rules even if you get to the same tax result.

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.