QDROphile

Sentence 1: Yes. Sentence 2: Yes, if a contribution can properly be made. You can also put a bullet in one or more chambers of revolver, spin the cylinder, put the revolver to your head, and pull the trigger. You can also wear white after Labor Day.

Were the profit sharing amounts (A) not presented in the in the K-1 at all, or (B) included, but not identified as an item that reduces income (or identified but not properly reflected on the Form 1040)? If (A), then the taxpayer did not pay any taxes with respect to the amount. If (B), the taxpayer failed to claim a reduction of income. While there may be a remedy for some years for the failure to claim the reduction, I don't think that makes the contribution an after tax contribution. Assuming that the plan terms do not provide for after tax contributions, this is a personal income tax problem, not a retirement plan issue. The situation may be the same for the elective deferrals. If the plan does not provide for after-tax contributions, the problem is on the reporting/claiming side and it is unlikely that the plan will provide the resolution. From the plan's perspective, nothing is amiss. Failure of the employer to claim a deduction is a personal/corporate income tax problem. I don't know enough about personal income tax to know if masteff's suggestion has any realistic hope. I know only of IRS sanctioned retroactive amendments to plan for the sake of resolving a plan qualification problem, not an individual income tax probem. Many income tax deductions are overlooked, and there is a limited time and method for claiming them if they are discovered.

Plans are now required to have language to prevent annual addition violations. Although violations can be corrected, repeated violations cannot be corrected under EPCRS. The solution for the situation you describe is to have appropriate plan terms, then each year test a pro forma contribution and adjust the allocations/contribution to fit the annual addition limits before delivery of the contribution to the trust. I suspect the practice in prior years was a violation, too. The correction provisions under old law were more limited than most people believed.

I was referring to the orginal advice about allocation of fofeitures by right of ownership. Maybe the adviser was a history major and is stuck on the divine right of kings.

I want to be an adviser on subjects I don't understand and get paid for my bad advice.

"Separation from service" was a concept under obsolete 401(k) regulations, associated with the "same desk" rule. "Severance from employment" is newer terminology in regulations. I will not take kindly to directions to use the phrase in place of termination of employment, except perhaps in the 409A context.

Perhaps an employer that properly considers and complies with coverage testing and other discrimination requirements should have gathered such infomation already for compliance purposes and would not have a serious burden when it came time to file with the IRS. It is a signal. It is an education. Isn't it nice that our government gets extra value out of the form and process?

The post from BED, post #2, in that string is accurate, and represents the Department of Labor view. Committee reports are not law and the only federal court case came out on the side of a literal reading of the statute -- no compromise of the participant's rights without receipt of an order. That court suggested that the plan, in its written QDRO procedures, could adopt the Department of Labor view (although that view is not well defined), but the plan involved did not; the plan merely recited the statutory language in its QDRO procedures. I subscribe to GMK's position, but I have written QDRO procedures to allow something other than a domestic relations order to casue restrictions. The problem is to define what it is, other than an angry phone call typical in divorce settings, sufficiently reliable to make the plan believe a QDRO is really in the works within a reasonable time. Receipt of an order is a nice objective standard. "About to get a divorce" is a long way from any understanding of ultimate effect on benefits, and the state courts are not strangers to funny antics with property. They have ways ... . DB plans have an especially tough time because of the benefit starting date rules. The timing of the order can make a big difference in the form of benefit and the options for dividing the benefit. Some argue that is is better to hold the money and then be wrong about holding it rather than let the money go and be determined to be wrong and have to chase the money or restore it personally. That argument makes some sense, but a participant can be harmed by an improper restriction, as happend in the federal court case restriction on investment changes in a market crash).

BTW, I did not look at the question and my intended message was "the amount you calculated" and not the prescriptive "the amount you calculate." I was commenting on your correct interpretation of the special ESOP rules and why it might not produce a "correct" answer. Evidently it is still a mystery.

The amount you calculate is the amount subject to the limit, not the limit. Maybe it is in the way the question is asked. Another way to look at the limit is the stated 415 limit amount plus the disregarded interest and forfeitures.

I think the consequences and the corrections for excess deferrals are pretty well established and a quest for an "imaginative" alternative solution is destined for either frustration or illegality.

The plan sponsor cannot charge a participant or a participant's account with respect to a loan because the loan is from the plan. The plan can charge administrative expenses for a loan. Plan sponsor personnel can provide administrative services to the plan and the plan can pay the plan sponsor for the services if the conditions of the applicable prohibited transaction exemption are satisfied.

With the new information, I agree you should let the plan go to the work of determining that that your decree is not qualified. That will force the plan to give you more information that will help draft a successful order. One thing that might change my mind would be information about processing or administrative fees that the plan would charge with respect to the orders and multiple determinations. Some plans do. Some don't. Some have a fixed fee, some impose fees that increase with with amount of work that is required.

The law requires action upon receipt of a domestic relations order, not a draft, a warning, a premonition, a desire or a fancy. Somewhere in your divorce proceeding is a domestic relations order. It won't be a QDRO, but it will trigger the requirement for the plan to protect the potential alternate payee interest for a reasonable time pending correction of the qualifiaction defect. Do the plan a favor. Tell the plan that you know that the order will not qualifiy and it is for the purpose of protection pending submission of an order that is intended to comply with qualification requirements. Save the plan the trouble of sending you a disqualification notice. Then diligently proceed to submit an order that will qualify. Sorry, the original text above is not clear. You will have to send the domestic relations order to the plan as a formality, even if you let the plan know it is excused from the qualification formalities other than protecting your interest. The best nonqualified order to send to a plan is one that mentions that the spouse will have an interest in retirement benefits, but the reference is not essential. No one knows what a reasonable time is, but the plan would be really stupid to use a short fuse. Your contact with the plan suggests that is is not too bright or helpful in this area.

Would it be too horrible to contemplate the possibillity the individual is a common law employee despite the leasing formalities? And will it ruin your life or the life of the medical practice to confront this possibility?

Consistent with my reputation I am going to grouse about the compentence of whoever was responsible for the amendment. Unless the intent was to vest every account, the amendment job was done incompetently. It is baby stuff, not rocket science, to ascertain the intended scope of the amendment, and to set forth that scope in the amendment in a way that leaves no doubt because yours is the very first question that gets asked about additional vesting. So when one does not see limitations in the amendment, one must presume that the vesting applies to the fullest extent, and that should be the outcome in any dispute. If that was not the intent, then someone should answer for the faulty amendment and the adverse consequences.

Ah, yes. I recall seeing it in a few prototypes.

What kind of feature lets an individual partner participant elect the amount of contribution other than an elective deferral?

Report the participant to the police for conversion?

Yes, but you need a lot more understanding before you implement such an arrangement.

How about something more fundamental? The DOL has to twist and turn and dodge and prevaricate because it absurdly maintains that the IRS requirements can be met without the employer involvement that was the standared for application of ERISA before the the current 403(b) regulations. The DOL denies reality because it does not want to be responsible for all the nonprofts in the total mess of noncompliance that is the 403(b) market.

Medusa.

Based on Schoonmaker and the statutes, including the 18-month rule, what should work (except for skull thickness of the plan administrator) is to give the plan a copy of the divorce decree that says the former spouse will get 1/2. The decree is a domestic relations order, but probably not a qualified one. But it should be enough for the plan administrator to realize that the plan is only required, at most, to protect the 1/2 that might ultimately be awared to the alternate payee under a QDRO. That means the participant can get some of the other half (so he says) to proceed. I am not going to spell out the detailed analysis that goes with the steps because it probably will not work. The Schoonmaker case might make the plan administrator pause a bit, except the the plan administrator put unwise provisions in the QDRO procedures (as mentioned in Schoonmaker) and is now put in a position to have to use good judgment and knowledge to get to a correct and practical outcome. Not likely, given the starting point. Also, you might combine TPA Man's comment to help the poor plan administrator with the dilemma.

Try Schoonmaker v. Employees Savings Plan of Amoco Corp., 987 F2d 410 (7th Cir. 1993).

Funny how the important employees are more likely to expect to be able to do what they want despite the rules. Or maybe the more important employees are the less likely to be concerned about what the rules are so they are more likely to ask the questions that no one else would need to ask.