david rigby

I'm unsure whether 409A applies but have an example to provide. Somewhere around 2005, a relative of mine was retired and had life insurance and health insurance thru his/her employer. The ER decided to discontinue both and paid him/her a lump sum as a "going away gift." (As far as I can tell, the ER was under no legal obligation to pay anything.) My retired relative got a check, and it was fully taxable with a W-2. That meant he/she was responsible for FICA taxes as well as income taxes.

I'm assisting with a DB plan termination. Perhaps there is a prior discussion thread on this topic, but I’ve been unable to find it. The termination process will include purchase (by the plan) of a group annuity and lump sum offers to as many participants as possible, and then execute the formal termination. The best guess is this will result in a 7-digit surplus. First, the sponsor has paid expenses (actuary, auditor, attorney, etc.) directly (from the company, not from the trust) for many years. Prior to executing the formal termination, the sponsor wants to use up some of the surplus by having the trust reimburse the company for as many of these expenses as possible. So far, we see nothing in the document that will prohibit this. However, is there any limit to this? Could the trust reimburse expenses from the prior 5 years? 10 years? More? Do you know any prior examples or PLRs that might address this? Second, our assumption is that any such reimbursement is NOT a reversion. Is that a reasonable conclusion?

Just in case: the 10% penalty under IRC 72(t) is a tax, not withholding. "Medical disability" can be a vague phrase. The cross-reference for its definition is IRC 72(m)(7); it's not up to the employer to decide if the person meets the IRC definition of "disabled".

Perhaps this is picky, but it seems very likely the plan document already answers the original question. If it does not, that might be indication of a document that needs fixing.

Maybe you could put a little more flesh on that skeleton?

No expert I, but I wonder if the quoted sentence refers to a business dissolution or a marital dissolution? Or if it matters? Or did I misread something?

Any possibility that leaving only $1000 would pay force the account(s) to pay proportionately higher fees?

Just curious, has a draft DRO been sent to the plan(s) so the Plan Administrator can review it? (Hint: it's advisable.)

There have been some prior discussion threads on this topic. I suggest using the Search box (upper right) with the term "last day worked".

Be mindful of precedent setting.

Yep. Also, request a copy of the plan's QDRO procedures. if your spouse worked for more than one employer, don't forget to include any others in your review/research.

In general: any optional form of payment is "locked in" at its commencement date, such that no one is entitled to change it later. any J&S option will pay X to the retiree and some portion of X to his/her surviving spouse. The identity of such spouse is "locked in" at commencement date. Divorce and/or remarriage is irrelevant. Very likely, a QDRO is also irrelevant, primarily because most plans don't allow changing a J&S election after commencement, so a QDRO cannot force a plan to do something that is disallowed by the plan. However, some variations might exist (especially if the plan has a governmental sponsor), @Bill Presson's advice is essential.

Trustee? Why isn't the Plan Administrator taking charge?

Most plan sponsors think about their plan(s) in terms of funding. However, for DB plans, the limitation (ie, IRC 415) is based on a maximum benefit. The enrolled actuary can provide details and calculate any limitation applicable to the second plan.

Some of the facts in the original post might raise questions. Many (not all) plans require some period of service before becoming a participant. Often, that period includes a requirement of working at least 1000 hours. Prudence might lead one to make sure the employee in question is actually a participant.

IRC 414(p) defines QDROs. You should read the definition in subsection (p)(1).

Could be, but it might depend on the sponsor's structure and (of course) the plan document. I've seen many documents that automatically terminate a plan if the sponsor is dissolved and/or bankrupt.

Nothing in the definition(s) of a QDRO requires anyone (other than the court) to sign, but applicable state laws and/or court procedures might do so. It's acceptable to include multiple plans in a DRO, so long as they have the same plan sponsor.

Has the Plan followed its claim procedures?

I think the Plan tells you what to do.

Maybe too late: the plan is not required to adopt the age 72/73 changes. It makes a difference in the portion subject to rollover.

Or they could consider terminating the plan now and creating a Qualified Replacement Plan. It might not eat up all of the excess, but it could shelter some of it from the 50% reversion tax. The enrolled actuary can make the calculations to determine if this is worthwhile, which includes a reasonable estimate of how the 415 limit might increase.

Implied in the OP is that a Form 500 has been filed. Please clarify.

The Plan will want whatever information is relevant to determine the amount and timing of the distribution to the Alternate Payee. It will not care whether those dates have specific names, such as wedding, separation, divorce, date of cohabitation, etc. (Likely the court will want to know. 😉)

Why is it the task of the Plan Administrator to calculate the fraction?