QDROphile

A disqualified plan remains disqualified. The statute of limitations may be relevent to the years for determining the penalties and loss of deductions, but not ending the disqauified status of the plan. The employer is trying to be too clever. Bite the bullet and correct. Not keeping records correctly will appropriately increase the pain.

Go to the "Secuurities Law Aspects ..." column and you will see a relevant topic in one of the most recently updated posts. The initiator of the post is "Lizana"

Securities law issues.

You might get some ideas from Field Assitance Bulletin 2006-1.

State law corporate governance issue.

david: The Department of Labor believes that a plan has the obligation to lock (very indefinite term that is not the DOL's term) a participant's benefit if the plan has any reason to believe that a domestic relations order will be submitted some day. That is contrary to the words of the statute and the only published federal court decision that I am aware of. A plan is required to act only after receipt of a domestic relations order. There are other misconceptions that the DOL has about QDRO procedures. The DOL typically does not consider the isses for plan administrators (including ERISA duties) when it comes up with its informal positions. I can understand why, including that there are many wrong-headed adminstrators out there that cause unnecessary trouble. While I am complaining about the DOL, its recent QDRO regulations are fluff. We did not learn anything we did not know before Congress acted to require the regulations. The DOL did not get into any of the difficult or interesting issues to guide us.

The problem with that publication is that it contains a few legal errors. The Department of Labor has some erroneous understandings, including about protection of would-be alternate payees before a plan receives a domestic relations order.

You may be dealing with a blockhead administrator, so the following bits of information may not be much practical use to you: A plan is required to have written procedures for QDROs. There are no standards and the procedures are not required to be filed with any authority. The procedures must be provided on request. A plan administrator is not required to protect a would-be alternate payee until receipt of a domestic relations order unless the applicable QDRO procedures are more agressive about protecting alternate payees. I believe that any domestic relations order will do. Even if the DRO is not qualified, the plan must allow a reasonable time to cure the qualification defects. I also believe that the court procedures and claendars need to be taken into account for determining a reasonable time. The 18 months starts when the plan would make a distribution that would be affected by the domestic relations order, if qualified. I don't know the resolution of conflict between (i) the reasonable time for cure, and (ii) 18 months. If I were not a blockhead administrator, I would go with reasonable time for cure. If the plan is a defined benefit plan, beware the annuity starting date and hope noboby dies before final resolution. Those events profoundly affect what can be done. None of this information includes any suggestion about how best to go about any particular action to best protect your rights. The more the administrator is wrong and resisitant, the more you need competent legal counsel.

Someone must serve as the coordinator to make sure that the rules in the statutes and regulations are followed, and the information sharing agreements must require that the providers report to the coordinator and abide by the coordinator's dictates in making loans. The coordinator cannot make a provider loan amounts contrary to the provider's rules, but the coodinator can disallow loans that a provider would, by itself, make to the extent necessary for compliance with the law and plan terms. The plan should have some baseline loan terms, but allow room for the terms of the loan products of the providers.

Are they not complying with plan terms or does the plan, incredibly, describe how the true-up contributions are not made for HCEs?

Under conditions that would cause the transactions to be exempt from proscriptions on prohibited transactions. See section 408 of ERISA or the procedures for obtaining a personal prohibited transaction exemption from the Department of Labor.

Notice about qualification is required to be given within a reasonable time. No time is specified by the statute. However, unreasonble delay could be a breach of fiduciary duty. Fiduciaries would want delay to be because of others, not the inattention of the fiduciaries. The comments about the 18 months do not go into important details about how the 18 month rule works and the provisions of the 18 month rule about consequences for payments after failure to resolve qualification do not provide protection for fiduciaries.

Loan payments would probably be held to the same standard as elective deferrals -- a few days from pay day at most under usual circumstances. Correction of late payments usually involves the employer putting some more funds to account for time value of the money -- different terms of art and measures may be applied depending on how one looks at the delay.

Although the plan may allow refinancing, a plan cannot loan an amount for a term of greater than 5 year to refinance a home loan. Loans for a term of greater than 5 years are allowed only for the purchase, not a refinancing of a purchase. Looks like the first refinancing was a violation since it was for a term of more than 5 years.

Unfunded health FSAs that qualify for the small plan exemption (under 100) need not file Form 5500. The exemption is the small, unfunded plan exemption. Health FSAs have no special exemption, funded or not.

If the ESOP will allow participants to choose to have rollover amounts or elective deferrals invested in employer securties, then you need to look into compliance with securities law. If rollover or transfer amounts will be invested in employer securities without participant direction, then you need some serious consideration of fiduciary issues.

Cafeteria plans have not been subject to Form 5500 filings for many years. However, the ERISA plans that are funded through a cafeteria plan are subject to the reporting requirements. For example, a health care spending account is subject to the reporting requirements. A dependent care spending account is not.

The plan was required to provide a notice of receipt of the domestic relations order and to determine qualification and provide a notice of the determination. The plan apparently has no evidence that it acted as required. Although late, it should now follow the rules. Rather than provide a separate notice of receipt, the notice of receipt and notice of determination can be combined. That will be a bit less embarrassing for the the plan. Get busy. The plan may have to deal with some of the consequences of tardy action, but it has to start somewhere and the rules provide the map for the start.

You are correct. Another angle is under section 411 of the tax code. If the fee is assessed only with respect to terminated participants, there is a detriment imposed on a participant that does not consent to distribution. Some would argue that the detriment does not violate because the fee not significant.

Has the sponsor thought about what it is trying to accomplish with the match? A match for top-hat employees only is not much in line with credible reasons for a match. Methinks that the sponsor accepts at some level of awareness that the sponsor is increasing compensation for the top-hat people. But why with a match? Surely the value of the employee (which warrants the greater compensation) is not directly related to the employee's propensity for savings. Why not just have employer contributions to the 457(b) plan at the amount the employer decides is appropriate for the raise the employer is giving? Or does the employer like the idea of an employee deciding the amount of the employee's raise, subject to the employee's ability to save?

Your latest question was already answered.

Where does "just as if they had their own savings account with Schwab" begin and end? Can participants order up their own distributions? Plan assets must be held in trust ansd particpant access must be limited to providing investment directions. The plan is almost assured of disqualification errors if it does not maintain control over custody and movement of funds. Sponsors that want maiximum flexibility and minimum responsibiity are dangerous.

Has the plan administrator (or a predecessor) taken an implied position that the plan is qualified by not reporting income in prior years as a result of the disqualification? Should the implied position be reported, if only to explain that if the plan were disqualified in some prior year, some or all of the amounts actually distributed this year should have been reported in an ealier year? If enough years have passed, some recipients may wish to take advantage of the statute of limitations. If the administrator is able to punt, shouldn't the administrator step up with full information, or at least a warning about the possible additional complexities, to allow the individuals to make informed choices?

A plan administrator is required to determine qualification within a reasonable time. Some people mistakenly believe that means not later than 18 months. The prior review was probably not a determination of qualification. A plan determines whether or not a domestic relations order is qualified. Until the order was issued by the court, it was not a domestic relations order. I am not really addressing the heart of what you are asking. The answer depends on the circumstances and there are a more circumsntances than you can report.

Review the EPCRS procedures. At a minimum, the plan needs to advise the former participants of the excess and the consequences of rolling over amounts that are ineligible for rollover.