Oh so SIMPLE

The plan does not specify that it can pay any part of a stream of payments to the employee to the alternate payee while he is alive either. The plan generally provides that QDROs will be recognized despite the rule against alienation of benefits, it requires that the number of payments or period to which the order applies be specified. It does not say that these payments may be those during life of the employee. It does not forbid them from payments after the death of the employee. Is it your position that since the plan does not specify that the QDRO award may come out of benefit payments while the employee is alive, the plan cannot honor a QDRO that specifies such? If not, what is the authority for the proposition that the plan would have to specify that QDRO awarded payments after the death of the alternate payee will be honored, but the plan would not also have to specify that QDRO awarded payments before the death of the alternate payee would have to be honored? Either way, it is a QDRO carve out of payments that the plan does call for being made to the employee while she is yet alive. Our attorney has since chimed in. Apparently, the courts are not of the same mind on this issue. He told us about 4 decisions from his research. Three, from inside the 9th Circuit, conclude that an estate cannot be an alternate payee. Branco v UFCW-Northern California, 2002; In re Marriage of Campbell, 2009; and Mack v Estate of Mack, 2009. One from South Dakota came out in favor of the ex-spouse's estate, Divich v Divich, 2003. We're in the 9th Circuit, so our attorney recommended we follow those cases. He said his advice would be to follow Divich v Divich if we were located in South Dakota.

Thank you both. The plan's general terms do not specify that there would be any change in the monthly benefit payments to the employee in pay status by reason of the death of his or her spouse to whom yet married. The plan pays the same total payment per month from the benefits commencement date to the employee's death, regardless of the interim death of the employee's yet current spouse. (Of course, any survivor benefits under the J&S would lapse by reason of the yet current spouse dying before the employee.) Neither the plan, nor its written QDRO policy, specifies that QDRO payments must stop on the death of the ex-spouse (unless they were, of course, survivor benefits, but that would only come into play where the employee dies before the ex-spouse and then the ex-spouse dies). Here, the possibility being addressed in the QDRO is what happens when the ex-spouse dies before the employee. The Plan Administrator has received a QDRO that specifies that 50% of the monthly amounts otherwise payable as benefits to the employee are to be paid to the the ex-spouse, and the QDRO specifies that if the ex-spouse dies before the employee, the plan is to pay that 50% to the ex-spouse's estate (until the employee then later dies). That returns me, in this situation, to the 'legal question' of whether the ex-spouse's estate may properly be a 'follow-on' alternate payee or not.

May a QDRO specify that the share of payments (e.g., 50%) otherwise being made to the employee that are awarded to and to be made by the plan directly to the ex-spouse continue to the ex-spouse's estate after his death, until the later death of the employee? Or, would that be impermissible after the ex-spouse's death since the estate is not per se a "spouse, former spouse, child, or other dependent of a participant" (IRC section 414(p)(1)(B)(i) and ERISA section 206(d)(3)(B)(ii)(I)) and thus not per se an alternate payee?

I have a plan that made a distribution to a participant who is actively employed and below the normal retirement age. A VCP application has been made, and is yet pending. I'm preparing the Form 5500, and two of the questions trouble me a bit as to how I ought to answer. One is line 6b. It is checking for the eligibility for the small employer exemption to the annual audit requirement. It asks, "Were all of the plan’s assets during the plan year invested in eligible assets?" Part of the assets properly belonging to the plan were for a time during the year held by a plan participant who was not entitled to it. Is that considered an investment in ineligible assets? The other concern is line 10b. It is probing about the possibility of a prohibited transaction, Title I style. "Were there any nonexempt transactions with any party-in-interest? Since this was not a proper distribution being that it was premature, was the payment to the participant a nonexempt transaction with a party-in-interest?

I appreciate your inputs. The ERISA attorney's letter addresses the c/p issue, but the transfer contemplated to the wife will include a gift of the MD's c/p interest in the ownership of the side business to be wife's separate property. The wife will be gifting away her c/p interest to be the MD's separate property an amount of other assets equal to the value of the ownership of the side business that she will be receiving as her separate property. There will be no restrictions on the wife's ability to dispose of the ownership interest in the side business. The ERISA attorney's letter also addresses the ASG issue but concludes it is not a factor because the side business and the medical practice have <1% of the same clientele, when measured from either direction, the type of services that the side business provides are not those typically provided by an MD's medical practice, and neither the medical practice nor the side business provides any services to the other. The ERISA attorney's letter seems pretty comprehensive and even makes sense (!). She did identify the two vulnerabilities that I touched on in the OP, and I was hoping that there might be some case law or IRS having addressed these issues informally, such as reported in the Blue or Gray Books. Sieve mentioned maybe having heard the IRS address the child attribution issue at an ASPPA conference. Does anyone else having any sort of recollection or maybe know some details? The ERISA attorney suggested in her letter that the client make an application for a private letter ruling on the two issues identified as vulnerabilities.

A new client is a sole practicing MD with 11 employees. He has a side business that provides some sort of medical assessment and referral services, but does not treat patients. He is by independent contact with the side business the 'medical consultant' that answers questions as they arise and reviews all notes generated by the two very young staffers (24 and 27). His wife manages the side business. The MD would like to transfer all ownership in the side business to his wife, and then beginning the next year implement a DB plan for just the side business. If the medical practice employees come into play, the plan would not meet minimum coverage. That's the reason for transferring to her the ownership of the side business. In looking over section 1563(e)(5) and regulation 1.414©-4(b)(5), one of the requirements for no spousal attribution is that neither spouse be 'a member of the board of directors, a fiduciary, or an employee' of the entity owned by the other, and not participate in the management of the entity owned by the other. The client has an opinion letter from a noted ERISA attorney to the effect that she is unaware of any case law or IRS ruling that clarifies what is meant by management, and would not therefore opine on whether the medical consulting would be 'management' except to say that if tried, the medical consulting should be reduced to a written agreement and closely limit what specifically the MD is doing, avoiding any business management involvement or decisions. My first question is whether anyone knows of any IRS or court pronouncements that defines or clarifies what is mean by "management" in this rule? Would it extend to this situation? The other issue is whether the noninvolvement exception to the spouse being deemed an owner of the other spouse's busniness woul be possible in light of the fact that the MD and wife have a son who is just 16 years old. Derrin Watson has cautioned here (see ##3 and 4, and sentence after 4, in particular) that by single family attribution of the medical practice from the MD to his son, and single family attribution of the side business from the wife to her son, the son is deemed to own 100% of both the sole proprietorship and the side business and then the two would be a control group. The ERISA attorney's opinion letter cited Derrin's comments, noting in the opinion letter that Derrin is renowned as THE expert on this issue, but that the ERISA attorney could find no court or IRS ruling on point and that this seemingly thwarts the noninvolved spouse exception to attribution between spouses. My second question is whether anyone knows of any IRS or court rulings that define or clarify whether the parent-to-child attribution could be done simultaneously from both the father to the under-age-21 child and the mother to the under-age-21 child where this would prevent the purpose of the noninvolved spouse exception?

If a plan chooses to hand over the benefits of lost participants to the state escheat program, so that the plan can wind up and finish the termination of the trust, do you withhold 20% for federal tax withholding and report the whole amount as taxable income to the lost participant (i.e., a Form 1099-R with the lost participant's name, Soc Sec Number, and last known address)? Or do you simply hand 100% over the state, and not mention it to the IRS? Also, how do you report those funds on the final Form 5500?

If a company contributes to a union retirement plan for its employees covered by a CBA, may the company's 401k plan include its union-covered employees and permissively aggregate with the union retirement plan, considering just the union-covered employees working for that company and count the company contributions to the union retirement plan in the nondiscrimination testing of the company's 401k plan?

Has anyone assisted a plan in making (and documenting the basis for) a determination that a normal retirement age less than age 62 is 'reasonably representative of the typical retirement age for' the legal services industry? I am helping a pension plan sponsored by a law firm (no ERISA expertise in that firm) that specifies age 55 as the normal retirement age, and did not raise it timely. I am looking to find documentation that might support a normal retirement age less than 62. Please e-mail me at 401kplans@gmail.com if you do have such a situation and documentation.

I need some help with in-service distributions and NRA. Prior to 2003, the employer sponsored both a money purchase pension plan and a profit sharing plan. As part of the GUST II restatement, the money purchase pension plan was merged into the profit sharing plan. Both plans specified age 55 as the NRA before the merger and that in-service distributions may be made to an employee who has reached NRA. Since the merger, the profit sharing plan has continued age 55 NRA and in-service distributions once NRA reached. As part of the Pension Protection Act of 2006, section 905 added IRC section 401(a)(36). Now, age 55 as an NRA that allows in-service distributions of money purchase pension benefits is not acceptable unless age 55 is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. This is determined based on all the relevant facts and circumstances. Treasury Regulation section 1.401(a)-1(b)(2)(i) and (iii). "Deference" is given to a good faith determination of the typical retirement age, if that determination is made by the plan. 72 F.R. @ 28605 (3rd column). The latest IRS informal pronouncements (2009) are that the employer needs to base that determination on solid empirical data to be entitled to the deference. No determination was made for the plan in question, and it is feared that industry typical retirement age would be much higher than age 55. No amendment was made to the resulting profit sharing plan during the time for an exception to the anti-cutback rule (Notice 2007-69). A few months ago, one of the active HCEs with benefits under the plan and who is older than 55 years withdrew his funds and rolled them into an IRA, where they remain in tact (no withdrawals from the IRA have been made). This is consistent with the plan terms, as written. Now, the TPA has raised a flag of concern that the plan has a document failure in having failed to raise the NRA to age 62 years and having made a distribution (albeit consistent with the plan documents) of money purchase pension benefits before active HCE was age 62. We realize that the document failure will require VCP correction, as the EGTRRA remedial amendment cycle has come to an end. Part A of Notice 2007-69 provided that if the employer had made a good faith determination for a NRA of 55-61 and applied for a determination letter before the EGTRRA remedial amendment cycle, if the IRS then determined that the NRA below age 62 did not comply with the employer's industry, the employer would be required within 90 days of being so notified by the IRS to adopt an amendment increasing the NRA, but that amendment would apply prospectively. Do you know if the corrective amendment for VCP purposes will be required to apply retroactively to the last day of the first plan year beginning 6/30/2008, and thus effectively require the return of the money in the IRA to the plan?

If an asset in the divorce that is to be divided is an IRA of the husband, does the spouse avoid the 10% early distribution penalty if the amount is paid directly to her from the husband's IRA? If instead it is routed through an IRA in the spouse's name, does the 10% penalty then apply when she takes the withdrawal from her own IRA? She is under age 59 1/2 years.

If a person owns all of a company that sponsors a 401k plan and is the plan's only trustee, can he continue to so serve after declaring personal bankruptcy?

Anyone have any thoughts?

I have a situation where the 401k benefit owner died after reaching age 70 1/2, but before that calendar year ended. The MRD for him was made the next calendar year, as was the MRD for that next year based on the spouse (herself already passed 70 1/2). The preparer of the 1099-Rs wants to do just one. We think there have to be two, one to the estate of the decedent (and its TIN) since it was his MRD and the other to the surviving spouse (and her SSN). Two or one?

Do the prohibitions on lifetime caps on benefits, and the phasing out of annual caps on benefits, of PPACA '10 apply to MERPs, HRAs, and FSAs? All three limit benefits based on a dollar amount. For example, a MERP might limit the employer's reimbursement of medical expenses, for example, to $7,500 per year. Is that an annual limit that will now be prohibited under Obamacare, meaning that the employer's obligation to reimburse must now be unlimited?

H & W obtain divorce decree in State X, awarding W part of H's benefits in Plan in State Y. Rather than obtain QDRO from State X's divorce court, W has the State X divorce decree 'domesticated' in State Y, where the Plan and Plan Administrator are. Pursuant to the divorce decree, the State Y judge then enters the QDRO. Is this acceptable? Should the Plan Administrator insist on a QDRO be issued by the State X divorce judge?

Great, J4FKBC, and thanks for directing me to the Sungard and IRS pages. Followup question: Would such a plan have already needed an interim amendment for PPA and HEART?

Since an employee would yet have a lump sum payout at NRA of equivalent amount, cannot the form of a later payout (after April 1 after calendar year of reaching age 70 1/2 if yet working and not an owner in prior 5 years) be eliminated?

A plan's documents are currently individually designed. The last digit of the EIN is 0 or 5. The EGTRRA restatement cycle is E, with a deadline of January 31, 2011. May the plan be restated at this time using a prototype or volume submitter? I'm wondering if since the prototype era came to an end on April 30, 2010 if it is too late.

A plan has provision that the required beginning date is age 70 1/2, or if a non-owner for past five years, when actually terminate employment if later. May this be amended to simply be age 70 1/2 for all employees, without being a cutback of a protected benefit, right or feature?

Plan has safe harbor hardship definitions. Employee presents from the mortgagee on her residence a 'Notice of Intent to Accelerate' under the promissory note, specifying the amount needed and the date by which needed in order to avoid acceleration. The notice also mentions that if acceleration occurs, then "foreclosure proceedings will be initiated at that time." It looks to me that it would be premature at this time to base a hardship distribution on this notice. Any comments?

May this type of transfer be made on a trustee-to-trustee basis and continue the tax deferral (rather than individually elected rollovers to IRAs)? If so, would that effectively be a 401(a) plan termination if all the assets were so transferred? If not allowed now, has there ever been a time when this type of transfer be made on a trustee-to-trustee basis and continue the tax deferral?

But IRC section 3401(a)(21) excludes "any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 106(b)." The problem is that for the S Corp shareholder/employee is that the payment is not excluded from his or her taxable income, but is included and then deducted.

BUMP--Anyone know the answer to this?

I'm working on a plan that defines compensation for profit sharing allocation purposes by reference to compensation that is subject to payroll withholding, i.e., IRC section 3401(a). Generally speaking, Form W-2 Box 1 amount. The sponsoring employer is an S corporation. The sole stockholder is also an employee of the S corporation. Now that the value of health insurance provided to the S shareholder/employee must be included in Form W-2 Box 1 amounts for S shareholders/employees, is the value of the health insurance included in the S shareholder/employee's compensation for profit sharing allocation purposes?