My 2 cents

May be true, but then, when it is reported to the IRS on Form 1099-R, the AP WILL HAVE TO PAY THE TAXES!!! If there is nothing withheld, then it will be all that much more burdensome for the AP to come up with the difference in cash. Not withholding taxes does nothing to ease the recipient's tax burden - just the opposite. And (I believe) the tax laws say that the AP owes the taxes on payments made to the AP under a QDRO. Neither the parties nor the judge can change that.

What harm can withholding do? Taxes will be due. If the withholding is too much, you get it back as a refund. If insufficient, then the more that was withheld, the less must be raised to pay the actual taxes when due. Why do people think of withholding as though it represented a tax liability? Thanks to the issuance of 1099-Rs, not filing is not an available option (unless it can be shown that the withholding was, at a minimum, sufficient to pay all taxes due and there is insufficient impetus to file for whatever would be refundable).

It is my understanding that the following are true: 1. For PBGC premium purposes, only participants are counted. Please note that the alternate payee of a participant is counted as that participant, as are beneficiaries of a deceased participant. Count the participant only once (i.e., if the participant has cashed out but the AP remains, that is 1 participant, while if the participant remains in the plan, the total is still 1; if there are five beneficiaries of a deceased participant, that is 1 participant). Exception: If participant A has died and death benefits are being paid to B and B was also a participating employee, then B is counted as 2 people: once as A (who participated and on whose account benefits are still payable) and also once as B (whose benefits, earned in B's capacity of an employee of the sponsor, are also still payable). If A is still around and B is A's alternate payee and a participant on his or her own account, then there are 2 participants for premium purposes: A (covering both benefits payable to A and benefits payable to B as A's alternate payee) and B (with respect to any benefits B has earned as an employee of the sponsor). 2. If is my understanding that one never counts an alternate payee of a participant as a separate person, As above, if the participant is no longer a participant, then one would count the AP as though they were the participant. For the SB, this sort of thing would only matter in deciding whether one has over 100 participants or over 500 participants (to determine if the at-risk rules apply, for example). For all such purposes, all benefits originating from the service of 1 person could only contribute 1 to the headcount, but one person (who is both an alternate payee or beneficiary but also a participant on account of service with the sponsor) can count as 2, as noted above.

OK, to be on the safe side it should be rejected on the basis of the court lacking the authority to specify, in the order, the tax treatment of the distributions. How's that? A guarantee that one will not face the possibility of contempt of court?

Grossing up the amount payable to the AP ought to be acceptable - there's nothing out there prohibiting, for example, awarding 60% to the AP and 40% to the participant. That has the advantage of not trying (improperly) to dictate who pays what for taxes.

My question is whether any plan administrators or third party administrators would pay any attention to any elements of a DRO purporting to modify standard taxation of the payouts? What kind of an attorney could be so [trying to think of a suitable word other than incompetent] as to try to draft anything into a DRO so directly contrary to the law? Ditto for any judges writing violations of the tax codes into their orders. I am not a lawyer or a tax expert, but I seem to recall having heard that distributions to an AP under a QDRO are taxable to the AP and not to the participant. Clearly (if that is so), any provision trying to pass the taxability from the AP to the participant is unenforceable under all circumstances so may be safely ignored by all. Report the distribution as usual, pretend that the offending provision is not there, and don't think twice. I have no reason to believe that plan administrators have any responsibility for concerning themselves with the tax treatment of distributions (other than to report them properly). Paying the directed benefits to the proper people and putting it on a 1099-R based on normal reporting rules should immunize the plan administrator against any possible imposition of contempt of court.

Just some speculation and thoughts here: 1. No guidance has been offered on what de minimis is to mean in this context. So if you were a sponsor, and had the choice between contributing $40,000 this year but could choose to defer the use of the new tables to next year and could then pay only $39,000, wouldn't you want to be able to say that the difference is not de minimis? 2. Don't forget that all actual lump sums must be based on the new tables whatever is to be used for minimum funding. 3. Speaking of which, if you are assuming that 80% of the participants are electing lump sums, do you apply the annuity substitution rule using the 2018 extension of the 2017 417(e) mortality rates or the actual 2018 417(e) mortality rates? Previously, the only difference was unisex versus sex distinct. 4. If the sponsor does make the election, the actuary must use the 2017 table projected forwards another year as in the past, not the very same rates as were used in 2017, right? 5. And there is still the PBGC to be heard from, right? I would be surprised if they would let sponsors use anything but the actual 2018 mortality tables for premium calculation purposes, whether the filing method was the standard or the alternative method (i.e., base the premium on non-relief liability calculations based on the 2018 tables, not on 2017 tables extended into 2018).

The plans I have seen call for the payments to start at the participant's earliest retirement date, but many would permit the spouse to defer commencement to a later date (with a suitable actuarial increase based on the spouse's age from the earliest payment date to the actual commencement date).

It is my understanding that the continuation percentage for the QPSA must be at least the continuation percentage for the QJSA. I have seen more than a few plans that use a 100% continuation percentage for the QJSA. In those plans, the QPSA should be based on a presumed election of a 100% joint and survivor option.

Sorry, I don't see any connection between failing to make a cash contribution to a defined benefit plan (which, whether cash balance or not, has no impact on the accrual of benefits) and Section 401(a)(4). There may be a qualification requirement associated with meeting the minimum funding requirements or a failure to carry out the plan provisions (assuming that the plan demands that minimum funding be met), so I am not saying that failing to make the minimum contribution to the cash balance cannot have an impact on qualification, but I am saying that if it did it would not be a matter of failing to meet the non-discrimination rules.

The impression I got from the original post was that the profit sharing contributions they were unable to make were NOT discretionary (some combination of safe harbor and top heavy). I think failure to make a mandated defined contribution plan contribution is worse than not making a minimum funding contribution to a defined benefit plan. Cash balance formula or not, failure to make a plan contribution in a defined benefit plan does not cut into anyone's actual plan benefit (there being no direct correlation between the formula accrual and the actual cash contributed to the plan), whereas it certainly does if it is a defined contribution plan since no contribution means that the account balance does not go up as it is supposed to.

I am assuming that the Cash Balance plan is subject to the jurisdiction of the PBGC in making the following comments. Failure to satisfy the minimum funding requirements is an event reportable to the PBGC. Have they submitted a Form 10 yet? Being unable to afford contributions to the defined benefit plan (presumably the reason for not making the minimum required contribution by September 15th) is a matter of great concern to the PBGC, particularly if the sponsor is also unable to make the contributions required for the Profit Sharing plan. Any time there is an action called for in the plan document (such as making the contribution the Profit Sharing plan calls for) and that action is not taken, it could become a qualification issue. I don't have expertise with defined contribution plans, so I am not sure that failure to make a required contribution is a qualification matter, however.

To what extent can there be an excluded class in a safe harbor plan? Just wondering.

Knowing nothing about the applicable rules, while I am glad that you found your answer, I am curious about what MOOP might be. What a silly-sounding acronym!

I might be missing some of the nuances, but 1.414(q) is a regulation dealing with HCEs. Who is an HCE, whether benefits are subject to the 25-high limits, non-discrimination etc. The family aggregation you are thinking of served to restrict how much could be accrued by those subject to aggregation. I remember once having to allocate the compensation limitation under 401(a)(17) between the really high-paid owner and his spouse (who was also an employee), since the benefits they could accrue needed to be based on compensation limited (between the two of them!) to the year's compensation limit. I don't think that extended to other family members the way HCE status does. Boy, was I glad to see that part of the law amended out!

Just out of curiosity, when the participant dies and benefits are distributed to the beneficiary (whether a trust or not), would that not be considered an event taxable to the participant?

Just as a practical matter, why would an employer want to pull off a stealth termination of their 401(k) plan? Why not make a point of notifying everyone covered by the plan that it is terminating, whether the government requires it or not? Terminating a 401(k) plan would necessarily require distributing all account balances, right? How do you do that without telling the participants that the account balances will be paid out? Even if not required by the IRS, common sense says you should tell everyone about it!

Well, I just did and Section 318 seems to very clearly say that ownership is imputed to spouses. Further, to the extent that the spouse of an HCE was being treated as an employee (whether the HCE is such due to ownership or compensation), 1.414(q) Q&A 11 and 12 make it clear that the spouse is an HCE. Still suspect that to be eligible for a 401(k) plan, the person must be considered an employee in some fashion, which would make the spouse of an HCE an HCE as well.

Something about the wording of that makes me think that they were only talking about the termination of a defined benefit plan. Are you sure that it also relates to defined contribution plan terminations?

I am not a lawyer and not an expert on such things as living trusts, but don't they cease to exist immediately upon the individual's death?

Somewhere along the line, I got the impression that the spouse's of HCEs are always considered HCEs themselves. I could be wrong, though.

For some reason, when I see a comment like "The reason to do [this] is that some employees' spouses' retirement plans have high administrative fees, so we considered setting up a new "clone" of our existing DC plan specifically for those spouses.", the first thing that I would assume is that the spouses are spouses of HCE decision makers. Decision makers otherwise tend to completely ignore issues concerning the plans covering the non-employee spouses of rank and file employees. After all, if those high administrative fees can be categorized as unreasonable and due to fiduciary violations, it is not the sponsor of THIS plan who may be named a defendant in a fiduciary violation lawsuit!

Possible downside to not reporting as D's all prior terminated participants previously reported as A's who have since cashed out is that X years from now, they may come looking for their benefits (again!) because of the "You may be a winner!" letter that Social Security will be sending them. Will you be ready, willing and able to prove to them that they were already paid in full?

I'm still trying to figure out whether crediting the wife and daughters, who perform no actual services for the employer, with 1,000 hours of credit to justify their receiving 401(k) and PS contributions would normally be considered tax fraud. Even safe harbor 401(k) contributions cannot exceed actual employee compensation, right?

Is it even possible for an employer to sponsor a 401(k) plan for non-employee spouses of their employees? Just to see what kind of answers are received, I will ask whether it would make sense to exclude from this cloned plan the spouses of all highly compensated employees. As a second question, how much sense would it make to sponsor a 401(k) plan whose participants would be ineligible to make salary reduction contributions, with the plan only existing to accept rollovers? Surely, the employer's plan could not accept salary reduction amounts (or matches) with respect to compensation from an unrelated employer? Also, as disgusted as I may be with all of those excessive fee lawsuits, why wouldn't the spouses in question be claiming fiduciary violations in the plans sponsored by their employers?