Peter Gulia

Your observations are right. That Amoco ignored Schoonmaker’s direction to redeem his interest in employer securities might have resulted in his account’s loss. Also, ignoring a direction to redeem shares or units of a US large-cap stock fund might have resulted in a somewhat similar loss. Depending on which measures and days one looks to, US large-cap stocks had around a 30% drop in mid-October 1987, when Amoco had applied a hold. After reading Schoonmaker (if not earlier), many practitioners—whether working for plans’ sponsors and administrators, or for service providers—wrote or edited plan-administration procedures, including QDRO procedures, to make clear that, even if the plan puts a waiting-for-a-DRO hold on a participant’s right to a distribution, a participant continues to direct investment. To do otherwise would make the plan’s administrator the fiduciary responsible for investing the participant’s account. If a participant remains responsible to direct investment for her account, such a participant’s loss is not about her account’s investments. Rather, it’s a delay of one’s opportunity to take a distribution or loan the plan would provide absent the QDRO procedure’s (or some other) hold. For reasons you’ve mentioned and some more, few participants might pursue that claim. And for those who pursue it, the harm from the delay might be slight, or might be difficult to prove. All that observed, legal, practical, and economic restraints on a liability exposure to affected participants is only one of many factors an administrator might consider in designing its QDRO procedure.

If the proposed alternate payee is homeless, here’s a detail one might tend to. An order is a QDRO only if the order, along with meeting other conditions, “clearly specifies . . . the name and mailing address of each alternate payee[.]” ERISA § 206(d)(3)(C)(i), 29 U.S.C. § 1056(d)(3)(C)(i). The address recited in an order need not be the address of a place where the alternate payee resides. It is enough that the address is a mailing address at which the alternate payee could receive mail. See Mattingly v. Hoge, 260 F. App’x 776 (6th Cir. Jan. 8, 2008). In my experience, such an address sometimes is an address of a lawyer, paralegal, certified public accountant, enrolled actuary, investment adviser, or other person who has the alternate payee’s authority to receive mail, at least regarding the domestic-relations-order matter. I’ve also seen such a method used when an alternate payee has a residence address but prefers that the information not become known to the participant.

Let’s thank QDROphile. Some points we get from that decision include these: The plan’s written procedure called for a hold only “upon receipt of a domestic relations order [and] while the issue of whether the domestic relations order is qualified is being determined[.]” Under “an unwritten practice [the administrator] would place a hold on Plan participants’ accounts once [the administrator] received confirmation from both parties to a divorce proceeding that (1) the divorce was final or a DRO was being sought, (2) the Plan would receive a QDRO soon[,] and (3) Plan assets would be a source of the QDRO payment.” The court rejected the administrator’s argument that the written procedure governed only what to do after the administrator has received a domestic-relations order. The court rejected the administrator’s argument that the unwritten practice was an interpretation of the written procedure. “[T]he [unwritten] practice is inconsistent with the written QDRO procedures.” “[T]he Amoco Plan’s informal hold practice violated the requirements of section 206(d)(3)(G)(ii) of ERISA[.]” “[T]he plaintiff is entitled to recover from the Plan [the losses that resulted from failing to follow the participant’s investment directions delivered after the administrator applied its informal hold].” One sentence of dictum might be argued to suggest that ERISA does not preclude providing a hold before the administrator has received a domestic relations order if that hold is expressly provided by the written procedure. But whatever that ambiguous sentence might mean, it was unnecessary to the decision and so is no part of any precedent. Schoonmaker v. Employee Savings Plan of Amoco Corp., 987 F.2d 410, 16 Empl. Benefits Cas. (BL) 1646 (7th Cir. Mar. 1, 1993).

Others with a different or differently nuanced view?

About a paucity of courts’ decisions: Does anyone know of a Federal court’s written opinion that faults a plan’s administrator, when it had notice to expect a domestic-relations order but before the administrator received an order, —for not protecting a prospective alternate payee from the participant’s act? —for denying or delaying a participant’s claim because the administrator sought to protect a prospective alternate payee’s interest?

Here’s my question: Imagine someone who advises the individual, and does not advise either of the employment-based retirement plans. If you think it matters, imagine this adviser is an attorney-at-law, a certified public accountant, an enrolled actuary, an IRS-enrolled agent, an IRS-enrolled retirement plan agent, or one who wears none of those stripes—your choice of illustration. In advising the individual, is it professionally and ethically permissible to provide advice that explains the tax law, including 26 C.F.R. § 1.402(g)-1(e)(8)(iv), AND explains that the IRS lacks resources to detect that a later distribution includes amounts the individual ought to treat as a return of excess deferrals? If you think the advice about nondetection is inappropriate, why? I’m developing a point in my summer-semester course, Professional Conduct in Tax Practice. I’ll keep these observations anonymous, unless you prefer attribution.

In this morning’s psalms and canticles, I’ll include prayers for Mike Preston and his family.

Without remarking on what a plan’s procedure should provide or omit: The statute’s regime does not require segregating any portion of a participant’s benefit until the plan has received a court’s order that is a domestic-relations order. From that receipt (if the plan absent a QDRO permits the participant to take a distribution), the segregation period is up to 18 months, but ends when the plan’s administrator decides that the order is not a qualified domestic-relations order. ERISA § 206(d)(3)(G)&(H) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true

As the background for my query explained: “The plan sponsor’s general policy in setting plan provisions is to treat participants as adults who make one’s choices about what to do with one’s money.” And “the plan allows every kind of early-out distribution that can be allowed without tax-disqualifying the plan.”

Fidelity suggests: “You may be able to request a refund of federal income taxes that you originally paid on the amount of your birth or adoption distribution if you timely file an amended federal income tax return for the applicable year(s).” https://nb.fidelity.com/bin-public/600_WI_PreLogin_English/documents/976801.1.0_QBOAD_Recontribution.pdf (emphasis added). But I found no Treasury rule and no IRS nonrule guidance that directly supports that statement. Some practitioners might guess it’s not happenstance that the three-year repayment period (for a QBAD received after December 29, 2022) aligns, somewhat, with a usual time for filing an amended return.

Yes, “the computers can [and do] administer the loan program.”

Paul I, thank you for your helpful thinking. (If it matters, this plan allows, beyond payroll deduction, other ways to make loan repayments, including one’s individual checks.) BenefitsLink neighbors, if the participant has fully repaid the defaulted loan, is there any tax-law reason not to allow to allow such a participant to take another loan?

Should a plan allow a loan after the participant defaulted on an earlier loan but later fully repaid the loan? An individual-account (defined-contribution) retirement plan allows participant loans. These loans are meant to follow Internal Revenue Code § 72(p) so making a loan is not then treated as a distribution. The plan has no nonelective or matching contributions, only elective deferrals. The plan sponsor’s general policy in setting plan provisions is to treat participants as adults who make one’s choices about what to do with one’s money. For example, the plan allows every kind of early-out distribution that can be allowed without tax-disqualifying the plan. The plan’s current loan policy precludes another loan if the participant defaulted on an earlier loan. That restriction applies even if the participant fully repaid the loan after the default. The plan sponsor is considering revising the policy to allow a participant to take another loan if the participant has fully repaid the defaulted loan. Nothing in the plan’s procedure, whether current or proposed, for processing participant loans calls for the plan’s sponsor/administrator to do anything on a particular request. (A loan never requires a spouse’s consent.) Rather, the recordkeeper routinely processes approvals and denials of loans on nondiscretionary terms. BenefitsLink neighbors, what do you think? Is it a good idea to allow a participant to take another loan if the participant has fully repaid the defaulted loan? Or if it is a bad or troublesome idea, why?

Some recordkeepers provide in-platform records of participant-directed broker-dealer accounts if the plan uses the broker-dealer the recordkeeper has an arrangement with. I express no view about whether to use these accounts, and observe only that it might be possible.

Last Friday, the United States filed its notice of appeal. Texas v. Garland, No. 5:23-CV-034-H, 2024 WL 814498 (N.D. Tex. Feb. 27, 2024), notice of appeal [document 113] filed Apr. 26, 2024. I express no view about whether the appealed-from decision is a correct or incorrect interpretation of the Constitution of the United States. Texas v Garland notice of appeal 177116797415.pdf

Or, if the limited-partnership interests are valued as at December 31, 2024, why not direct the plan’s trustee to deliver to the participant, on December 31, 2024 (or, if the participant prefers, in 2025Q1), a number of whole or fractional LP units that meets 2024’s minimum-distribution amount (or the greater portion the participant requests)?

Rather than amending the plan to legitimate only the troublesome rollover contribution, might the plan sponsor consider widely allowing a rollover contribution even if the employee has not met the age, service, and other eligibility conditions for a nonelective contribution, matching contribution, or elective-deferral contribution? Among other factors to consider: An advantage would be removing a fact-checking or decision about which the plan’s administrator or its service provider sometimes might err. A disadvantage could be that a rollover contribution might increase a count of participants with an account balance, which might matter for whether the administrator must engage an independent qualified public accountant. Likewise, a count of participants with a nonzero balance might matter for one or more other purposes.

If a plan’s administrator—following a reasonable record-retention (and destruction) plan—no longer has proof (beyond a presumption of regularity) that a distribution was paid, but the claimant lacks evidence that no distribution was paid, how do these situations resolve? If the Employee Benefits Security Administration opens an inquiry, what does EBSA ask for? And if the response is no records remain, do they close the file? Do any of these claimants bring a lawsuit? Something else?

One of the sadnesses of the IRS-preapproved documents regime is that IRS people set conditions on what will get an opinion letter, and often make those interpretations with no rulemaking procedure and even nothing in the Internal Revenue Bulletin.

Is this query about whether a set of IRS-preapproved documents may, regarding the participants of a collective-bargaining unit, provide an obligated contribution (or describe an intended contribution) by referring to a collective-bargaining agreement (rather than filling in something on an adoption-agreement form)?

Some employers and administrators use a dependent eligibility verification to find people not eligible for coverage under a health plan. These find participants who enrolled as a spouse someone who was not the participant’s spouse. But how often does this find participants who enrolled as one’s child someone who was not the participant’s child? BenefitsLink neighbors, any experiences you can describe (with anonymity)?

Just a curiosity: If a plan's sponsor and administrator decide (for whichever reason, or for no reason) not to correct a failure to obey the plan's governing documents, is there anything that must be shown in a Form 5500 report?

If the distributee was not the beneficiary: A transfer of plan assets to a party in interest might be a prohibited transaction. ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1106%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1106)&f=treesort&edition=prelim&num=0&jumpTo=true Was the aunt a party in interest? Unless the aunt was the employer’s employee or had some connection to the plan or the employer, the aunt might not have been a party in interest. ERISA § 3(14), 29 U.S.C. § 1002(14) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1002%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1002)&f=treesort&edition=prelim&num=0&jumpTo=true This is not advice to anyone.

One can’t discern how to divide the executive’s rights, or even whether that’s possible, without reading, for each of the plans you mention, the plan’s governing documents. If you have a particular situation to work on, the former spouse’s lawyer might consider engaging the article’s author, Karen Field https://rsmus.com/people/karen-field.html.

pwitt, while recognizing Melton (if you find nothing that overrules, questions, or distinguishes it), consider these possibilities: Might an action seeking an equity remedy that the former spouse restore to the decedent’s estate property that in good conscience does not belong to the former spouse at least begin in a State’s courts? Might such an action proceed in a State’s courts? Or are the would-be litigants citizens of different States? If so, would the former spouse seek a removal to a Federal court? Might the former spouse and her lawyers be unaware of Melton (and of the several Federal district court decisions that follow Melton)? Might a judge be unaware of Melton (if neither litigant briefs it)? If an action proceeds in a State’s court, might a judge recognize that Melton does not control the States’ courts? Of Federal courts’ decisions, only a decision of the Supreme Court of the United States can be a precedent that controls a State’s courts. A decision of an inferior Federal court, while it usually gets “respectful consideration”, does not control a State court’s interpretation. Bryan A. Garner, Carlos Bea, Rebecca White Berch, Neil M. Gorsuch, Harris L Hartz, Nathan L. Hecht, Brett M. Kavanaugh, Alex Kozinski, Sandra L. Lynch, William H. Pryor Jr., Thomas M. Reavley, Jeffrey S. Sutton & Diane Wood, The Law of Judicial Precedent §§ 79-80 [pages 679-693] (Thomson Reuters 2016). If an action proceeds in a State’s court, is the decedent’s estate’s advocate excused from citing Melton because it is not “legal authority in the controlling jurisdiction”? Model Rules of Pro. Conduct r. 3.3(a)(2) (Am. Bar Ass’n 2024). Whatever might be a persuasive authority in a State’s court or even a precedent for a Federal court in the Seventh Circuit, is the decedent’s estate’s lawyer free to present “a good faith argument for an extension, modification[,] or reversal of existing law”? Model Rules of Pro. Conduct r. 3.1 (Am. Bar Ass’n 2024). Might each of the decedent’s estate and the former spouse recognize uncertainties about the other’s claims, uncertainties about remedies, and each’s burdens of litigation as reasons to settle on a partial amount to be restored to the decedent’s estate? This is not advice to anyone.