My 2 cents

Odds are that, if there are any snags (including snags you warned them about), the client is going to get mad at you whatever you do.

Technically, it is a failure to follow the plan terms, with the potential issues that that entails. Having said that, the most likely form of penalty will be having, X years later, to spend more than $1,000 to try to find them and get the benefits (now more than $3,000) paid out!

Granted, but it probably won't be in the same ballpark as the holiday bonuses paid to employees!

Just wondering - you wouldn't pay a holiday bonus to a consultant/independent contractor, would you? Standard caveat: I am not a lawyer, but... The person is either an employee (with what they are being paid reported on a W-2) or an independent contractor (with what they are being paid reported on a 1099 of some sort). If the former, then they must be treated as reemployed based on what the plan specifies (but if they never work 40 hours in a calendar month, no benefits can be suspended and they would presumably accrue no additional benefits). If the latter, then they would not be treated as an employee or, under the plan, as having been rehired, no matter how much work they do and how much they get paid. Facts and circumstances would come into play if the compensation approach could be construed as a pretext.

Just for the record, whether that sort of thing used to be true or not, or even if it still happens, "what do you want the answer to be" is a clear violation of the standards applicable to actuaries. Just saying.

If it is a defined benefit plan, Section 415 is clear that it is not permissible to pay even 100.01% of the highest 3-year average 415 earnings paid to the participant (let alone 125%).

I don't work on 401(k) plans, but if a 401(k) plan terminates, wouldn't all of the money have to be PAID OUT (either through direct distributions or rollovers)? Granted that the successor plan would have to continue to recognize prior service for vesting service etc., the successor plan would start with $0 assets other than amounts rolled over from the prior plan. The roll over assets would only have the status of being roll over balances, and it would matter not a whit how the money had accumulated under the prior, now-terminated plan. Is that not so? 1099-Rs would have to be issued for every penny that had been in the now-terminated plan, but those portions that were directly rolled over to the new plan or to an IRA would be designated as not currently taxable. Or am I missing something?

If you are talking about a defined benefit plan, IRC Section 415 prohibits annual pensions in excess of the highest 3-year average compensation. Section 415 has rules concerning what can and cannot be counted as compensation. Note that if someone defers commencement beyond Normal Retirement Age in a plan that provides for actuarial increases for the period of deferral, those increases cannot raise the benefit above the high-3 average (once you would get to that point, payments would have to commence). It is my understanding that defined contribution plans are subject to restrictions on the amounts that can be added in any given year, but there would be no limits on the size of the account balance resulting from those additions to the account.

If the Order was properly issued by a court and contains acceptable provisions, while I am not a lawyer and do not practice in the QDRO area, is it not true that there can be NO provisions under the plan involving anyone appealing the Order under the plan? Once accepted as Qualified by the plan administrator, the only thing that could get in the way of its being carried out exactly as is would be another COURT order staying or overturning the QDRO. There can be no discretion on the part of the plan administrator. The plan administrator can be under no obligation to watch out for pending court orders involving a challenge to the original Order!!!

I do not work on loan default issues, but it is my understanding that there are no options if the participant stops repaying the loan. I thought that every penny of the outstanding balance has to be reported to the IRS as taxable in the current year (possibly with additional excise taxes). The employer has no discretion with respect to that. The plan has no alternatives - it cannot allow the participant to buy his or her way out of the default later, even if resuming repayments is permitted. Is it not that way?

Is it really possible to use personality tests without running into legal issues concerning discrimination against protected groups? Just wondering.

Non-electing church plans, according to my recollection, are not subject to the Section 411 rules prohibiting forfeiture of accrued benefits. So unless the plan itself prohibits such actions, they can probably write to their terminated participants with deferred vested benefits and say "Hey! If you want, you can trade your deferred pension in for a lump sum now equal to 80% of the value of your deferred pension (and if you do, then you would no longer have any rights under the plan)." Am I right in assuming that the plan is 80% funded on the same set of assumptions as the lump sums will be based on? Otherwise, it's apples to oranges (but still probably as legal).

1. Perhaps I am bitter and cynical, but with boards of directors that consist primarily of people who are CEOs for other companies, there is no pushback when executives give themselves unconscionable bonuses. Why wouldn't they consider anything that lowers the cost of doing business (such as elimination of corporate taxes) as an excuse for bigger bonuses? They have certainly never hesitated to do so when the reduction in the cost of doing business is patently borne by the company's rank and file employees. How many times have we read of executives who follow up a dramatic layoff/reduction in force (even if justified by shaky financials) with another multi-million dollar bonus for themselves? And shareholders choosing to invest in companies based on who overpays on executive bonuses and who doesn't? How many 401(k) plans choose their investments based on such considerations? Or even on how open-handedly the company pays out its profits as dividends? Perhaps if the corporate income tax were eliminated, the market would pressure some of the companies to pass more back as dividends, but I think that effect would be more limited than you do. 2. Perhaps it's my imagination, but isn't one of the problems leading to the radical differences between executive compensation and rank and file compensation that finding employment elsewhere is less of an option than it used to be? What percentage of the workforce is working where they are working because they lack options? I will believe that the threat of jobs being moved to lower-wage countries has been ended when I see it (and anyway, it used to be that companies moved jobs at will from the higher-paying northern states to the lower-paying southern states - any reason to believe that even if offshoring jobs was to be ended, it would translate into higher pay or more choices for rank and file workers?).

Is it not true that if corporate taxes were eliminated (ignoring the impact on the money available to the government to cover the things that the government must do), most of the money would go into a combination of higher bonuses for the executives and lower prices to maintain market share. Guaranteed - passing the bulk of the "savings" back to the shareholders through larger dividends would never happen. With the current rules for tax-deductible contributions to defined benefit plans (which permit funding up, at the very least, to 150% of liabilities), one almost never sees larger plans worrying about there being too much money in the fund. Further, without the incentives provided by the reduction in the corporate taxes owed that result from contributions to retirement plans, the corporations would probably reduce their commitment to providing retirement income to their rank and file employees. No corporate taxes? Then what incentive would there be to meet the requirements for a qualified plan? Why not just give retirement benefits to the executives? It is the corporate tax savings that make the effort to provide qualified benefits evenly slightly palatable.

So who will watch out for the innumerate and uninformed investors (oh, all those 401(k) participants!)? Don't they deserve protection from the wolves? But in the grand scheme of things (such as removal of limitations on dumping industrial waste into streams and rivers), aren't there bigger things to worry about?

I think moving all of Fund A into Fund B is precisely the sort of thing they want to see in the 5% transactions. While I do not work on 401(k) plans, it would be my expectation that benefit payments in excess of 5% of the total value would NOT be reportable, even if paid to only one person (although sale of the assets needed to pay it could have to be reported).

I was referring to the applicable 417(e) rates (with the plan's lookback, stability period etc.) to place a lump sum value on the participant's benefit. Were you referring to the use of something like that, the plan's non-417(e) equivalence basis, or the calculations as done by the original poster? I would not think that estimating a lump sum value using 417(e) rates would be "wholly unreasonable".

Even plans subject to ERISA have some flexibility in designing a lump sum window, especially if the plan does not otherwise offer lump sums. Non-electing church plans may include language about spousal consent, may specify actuarial equivalence factors in line with Section 417(e), etc. If the plan in question has those sorts of provisions, some coordination of the plan amendment governing the lump sum window with the plan provisions already in place may be a good idea. Even a church plan ought to adopt an amendment concerning a lump sum window, and the amendment should say how to carry it out. To the best of my knowledge and understanding, even ERISA plans do not need to include the present value of a QPSA in lump sums to be paid, so I don't see how that sort of thing could come into play for a church plan. I would anticipate that, barring provisions that may already be in the church plan to the contrary, you do not need to use 417(e) rates for the lump sum window, you do not need to offer immediate annuities in lieu of the participant choosing between a lump sum or leaving the benefit in the plan to be paid as an annuity when it would otherwise have been due, and it is not clear to me that spousal consent would even be required. Those things are all necessary if the plan is subject to Section 417(e) but not otherwise. You certainly do not need to jump through any funded percentage hoops to pay out the lump sums (but if the plan is already poorly funded, amending in a lump sum window may be a bad idea).

Looks like a suitable 6,000th post to me! What are you doing for an encore?

Especially if the plan does not offer to distribute benefits in a lump sum, the plan provisions should not control when it becomes necessary to place a dollar value on the benefits payable under the plan. If one is content to use a non-actuarial but relatively coherent method for valuing the benefits, it may be possible to do so without consulting an actuary practicing in the QDRO area. Otherwise, such an actuary should be engaged by one or the other of the parties. Speaking as an enrolled actuary, if the plan administrator (choosing, for whatever reasons, to get involved in a private matter - calculations with respect to the creation of a QDRO NOT being one of the responsibilities of the plan administrator, especially since the interests of the participant and the soon-to-be ex-spouse may be adverse and the plan administrator, no ifs-ands-or-buts, cannot choose to favor one over the other, the fiduciary obligations applying equally to the alternate payee to be and the participant) asks for a value, it certainly seems reasonable to apply the plan's lump sum actuarial equivalence basis.

If I read the original post correctly, no actuaries were involved in performing the calculations. Estimated value for QDRO purposes does not legally require the preparation of actuarial calculations by qualified actuaries (the way, for example, that the calculation of PBGC premiums does), however preferable it would be to have the calculations prepared by a qualified actuary following the standards of practice. One presumes that non-actuaries are not bound to follow actuarial standards of practice, but then the results ought not to be called "actuarial". If it was for a large benefit, it would probably be a really good idea for one party (or both!) to engage the services of an actuary practicing in that field to get a suitable value in accordance with the standards of practice. I personally do not practice as an expert witness in that field (i.e., this is not in any way an attempt to solicit business for myself!).

Last time I looked, it was actuaries and not attorneys who would, subject to applicable standards of practice, perform calculations of that sort. I suppose that if neither side trots out an actuary who disagrees with your calculations.... As it does seem to be a relatively small benefit, if the two sides can reach agreement through allocation of non-pension resources, that might be the best approach.

Sometimes legal guardians of incompetent persons have the authority under plans to issue directions with respect to plan benefits. Question: Would permitting someone having a power of attorney with respect to the participant or the participant's spouse to waive a QJSA be a violation of ERISA and Section 417 of the Internal Revenue Code, irrespective of applicable state laws? To put it in other words, do pension documents fail to mention powers of attorney because for plan purposes (excluding incompetence issues, which would generally require that there be a recognized guardian) there is nothing that the plan could permit the POA to do? In a plan not subject to the QJSA rules (i.e., a 401(k) plan), can the person holding the POA direct that the participant's account be paid out?

I may be wrong, but one is or is not an HCE for a given year, and I think it is based on the prior year's compensation. Changes in compensation level during a year do not push one, cannot push one, from being a non-HCE to being an HCE during the year.

While I don't practice in this area, the following is how I understand things to work:\ If the person turns 70 this April, his RBD is technically 4/1/18 (for the 2017 minimum distribution), but if he rolls over his account balance this year, the portion that represents his 2017 minimum distribution cannot be rolled over. A minimum distribution is required for 2017 if he reaches 70 1/2 in 2017. Presumably, whether or when he terminates is not material, since he would appear to be a 5% owner (and they don't get to delay minimum distributions until after the year in which they separate, but it really doesn't matter here since his separation was in 2016). While, absent a rollover, the minimum distribution could have been deferred into early 2018, if there is a full distribution with a maximal rollover in 2017, it must be net of the minimum distribution for 2017.