Fielding Mellish

I understand and agree that an Administrator cannot refuse to honor a DRO just because the divorce may be a sham. But, if there's a way to put language in the Plan that can dissuade people from getting sham divorces, then that's a good thing, IMO. However, the Administrator honors DROs as presented, so the whole "sham divorce" thing is a non-issue here. I just threw that out there as a point of discussion. In this case, the issue, which you guys have made good points on, is whether the Plan can limit when an AP gets her benefit. Thanks.

Thanks QDROphile. The Plan's interpretation, though, is that the AP cannot get a cash out until after 1 year. I don't believe it's that the AP can choose benefits at eligibility, after 6 months, or after 1 year. It would be redundant to say that she could get a benefit at 6 months or a year. So, in this case, the AP's segregated account is set up as of the date described in the QDRO. It seems to me that she cannot get a cash out until the 1 year anniversary of the divorce. If the AP was a Participant, though, she'd be able to get her benefit after 6 months of no contributions. That's where my sticking point is.

Defined Contribution Plan. Plan language states that the benefit options available are a QJSA (if married), a lump sum, or partial benefits. If a Participant doesn't have contributions for 6 months, he can take a lump sum, even if not at retirement age (ignore the tax consequences for the sake of this scenario). At issue is another provision. The Plan also has language that says that an Alternate Payee may make a voluntary cash-out in a lump sum so long as it has been 1 year since the divorce. Now, a Participant can get his money in a lump sum after 6 months. The Alternate Payee has to wait a year. Is that permissible? Keep in mind that this language has been in the Plan since the early 2000s and the Plan has received 2 favorable determination letters since the language was inserted in the Plan. Now, I understand that the IRS doesn't really look at these Plans with a magnifying glass (well, some agents do), and I understand that, if the Plan language is improper then it needs to be changed. Now, with all the talk lately about sham divorces, this would be a possibly effective way to combat that (though if people really wanted to skirt the rules, they'd do it anyway). According to the DOL FAQ on QDROs: Now, that seems to say that the Plan can have provisions treating Alternate Payees and Participants differently by letting the Alternate Payee get her benefit sooner than a Participant or under different circumstances. Do you read it to say that a Plan can also impose greater limits on an Alternate Payee (under the "different circumstances" language)? Also applicable here is the DOL publication on QDROs, specifically part 2-15 From that same publication, part 3-8 It seems to me that there are some hurdles to enforcing the Plan's language. Now, if I can get the parties to agree to insert in the QDRO that the Alternate Payee won't have access to her account for one year, then I think that's ok. My bigger issue/question is the operation and language of the Plan. Your thoughts? Thanks.

This Plan is in critical status and has already cut pretty much everything that they're allowed to cut. All adjustable benefits have been cut and any benefits that had been added within the 60 previous months had been cut, too. Contributing employers are already contributing a good chunk of change. Really both the employers and the Union have stepped up to the plate. It's just that the only way to save this Plan (like so many others) is to cut retiree benefits, but there's just no way to do that now.

This is a Taft-Hartley multiemployer plan. It's mostly the Trustees who ask the question about voluntary reduction of benefits, it's just that many of the other plan professionals seem unsure about the response. To me, it seems so clear that it was disconcerting that others had to even think about it. Frankly, I sincerely doubt any retirees would elect to reduce their pensions, so it would be a moot point anyway. But, I'm glad you guys all think along the same lines that I do. Thanks.

I think I know the answer to this but I wanted to see if anyone had any other input. Defined benefit plan with 5 year cliff vesting. The Plan is in some trouble financially, mostly due to the fact that retirees currently receiving benefits are receiving very high monthly payments. This is due to a high accrual rate in the 90s and early 2000s. I have had a number of people ask me if we can ask the retirees to voluntarily reduce their benefits in order to stave off PBGC involvement (which will be happening within the next 10-15 years if things stay the way they are). 26 CFR 1.411(d)-4 Q&A # 2 states "A plan is not permitted to be amended to eliminate or reduce a section 411(d)(6) protected benefit that has already accrued, except as provided in 1.411(d)-3 or this section. This is generally the case even if such elimination or reduction is contingent upon the employee's consent." Seems to me that it's clear that we cannot ask the retirees (or anyone with an accrued benefit) to voluntarily reduce their benefits. But, when I've said this to other professionals, I sometimes get a look like I'm crazy. Thoughts? Thanks.

Husband and Wife are divorced in 2009. They have a QDRO at that time that assigns Wife $7,000 of Husband's account. At the time of the divorce, Husband only had $10,000 in his account, so after Wife gets the $7,000, he's left with only $3,000 in his account. The issue is closed. But, in the divorce decree, Husband is supposed to sell the marital house and give 1/2 the proceeds to Wife. He sells the house for $40,000 but doesn't give her any of the money. Wife files a contempt action and the Court rules that Husband is in contempt. Since 2009, Husband has worked a ton of hours and his account balance has exploded. Wife files a new QDRO assigning Wife $20,000 of Husband's account. Keep in mind that just about all of that money was earned AFTER the marriage ended. 1) Is this permissible if Husband agrees to it? 2) Is this permissible if Husband does not agree to it? Thanks.

Actually, that's very helpful. So, to be timely, the amendment had to have been adopted by the end of the first plan year beginning on or after January 1, 2010 (which was the remedial amendment period for HEART). Since the amendment was not adopted by then, it is not timely. However, the plans can still take advantage of the $375 and Schedule 1 because it will have been adopted by February 1, 2014, which is the beginning of the next cycle time for these plans. Correct?

Thanks for your response, though I'm still a little confused by the remedial amendment period. I thought the remedial amendment period for the HEART Act was by the end of the first plan year beginning on or after January 1, 2010. If I don't adopt the amendment until 2013, then I'm outside the remedial amendment period. Therefore, I'd need to use schedule 2. Or is the remedial amendment period the "off-cycle" time period? If so, is there guidance on that?

It has recently come to my attention that some of my Taft-Hartley pension plans were not amended for the HEART Act. I won't go into why as it's not really important right now. My plans' restatement cycle begins February 1, 2014 and runs through January 31, 2015. I am planning on submitting them for restatements within that time. I am going to have my non-amended for HEART plans pass amendments at their next quarterly meetings (all of them will be held before the end of 2013). I am then going to submit those amendments to VCP. My questions: 1) If the amendments are passed by the end of 2013 and I submit to VCP by the end of 2013, will I qualify for the reduced $375 VCP fee (pursuant to Rev. Proc. 2013-12, Sections 6.05(3) and 12.03(2))? 2) Which schedule would I use when submitting to VCP? Appendix C, Schedule 1? Appendix C, Schedule 2? I'm thinking schedule 2 because these plans were not amended within the remedial amendment period. So, I'll just have to fill out the "other" box on the schedule and say that it was for HEART, etc. But, I wanted to see what you all thought. Thanks.

Thanks to all for your responses. Very helpful.

My line of thinking was that the "best" option for the Plan would be to deny the DRO in an attempt to get the parties to redo it (or something to that effect). So, I agree with your suggestion. However, I'm not really sure there's anything in the DRO that would disqualify it. It lists the Plan name, the names of the Participant and Alternate Payee and their addresses. Thinking about it now, though, I wonder if the situation is similar to one where the Participant walks in on July 1, 2013 and says "hey, I retired July 1, 2003 but never applied. But, I want my retirement benefit payable back to 2003." That obviously wouldn't work because the Participant never applied in 2003. The difference here is that this is a Court Order, not just an application by a Participant. But, the Plan never had any notice that the DRO was filed. In fact, it seems the Participant never even notified the Plan that he was divorced (he worked within the Plan's jurisdiction for about 3 years after the divorce). So the Plan really hasn't done anything wrong. It would be great if there was some case law or IRS/DOL ruling that would apply here, but I sure haven't found any. It seems I can just talk myself in circles here. Thanks again for your response.

QDROphile, thanks for your response. Your suggesting is a very interesting one. The only issue could be that the DRO specifically says that the benefit is to commence July 1, 2003 and the benefit is to be $85.00/month. However, I think your suggestion about the late delivery of the order is one that should be taken into consideration. Thanks again.

Plan is a defined benefit plan. Participant had 16 years of service with the Plan, so he is vested. He and his wife were divorced in July, 1987. A DRO was filed with the Domestic Relations Court (state = Ohio) at that time giving Alternate Payee $85.00/month beginning July 1, 2003. That was when Participant would be 55 and eligible to retire under the Plan. As far as we can tell, that DRO was never sent to the Plan Administrator to judge whether it was a QDRO or not. At least, it wasn't provided to the Administrator until last week. The Participant left the Plan in 1990 when he took other employment. He is going to be 65 this July and is looking to begin his benefit with the Plan. So, my questions to my fellow board members are as follows: 1) Has anyone ever experienced anything like this? If so, what did you do? 2) Is there any time limit on turning DROs over to a Plan Administrator? I don't believe there is, but who knows if there's some goofy ruling out there saying there is. 3) Assume that the terms in the DRO are acceptable, thereby making it a QDRO. Is the Plan required to make a lump sum payment for all the payments it "missed" since 2003 even though the Plan didn't even know it was responsible for those payments until 2013? My inclination is that, if the DRO is a QDRO, then the Alt. Payee is entitled to all those benefits, not just from this point forward. Thoughts? Thanks.

Great, thanks.

We submitted a Plan for a Determination Letter. The IRS agent sent us an information request asking for more information and a few plan amendments. Some of the information they're saying is required in the Plan is information that we do not feel is required. In other words, we, in good faith, disagree with the IRS. I spoke with the IRS agent and he said that there is a Rev. Proc. out there that says that failure to amend because of a good faith interpretation that certain provisions aren't applicable will get you "off the hook" from VCP fees. I have looked and looked for that Rev. Proc but have found nothing. Has anyone else ever run into this situation?

Did you ever figure out an approach to this?

Yeah, I agree with the whole "end of the world" thing. It isn't a huge amount of money, but it is what it is. Thanks.

Plan is a profit-sharing plan. It was notified of a tax penalty. Plan administrator mistakenly paid out of plan assets. A couple questions: 1) Is this a prohibited transaction, or something else? The money went to the IRS, not to a fiduciary. 2) If it is a prohibited transaction, do you believe the plan can avail itself of the correction program? Looking through the DOL materials, I would say no. 3) If a profit-sharing plan has a tax due, or a tax penalty due, who is responsible for paying it? And out of what account? Thank you for your thoughts.

Plan X is a defined benefit plan. A new trustee is being appointed due to the death of a trustee. The new trustee is retired and is receiving a pension benefit from the plan itself. Is this a prohibited conflict of interest? My gut says it is not. So long as the trustee can appropriately put on his "trustee hat" and leave his "participant hat" at the door, I would think his decisions would be ok.

Thanks for the reply. Kind of what I was thinking, too.

We just sent in a bunch of our plans to VCP in late January, 2011. For most of them, there were only 1 or 2 failures, just timeliness things. We got compliance statements back within a couple of weeks. I was just as surprised as anyone. On that topic, we also submitted our restated Plans to the IRS Determination Letter people at the same time as we submitted to VCP. Now that we've received compliance statements back from VCP, do you feel it would be wise (or necessary) to send the compliance statement to the IRS Determination Letter people? I haven't found anything that says it's required (doesn't mean it's not out there), but I'm wondering if it would be helpful at all. Thoughts?

Don't submit the document to the determination letter people with a "failure" in it unless you concurrently send it to VCP. And, make sure you mention to both the DL people and the VCP people that you've submitted it also for VCP or DL, respectively. See Rev. Proc. 2008-50, Section 10.06(2). Please let me know if that helps.

Along these same lines, I have a defined benefit plan. That DB plan has rollover provisions in them (not sure why as I'm not sure what kind of rollovers can come out of a DB plan). The plan year is April 1 - March 30. I know that PPA amendments could be timely if they were signed by, in my case, March 30, 2010 (by the end of the first plan year beginning on or after January 1, 2009, which was April 1, 2009 - March 30, 2010). In the case of this DB plan, the Roth IRA additions and non-spouse distributee provisions were missed. Can I have the BOT sign those amendments now (October, 2010), and just submit that amendment to the streamlined VCP? In other words, is there any authority out there, outside of Sieve's belief (which I agree with) that failure to make PPA Amendments by the end of the first plan year beginning on or after January 1, 2009 is interim/discretionary subject to streamlined VCP? Thanks.

Thanks for your reply. I understanding keeping track of the loan, but why continue to carry it as an "asset" on the balance sheet? In the Plan, you can't get another loan if you're in default. I should have mentioned that before, sorry.