Steelerfan

I'm not sure why you think there must be wrongdoing to make a breach of fiduciary case--which is more or less a negligence standard. The only remedy under ERISA is not restitution, as you seem to always imply. A complaint will always be short on facts because (1) there has been no discovery yet to uncover the facts and (2) they are not alleging fraud. It has already been legally determined that the compensation was owed. Where do you get the idea that a plan cannot enforce a contribution requirement without a showing of wrongdoing? If a plan could not enforce a contrbution requirement, if would render most of ERISA moot. Incidentally, it seems wm could be liable beyond what they "agree to perform" because they are the sponsor and remain liable in a general fiduciary capacity (not limited like an ERISA investment manager) unless the plan or trust limits their duties (and they have control over the payment of wages)

that's pretty much a classic example, although a prolific case, of the reason for making the plan "unfunded" --it's what you give up to get the tax deferral. The creditor's have the first crack at rabbi trust money, before participants and portential alternate payees. That's the reason for the anti-assigmet clause in the first place--to protect the creditors agains the employee from assigning the money (essentially assigment would cause early taxation)

As a qualified plan and specifically a 401(k) matter there would be an "automatic" required contribution in the amount of the participant's deferral election on file (or default) and any mathch that would have been made on such compensatin that was not paid but should have been paid. It's qualified plan's 101. I can't even imagine the participants losing I haven't read the complaint yet either, but i'm assuming the plan is fairly straitght forward with respect to deferrals and match. I don't agree that the case is necessarily weaker if there is a discretionary PS formula if such contrution was made and the amount of compensation at issue affected the contrubution amount.

Seems to me that they are trying to pin the duty of ensuring that correct compensation is being paid by the employers onto the fiduciaries. In order to ensure that the contribution is being correctly made you would have to determine the compensation. As much as I dislike Walmart....can't imagine them losing this one. Walmart is a fiduciary too, just not the only one--I'm sure they have investment managers, etc., but Walmart itself can't escape it's fiduciary duty with respect to contributions owed--remember the company wears two hats!!!; any fiduciary who knew or should have known is potentially on the hook. I would not want to be Walmart othis one. If they owed the wages they will owe the contribution--they have a pretty good case i think

I didn't mean to make that connection. The DRO is for the protection of the employer. I agree the tax result madated by sec 1041 does not require a DRO. I just think it's best practice.

Exactly-- 2002-22 limits its application to transfers upon divorce, which are typically incident to a court order decreeing the divorce and either an order dividing the marital property or an agreement b/w the parties signed by a judge. I think it would be dangerous to rely on that RR for the proposition that a plan can pay the ex spouse directly pursuant to something other than a DRO. How far a practitioner wants to take the facts is up to them, but my prerequisites for having the plan pay an ex-spouse directly would be the following: Consistent with the terms of the plan (and any applicable law) and pursuant to a DRO.

I agree with the risks you point out, but would suggest that company approval be tied not to whether there was a "retirement", but to whether the person who retired should be "vested" when the restriced period is over, taking all factors into consideration, including adherence to noncompetes. I think this is common, especially given Section 83 allows a SRF for refraining from the performance of services.

As an afterthought, shouldn't the accelerated vesting occur only if the person acually retires, not just reaches NRA. In that case it seems like you could avoid immediate taxation when they reach 65, because theys still have to perform services. Then if the person retires unvested, subject them to a convenant not to compete while at the same time draft and implement a procedure to require the grantee to request board or HR approval to pay when the original vesting period is over. If the approving person or body denies the request, then forfeit. Thoughts, reactions?

When someone is retirement eligible, you could have their "vesting" event become contingent on an approval process that might keep the SRF going. Just a thought.

Also, in RR 2002-22, the IRS ruled that an amount paid to the ex pursuant to a QDRO would be taxable to the ex spouse. Under your facts, you are using a contract of assigment. When you deviate from the facts of a ruling you create the risk that the IRS will rule against you. If the employer accepts a DRO, it at least has proof that the ex is entitled to payment and the taxation of the x spouse is appropriate. But if you allow the plan to pay a non participant based on a lesser legal document, such as a contract, you open up the transaction to (1) attack by the IRS that the money is taxable to the executive anyway pursuant to the assigment of income doctrine and (2) a potential for abuse by the executive, who obviously wants to lower his taxable income. How can the employer verify that the assigment is valid and that the exec isn't doing it to avoid taxation, e.g. claiming that there is a separation agreement, when there is none? In addition it's not like getting a DRO is difficult, and only a judge can enforce a division of marital property. If the parties agree, a judge will sign the order blindfolded. So why would an employer not want to require a DRO, it couldn't possibly be in the best interest of the company to pay an ex spouse w/o a DRO. Using a DRO eliminates the risk that the executive should have been taxed on the full distribution (the risk is that the executive would owe back taxes and ER will be liable for failure to withhold just because it was "easier" to use an assigment contract and it made the executive happy).

ERISA [29 U.S.C.A. § 1001 et seq.] clearly assumes that all fiduciaries will act to ensure that a plan receives all funds to which it is entitled, so that those funds can be used on behalf of participants and beneficiaries. Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc. 472 US 559 , 105 S Ct 2833 , 86 L Ed 2d 447 , 53 USLW 4811 , 6 EBC 1665 ;ERISA ; see also Opinion Letter 77-04. A plan must pursue delinquent contributions. Although much of the authority deals with delinquent employer contributions, the Supreme Court said ALL FUNDS TO WHICH A PLAN IS ENTITLED; there is no basis for distinguishing between types of contributions. These are "employee contributions" under the DOL standard, but collection and remittance is under the control of the ER and must be made by the ER, who has fiduciary/trustee powers. The Supreme Court applied the common law of trusts to require that fiduciaries act to make sure a plan recieves all funds to which it is entitled. I can't imagine a more basic a statement in the law protecting the rights of beneficiaries to recieve what they are entitled to under a plan than that. The case you cite has no applicability to this factual situation; rather it involved a restoration due to investment choice, not a failure to contribute, as in this case. This case would not be a participant claim for money damages; it involves the restoration of losses due to a negligent failure to make contributions. If you think you can show that the employer is not a fiduciary/trustee in a case like this, then you must be houdini reincarnated--show me a case on point. The disgorgement statement was made only on the thought that in order to fashion an appropriate remedy a court might require some of the funds to be returned by participants, I don't know, but I think the ER would be on the hook for all of it.

I understand the tax implications, which is the only real reason why an employer would do it. And I am not saying there is necessarily a legal impediment (unless the plan or trust has an anti assigment clause, which most do). Certainly it could be done as you say and any plan or trust could provide for an exception. I am just not in favor of doing this just to please an executive to reduce his taxable income, which has become the basis for doing so many things that are not best practice or just plain not advisable (sometimes even illegal). I am not slamming you for doing this, I just am not in favor of it. We are in the business of employee benefits not spousal benefits. My major concern tho is if it later turns out the spouse wasn't entitled to the benefit. I can't see exposing the ER to this risk.

A plan has the right to enforce a contribution requirement. The emloyer has an obligation to make these conributions. A 401(a) correction would require that the contributions be made by the ER. But if the employer refuses to correct under 401(a), do you actually believe there is no right of action by anyone to recover lost contributions and earnings? The action under ERISA would be a claim in equity for restoration to the plan of all contributions and earnings that were not contributed as a result of the ERs breach of ficuciary duty. ERISA requires an employer to follow the terms of the plan, which includes the deferral agreement. The breach of that agreement by not making the required contributions is a violation of the plan and thus a violation of ERISA. Maybe participants could be required to disgorge some of the funds, I don't know but there is definitely a right of action somewhere in these facts. The P's would not be asking for money damages but for an action to resore the plan to the position it would have been had the breach not occured. Seems like a slam dunk--far from a stretch of the law.

Restoring losses to the plan because of the employers failure to adher to the terms of the plan document as required by ERISA.

Agreed to by the employee and who (the ex)? The employer will not generally agree to pay someone else unless forced to. You're ignoring the er/ee relationship and the contract. Payments or benefits (without a RT) are still generally non assignable and payable under the terms of a plan to the participant. I can't imagine counsel advising an employer to pay an ex spouse (or any other creditor) without a court order or some writ attaching the payment. Also, the employee won't be the only person affected if the employee later claims the employer wrongly paid the ex spouse. A smart employer would require a release, but a smarter employer would pay the participant and let the spouse go get her cut from the participant.

Clearly there is no plan asset issue, I was off base on that. It looks like the ER accidentally "enriched" the participants at the expense of the plan--this would be a real mess, I do not believe that the only thing wrong with this scenario is a minor 401(a) failure, as you seem to be implying. Imagine if this went unnoticed for a long time (hard to believe but not impossible). The participants are enjoying the assets that should be in the plan, so it's the plan that gets screwed here (and ultimately the participants because the employer is not following the terms of the plan and saving their money). The employer is at fault for its failure to properly administer the plan as required by ERISA and subject to suit by the plan or it's fiduciaries (who wear two hats remember), or by participants whose contributions are not being made as required by the plan. Obviously this type of error would normally not go unnoticed for long, but if it did and you were a participant in the plan, what would you do? Wouldn't you take action on behalf of the plan to make the plan whole? Imagine by the time everyone figures out what happened. You've spent all the money because you are barely making ends meet and didn't notice. You just found out your idiotic employer forgot to wihhold all the contributions. Are you suggesting they have no recourse against the ER?

I understand. there's just something not right that I can't put my finger on. I think this raises a different problem than the plan asset reg--its' the exclusive benefit rule and plan's right to receive the contribution. The DOL has indicated that a prohibited extension of credit may occur if fiduciaries fail to take appropriate steps to collect delinquent contributions, including employee deferrals that are not timely paid over to the trust. [PTE 76-1, 41 Fed. Reg. 12740 (1976)] Clearly, as a fiduciary, the employer had a duty to withhold contributions and remit to the trust. If ER fails to withhold $, the employees could certainly sue on behalf of the plan, even though they got the money in their pay.

Wow. I find that pretty extreme. How can they segregate the assets if they don't have them?! Remember, the money went to the participants (and some to tax withholding, I would guess); it's not like the employer is holding anything here. They are obligated to make the contribution under the terms of the plan. The amounts were wrongly paid to the participant, you're right, but the plan is entitled to the money and employer has the obligation to pay, so I guess I'm saying the employer has use of the money it must still pay to the plan, even though the participants has been "overpaid", as has been pointed out.

I'm not sure your thinking straight on this. The failure to withhold does not get you out of the plan asset reg because the amounts become plan assets as soon as they can be reasonably segregated from the general assets of the employer even if they forgot to withhold the money. As a matter of payroll, whether or not the amount is coded and "withheld" properly, the amount sits in the employers GL until it is tranmitted to the plan. The issue as you say "withheld money not being deposited" is really a fiction--the "withheld" money stays put until transmission to the trust (unless the ER is evil). The glitch of forgetting to withhold doesn't take away the obligation to pay the money (which is still sitting where it would normally be had it been "withheld") to the trust. This was one of the first cases I ever worked on. Under your logic the failure to withhold deferrals would never raise a DOL concern? Not true. There are two issues under the plan asset regulations. One is the failure to withhold, which creates a "sole benefit" issue--i.e. holding on to $ the employer is no longer entitled to--the ER "benefits" from having use of the $. DOL would be very concerned about systematic failures to withhold as a breach of the terms of the plan, fiduciary duty and use of the assets not for the sole benefit of participants and beneficiaries and a prohibited transaction. The regulation requires that employee contributions be transmitted to the plan and properly invested at the time that employee contributions can reasonably be segregated from the employer's general account, but in no event later than the 15th business day following the month in which the participant contributions are received by the employer. If the employer screws up its payroll and forgets to withhold, the plan asset clock starts to tick. If you notice the problem any time after the amounts would normally have been transmitted to the trust, I would think the DOL compliance program would be on the agenda.

Because it would normally be against the terms of a plan and not permissible under a rabbi trust to pay to other than P, unless the plan provides for a payment to a spouse (it which case I think payment could only be made on account of a DRO). If there is rabbi trust, there must be a spendthrift provision that obligates the trust to pay only to the P and to not allow P to assign his benefit to anyone else. If there is no rabbi trust, the employer should only pay P pursuant to the terms of the plan and it would not be advisable to pay directly to wife without a court order. Would you advise an employer to pay an amount from a company plan to someone other than the employee without a DRO or other legal document that mandates attachment of the benefits or payments?

Also read the thread below (which I would hope you did) on divorce since that thread talks about whether and how you can force a NQDC plan to pay someone other than the participant (DRO v QDRO discussion). No one one on the board can give you a definitive answer to your question other than to say maybe it can be paid to her or maybe it can't. We can only point out the issues.

Just FYI this is what Tackney said about a correction program from a BNA Daily Tax Report dated April 19, 2007 (from an April 18 DC Bar association luncheon meeting) "Resources Lacking for Corrections Program Tackney addressed the issue of a Section 409A correction program that might be similar to the voluntary corrections program for qualified plans, a private letter ruling mechanism, or development of model plans. Tackney said the service does not have the resources for these programs in the nonqualified plan area, but he suggested taxpayers ask for them. "Write us," Tackney said, "so that we will know how to prioritize our resources." " I would recommend speaking to an agent before utilizing any correction method. At a minimum it seems the IRS should ASAP open up the letter ruling program under 409A to provide some guidance when something like this happens because it will of course happen (oh yeah alot!)

Based on recent statements by IRS (either Tackney or Hogans) the IRS would like to have a failure corrections program but does not have resources allocated to do it now. This leads me to believe that they will approach failure in a very strict manner due to the nature of the abuses this statute was intended to prevent (Enron). I think the correction method discussed herein is a reasonable method and would more likely than not be accepted by IRS. However as mentioned it is not without problems. First the executive may have spent or invested the money and there may be no liquid cash to pay back. And second if the executive is a Section 16(b) officer, it could be an extension of credit under SOX if the exec pays back in installments. It also seems obvious that the executive could not keep the money under any circumstance since it is definitely a failure and such "glitches" would start to occur more frequently suggesting collusion. Based on the recent statements by IRS officials (unless you would be allowed to self correct by getting the $ back and report nothing) an amount accidentally paid is deferred compensation; there is no way to change it's character or undo a mistake under 409A. What should happen is that the amount should be reported as box 12 code z and the employer must withhold taxes and the employee must pay the penalty. Then the fun really begins, because you just caused all other amounts (if any) in any other similar plans (elective account balance plans) that the exec is in to be immediately taxed and subject to 20%. Does this remind anyone of a similar draconian penalty known as disqualification of a qualified plan (but only in relation to one executive). The IRS has never disqualified a qualified plan and will likely never let this draconian scenario occur--but it stresses the need for guidance. The reality is that the exectuive will be grossed up for any penalty taxes. Then, since it's the employer's fault (presumably), the executive will receive other bonuses to place him in the same position he should have been had the error not occurred. Meanwhile, the employer will figure out a way reduce everyone else's pay to cover this cost since it is clear under the laws of nature that the rank and file should pay for this type of mistake and executives should not have to spend any of the money they earn.

The other thing you have to check is that you complied with the DOL plan asset regulation [29 C.F.R.2510.3-102.] The failure to remit employee contributions constitutes ER use of money that should have been withheld.

It makes no difference if the DRO is qualified or not, they are just giving her the runaround. ERISA does not have an enforcement procedure for non participants. If they won't comply with a QDRO, why would they comply with a DRO (it's just semantics)? My guess is they will say that the plan benefits or assets (if any) cannot be alienated by the P. The point I'm trying to make is that generally state law is the final say as to what is marital property as well as how and whether or not you can get to any assets in a NQDC plan rabbi trust. Additionally, there may be no "assets" or "plan administrator" in the ERISA sense but only a promise (no rabbi trust, etc.) by the employer. (ERISA 206(d) may not matter much if there are no plan assets to alienate, but only future payments). [although some, like mjb, take the position that ERISA's QDRO rules apply to top-hat plans and, therefore, that top-hat plans must honor otherwise qualifying QDROs, regardless of whether or not the plan contains QDRO provisions.] If there is a rabbi trust, the issue is whether the spendthrift provision in the trust can prevent the assigment to the ex-spouse. At this time practitioners presume (and hope) that state law spendthrift trust rules would cause courts to respect a rabbi trust's nonalienation provisions, but there is no clear answer. The real issue here is how to enforce a state court divorce order against the ER for assetsor future payments that a state court presumably validly concluded were marital assets, despite the presence of anti-alienation provisions in one form or another. BTW Under 409A, a nonqualified plan is permitted, but not required, to include a provision allowing payments to a former spouse pursuant to the terms of a domestic relations court order. The Final Regs provide: (ii) Domestic relations order. A plan may provide for acceleration of the time or schedule of a payment under the plan to an individual other than the service provider, or a payment under such plan may be made to an individual other than the service provider, to the extent necessary to fulfill a domestic relations order (as defined in section 414(p)(1)(B)).