Peter Gulia

@Peter Gulia, having a cap on the percentage of a contribution that can be invested in a specific investment is used by some plans to limit investments in:
publicly traded stock of the employer, self-directed brokerage accounts (particularly when there are few restrictions on permissible investments within the SDBA), investments in that are not easily tradable like gold bullion or real estate, and  investments where the plan fiduciaries are concerned about the volatility of the investment.  Most recordkeepers can support this type of limit.  Note, though, that recordkeepers may not support automatic re-balancing when the value of these investments exceed a specified percentage of the value of a participant's overall plan account.

As long as the fee is allowed by the plan, is reasonable, and disclosed in the participant fee disclosure notices I don't see a problem with it, though maybe I'm overlooking something.  There are things you need to send participants beside payments at retirement or RMD age and if they don't notify you of address changes someone needs to pay to locate them, I don't see where charging the participant is problematic if it is part of the Plan's on going operations and uniformly applied.

Non-elective, yes, but for nondiscrimination I think you have a problem if the amendment benefited only or primarily HCEs.

We do help our clients look for lost people who need an RMD as no one likes an uncashed check hanging on the books.   We don't do it until very close to the RMD date or if the check really does go uncashed.   

Thanks Peter, I have an earlier edition of that, and also Shulman's handbook, both of which are helpful but neither of which provide much insight on this issue. I also haven't had any luck with searching similar cases on Fastcase or even Google scholar. I think that of PA's who want to insist on particular benefit division formats, most of which are reasonable, they do not get much pushback precisely because they are reasonable, and if one makes the point that under some circumstance or another that accommodation needs to made, most are reasonably accommodating. It is only in this case among the thousands of others I have come across that the PA's position is unsupportable.
As none of our neighbors here have identified any authority that might support the PA's position either, I think what happens next is, if the plan's counsel wants to back the PA's decision, a judge will qualify the order, which will then be served, prequalified, on the plan. The plan will then either do the calculation or continue to refuse, prompting a formal claim for benefits, which the PA may also refuse, at which point the remaining option is federal court. My experience with federal courts is that they tend to read the federal statutes strictly, though of course past experience doesn't guarantee future results. A strict reading of § 206(d)(3)(C)'s subsection (ii), with its multiple "or"s, and a lack of published legal interpretation supporting the PA's refusal, could be helpful, but hopefully it won't get that far if the PA wants to avoid litigation. Sigh.
Thank you all for your input and insights, and if you think of anything else, I'll be grateful to hear it, even if critical.

I did not read all of the posts in the thread but the OP states that payments are "in pay status".  Maybe one of the posts stated that benefits are not in pay status... if so, disregard my post. 
This is because I view a coverture fraction only helpful when benefits are not "in pay status", i.e., benefits are going to start at a later date.  Like you said, it is used because you know the numerator but do not know the denominator.  The fraction allows for adjustments for the participant's additional service time post-divorce for which the alternate payee should not receive a benefit.   For example, QDRO issued in YR 1 awards 50% of the coverture fraction.  QDRO states at divorce the participant has 10 years of service and the alternate payee and participant were married for all of those years.  When the participant retires in YR 21, they would have an additional 20 years of service.    Benefits begin to be paid, so the alternate payee's portion of the monthly benefit payment would be 50% x 10/30 of the monthly benefit.  The coverture fraction is needed to ensure the alternate payee does not benefit from the additional service when the payment start.
If, as stated in the OP, payments are already started, I don't see a problem with amending the QDRO to do the math... using the example... the QDRO would simply state that the alternate payee should receive 16.67% of the monthly benefit.  I am not saying the plan administrator is correct, I am just saying, practically speaking, amending the QDRO would be easier than arguing with the plan administrator or taking them to court.

Add another voice that is objecting to the annual part of this idea.  We look for or advise our clients to look for people when it is relevant.  
Although places like Inspira people send a lot of forced out to IRAs to them does an annual search.  Not sure if it is part of the base fee they charge those IRAs or an add on  
What I do know is that a few hundred in an Inspira IRA needs to have an incredible rate of return to not have the balance go down annually. 
 

In the current environment of online enrollment/automatic enrollment and estatement delivery, getting employee addresses for mailing purposes can be like pulling teeth. Years ago, we requested W-2s for plan testing purposes and could get addresses from those. Today, everything is done electronically, and address information is not necessarily provided.
I know that this question is specifically with regard to participant distributions. However, with the upcoming regulations about once a year paper statements coming into effect, that is going to add an additional burden on someone (PA or outsourced to the RK) to keep track of missing participants. If statements get returned by the post office with no forwarding address, what is the regulation going to specify about lost participants and their paper statement delivery? 
If the participant is active, a request is going to need to go to the employer for an address update and there should not be a fee for that. RKs should be asking employers to update addresses to prepare for the paper statement rules.
If the participant is terminated and the employer does not have a good address, an address search will need to be conducted and $30 to cover that cost is probably reasonable, considering all the possible steps that need to be followed, including any locator search fee. 

If you are an attorney or lawyer for the would-be alternate payee, consider evaluating (and then advising your client) on some possibilities and probabilities about whether getting discovery so a domestic-relations order would state a percentage might be less expensive and more effective than trying to persuade the plan’s administrator to approve an order that states a time-rule formula. You might consider this even if you have no doubt that the plan’s administrator is wrong.
I won’t speculate about what ERISA § 206(d)(3)(C) means, what a Federal court might say it means, or what might persuade a Federal court to not defer to a plan administrator’s interpretation. Rather, my practical point is that challenging the plan’s administrator could be an uphill fight.
And even if a plaintiff wins an ERISA litigation, that does not assure an award of attorneys’ fees. Under ERISA § 502(g)(1), a court may, not must, award attorneys’ fees. And it’s in the court’s discretion. A Federal judge might wonder why a plaintiff pursued litigation when a little discovery could have accomplished what the alternate payee needed, without bothering the Federal court’s attention. (I have met judges who would think that way.)
This is not advice to anyone.

A lot cheaper and fewer issues to add the $7k cash out isn’t it?

To David Rigby’s questions about what might lurk in the deal documents, someone might consider adding, for each might-be provision:
Is the supposed provision merely a wishful statement?
If a provision is somebody’s obligation, exactly which person, whether artificial or human, is obligated?
Is the obligation consistent with, or contrary to, applicable law? Or relevant law?
Even if not contrary to law, is the obligation legally enforceable? By which person? A? B? Some other person, whether artificial or human?
This is not advice to anyone.
And Santo Gold might wonder: Does my company have a current service agreement with A? Does my company have a current service agreement with B? Does my company desire to revise either service agreement, or both?

To David Rigby’s questions about what might lurk in the deal documents, someone might consider adding, for each might-be provision:
Is the supposed provision merely a wishful statement?
If a provision is somebody’s obligation, exactly which person, whether artificial or human, is obligated?
Is the obligation consistent with, or contrary to, applicable law? Or relevant law?
Even if not contrary to law, is the obligation legally enforceable? By which person? A? B? Some other person, whether artificial or human?
This is not advice to anyone.
And Santo Gold might wonder: Does my company have a current service agreement with A? Does my company have a current service agreement with B? Does my company desire to revise either service agreement, or both?

Peter's info (as he is clear to remind us, not advice) is thorough and excellent as always.
It sounds like the client is happy with the current tax situation, and ejohnke is just looking to correct the potential disqualifying defect of allowing a distribution that shouldn't have happened. Is that accurate?
If the individual could have had a distributable event, but the plan didn't allow the distribution, could the plan be retroactively amended to permit it? For example, the participant is 60 years old, so amend the plan retroactively to 2025 to permit in-service distributions at age 59-1/2. Problem solved.
If there really is no possible distributable event (don't forget that employer money sources can have much more liberal distribution restrictions than 401(k) deferrals), then you might still be able to get relief for the distribution (and leave the money in the Roth IRA) through VCP.

A few thoughts (there are probably other relevant questions):
Are the facts presented accurate? Are the facts presented complete? Did the buy-sell agreement contain any provisions relevant to the future of the plan? Did the buy-sell agreement alter (or attempt to alter) any plan provision of the A plan? Does A still exist or is it a wholly owned subsidiary of B? What does the A plan say about a distributable event? Does anyone in authority at B know what's going on? Has legal counsel for B made any statements about this?

The person that ought to have been responsible to pay, or reimburse payment of, a penalty—whether an ERISA title I penalty, or a tax law penalty—restores to the plan the money the plan was not responsible to pay, with interest or another measure of the time or investment value of the money.
And, if the person that ought to have been responsible obtained a gain by having the use of what in conscience was the plan’s money, the person disgorges not only the money had but also its gain and pays it over to the plan.
The “interest” portion of the plan’s recovery is the greater of the time or investment value of the money or the other person’s gain by having the use of what in conscience was the plan’s money.
Equitable remedies run to the plan that was deprived of what in conscience was the plan’s money, other property, and rights.
Restoration or disgorgement does not come from the plan. These remedies come from the person that had the money that ought to have been in the plan, and go to the plan to be made whole.
This is not advice to anyone.

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense.
While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan.
https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf
A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties.
I don’t know what might obtain tax law relief.
This is not advice to anyone.

In my view (which is not advice to anyone), a fiduciary ought not to direct paying or reimbursing from plan assets such a penalty if a fiduciary, a service provider, or an employer is responsible for the act or failure to act that results in the penalty.
That’s so even if a penalty was administratively addressed to the plan.
If an employer paid a penalty but another person was at fault, the employer might get its lawyer’s advice about rights and remedies regarding the other person.

In my view (which is not advice to anyone), a fiduciary ought not to direct paying or reimbursing from plan assets such a penalty if a fiduciary, a service provider, or an employer is responsible for the act or failure to act that results in the penalty.
That’s so even if a penalty was administratively addressed to the plan.
If an employer paid a penalty but another person was at fault, the employer might get its lawyer’s advice about rights and remedies regarding the other person.

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense.
While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan.
https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf
A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties.
I don’t know what might obtain tax law relief.
This is not advice to anyone.

In my view (which is not advice to anyone), a fiduciary ought not to direct paying or reimbursing from plan assets such a penalty if a fiduciary, a service provider, or an employer is responsible for the act or failure to act that results in the penalty.
That’s so even if a penalty was administratively addressed to the plan.
If an employer paid a penalty but another person was at fault, the employer might get its lawyer’s advice about rights and remedies regarding the other person.

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense.
While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan.
https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf
A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties.
I don’t know what might obtain tax law relief.
This is not advice to anyone.

From ERISApedia.  I assume it is cool to post this,  lots of people post the EOB.  Anyway, great textbook, I rely on it heavily!  In short it is not as clear as I had thought.
Mandatory automatic enrollment (MAE) does not apply to a plan year if, as of the beginning of the plan year, "the employer maintaining such plan (and any predecessor employer) has been in existence for less than 3 years." [Code §414A(d)(4)(A); Prop. Treas. Reg. §1.414A-1(d)(4)(i)] The proposed regulations do not define predecessor employer. The Section 415 regulations [Treas. Reg. §1.415(f)-1(c)(2)], which look to whether the new employer substantially continues the business of the old employer, might be a good starting point for making a good faith interpretation of the statute. Under those regulations, a predecessor employer is defined in one of two ways, depending on whether the company being evaluated continued the plan of the earlier company.
In particular, the regulation provides that, if the current employer continued the prior plan:
[A] former employer is a predecessor employer with respect to a participant in a plan maintained by an employer if the employer maintains a plan under which the participant had accrued a benefit while performing services for the former employer (for example, the employer assumed sponsorship of the former employer's plan, or the employer's plan received a transfer of benefits from the former employer's plan), but only if that benefit is provided under the plan maintained by the employer.
On the other hand, if the current employer did not continue the prior plan (i.e., the benefits in the current employer’s plan were all accrued while the employees worked for the current employer):
With respect to an employer of a participant, a former entity that antedates the employer is a predecessor employer with respect to the participant if, under the facts and circumstances, the employer constitutes a continuation of all or a portion of the trade or business of the former entity.
Example 14.4.27 Fresh Foods swings open its doors on October 1, 2025, ready to serve the community, and promptly establishes a calendar year 401(k) plan. As a brand-new business, Fresh Foods gets to enjoy the "new kid on the block" exemption from MAE. This reprieve lasts until the plan year starting January 1, 2029. For now, the team can focus on stocking shelves and slicing compliance red tape.
Example 14.4.28 Now imagine a twist: Fresh Foods, while newly incorporated, buys out Ed’s Good Groceries, which has been serving the same location since 2015. Fresh Foods also keeps many of Ed’s long-time employees. This changes the game. Since Fresh Foods continued Ed’s operations, Ed’s is likely a predecessor employer, and Fresh Foods can’t claim the new business exemption. The MAE rules kick in right away, applying from the moment the 401(k) plan is established.

I just don't see any basis for any sort of predecessor issues.  My understanding has always been the only way that could happen is if the buyer maintains the plan of the seller, or some sort of spin-off.  Are you saying that a straight asset sale, where the new buyer just so happens to hire some or all of the existing employees might somehow be considered not a new employer? 

Under the Treasury’s proposed interpretation, an Internal Revenue Code § 414A(c)(4)(A) new-business exception is available “if, as of the beginning of the plan year, the employer maintaining the plan (aggregated with any predecessor employer) has been in existence for less than 3 years.” Proposed Treas. Reg. § 1.414A–1 A(d)(4)(i) (emphasis added).
The Treasury’s notice of proposed rulemaking states: “Comments specifically are requested on whether guidance is needed to define the term ‘predecessor employer’ as used in section 414A(c)(4)(A) of the Code[.]”
Internal Revenue Code § 414A(c)(4)(A) does not state or refer to a definition of predecessor employer. https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartB-sec414A.htm
The proposed rule includes some interpretations about plan mergers.
The proposed rule includes some interpretations about business mergers, and about other transactions that result in a different § 414(b)-(c)-(m) employer.
But § 414A is not in any of § 414(b)-(c)-(m)’s lists of Internal Revenue Code provisions for which a § 414(b)-(c)-(m) definition of the employer applies.
The Treasury proposes that a final rule (if published and effective) applies “to plan years that begin more than 6 months after” notice of the final rule is published.
“For earlier plan years, a plan [is] treated as having complied with section 414A if the plan complies with a reasonable, good faith interpretation of [Internal Revenue Code] section 414A.”
Observe too that a final rule the Treasury might make would be an interpretive rule, not a legislative rule Congress directed. A Federal court might be persuaded by, but does not defer to, the Treasury’s interpretation.
At least for 2026, a plan’s sponsor or administrator might get its lawyer’s advice and consider the range of possible and plausible interpretations. More than one interpretation could be a substantial-authority interpretation. And even if one seeks the higher more-likely-than-not standard, more than one interpretation might meet that standard.
This is not advice to anyone.

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense.
While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan.
https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf
A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties.
I don’t know what might obtain tax law relief.
This is not advice to anyone.