My 2 cents

It being a one-person plan might change the game. I suspect that if there were statistics on plan disqualifications, based on anecdotal evidence I would expect them to show much higher rates of disqualification for one-person plans as compared to larger plans. And if there was anything that looked fishy (example: big contribution shortly before declaring bankruptcy, which could look like an attempt to defraud creditors), that might not predispose the IRS to be gentle if any defects were to be found. I still feel somewhat queasy at the thought that the bankruptcy trustee could have been put in a position where she stood to gain personally if she succeeded in getting the plan disqualified. I don't normally work with bankruptcy filings - is the bankruptcy trustee's duty primarly to the creditors or would the bankruptcy trustee's duty be more oriented towards seeking an equitable resolution?

Is initiating action to get a QDRO established consistent with the plan administator's fiduciary duties or should the plan administrator presume that the participant will receive the entire benefit until and unless presented with a court order (or at least a communication from the ex-spouse to hold off on paying)? Isn't the default action (even in California and other community property states) to just pay the participant unless the plan administrator is put on notice not to do that? Wouldn't the plan administrator have no duty to the ex-spouse until the ex-spouse has been named as an alternate payee or at least started to take action to become an alternate payee? Sorry if I did not make it clear that that is what I was asking.

Does the plan cover only the person in bankruptcy or would there be collateral damage?

If the plan is subject to the QJSA rules, you had better be ready, willing and able to come up with those calculations!!!!! Remember, their informed decision does not have to be "never mind, we'll just take the lump sum".

Does dropping a dime to the ex-spouse represent fulfillment of fiduciary obligations or a violation of them? The plan administrator is required to follow the terms of a QDRO but wouldn't the plan administrator's duty otherwise be solely to the plan participant? Just wondering if any of the practitioners have views on this question.

Perhaps the question has to do with whether the plan is still qualified. If a plan is disqualified, would there still be the same protection from creditors as there would have been had the plan not been disqualified? Would there be an incentive for creditors to try to get an otherwise qualified plan disqualified so they can reach the person-in-bankruptcy's assets? Just wondering.

I had not even thought about the creditor not being a natural person. One does presume that one is talking about either beneficiary for a pre-retirement death benefit or that the benefit is being paid out as an annuity. In either case, if the benefit is to be contingent on the survival of the beneficiary (and kind of joint annuity), the plan had better limit the beneficiary to a natural person (although if we are talking about a pre-retirement death benefit, the plan should say what to do if the beneficiary is not a natural person).

I would presume that Dr. B, under threat of contempt, would not be seeking immediate payment of benefits at this time and would have by now withdrawn any previous request for payment.

My opinion: Is the participant suffering from a terminal illness? Or is the creditor the kind who makes offers that cannot be refused? Of course, if an early death could be traced to the creditor, the creditor would be disqualified from receiving the benefits. A typical employee (or even new retiree) is expected to live for 20 years or more, and nothing would be payable to the creditor until after the participant had died. What kind of collateral would that be? In any event, there is never anything a beneficiary can do to interfere with the participant's enjoyment of his or her benefits/account balance. If the participant blows the account on an around-the-world trip or an 80" television, the creditor can only watch (in the latter case, perhaps the participant would, literally, invite the creditor to come over and watch the Super Bowl on the "collateral"). Short answer: No, it would not be the same as assigning the benefits to someone else, so why not?

Just wondering as a non-lawyer - against whom was the "emergency motion of contempt" filed? Couldn't have been the plan. Couldn't have been the service provider. Couldn't even have been the plan administrator or the trustees acting in their capacity as trustees. None is a party to the divorce, and the court handling the divorce proceedings should not have the reach to declare anyone other than the parties to the divorce as being in contempt, at least until the court has issued an order to non-parties requiring or prohibiting some action. Was it actually an order to not distribute any portion of the accounts to anyone pending resolution of the divorce?

For a beginning of year valuation (required for all defined benefit plans with 100+ participants and acceptable for all other defined benefit plans), the funding liability ("Funding Target" or "Target Liability") is based on the accrued benefits as of the beginning of the year, valued as of the beginning of the year. There is a normal cost component in the minimum required contribution ("Target Normal Cost") based on the expected increase in accrued benefits from the beginning of the year to the end of the year, valued as of the beginning of the year. People who are not yet participants as of the beginning of the plan year (assuming that the actuarial valuation is as of the beginning of the plan year )are not taken into account, and there is no recognition of them for purposes of this year's Target Normal Cost. If they enter by the beginning of next year, their Funding Target for next year's valuation will be based on their accrued benefits as of the beginning of next year, and their Target Normal Cost fore next year will be based on the benefits expected to be earned by them next year. If they enter and terminate before the end of this year, if there are any unpaid vested benefits, they would be included in next year's Funding Target (otherwise they would not be recognized in any actuarial valuations. This is the way defined benefit plan funding is required to be handled under the Pension Protection Act of 2006 (effective for most defined benefit plans since 2008).

Original post indicates that A and C are cousins. What difference would that make? Cousins don't count for family aggregation, do they?

If the plan covered 100+ participants, there would be choice but to perform the actuarial valuation as of the first day of the plan year. It is my understanding that the plan provision defining Valuation Date is used for top-heavy testing purposes and would not have any control over the date to be used by the enrolled actuary as the valuation date for purposes of the annual Actuarial Valuation. In preparing the participant benefit statements or in performing benefit determinations, follow administrative procedures and basically ignore how the actuarial valuations are being performed (but, except for the use of snapshot data in the actuarial valuation, there should be consistency between them).

It was a long, long time ago, so some of the details are a bit hazy. I think what you are supposed to do is meet the minimum funding requirement in the last plan year (so there would be no unresolved funding deficiency) and distribute what you can to the owner, with the owner foregoing the rest of his or her benefit being more or less accepted by the IRS (grudgingly, at best). Attempting to let the sponsor off the hook for the minimum funding requirements with the idea that the owner will just waive that much more of his or her benefit was not received well by the IRS. They may have even treated the extra amount foregone as taxable income to the owner since the owner's distribution should have been that much higher. It bumped over to the 100% excise tax because, the plan having terminated, the assets having been distributed and the period for making contributions to the plan for its last plan year having expired, there was no mechanism available to eliminate the deficiency. Not contributing enough to eliminate the deficiency in the last plan year was contrary to the advice provided to that sponsor.

As I understand these things: 1. It is too late to file for a waiver for 2013. Applications must be submitted no later than 2 1/2 months after the end of the plan year. Not to be combative, but that would have made the deadline March 15, 2014 (not February 15, 2014 as indicated by an earlier poster). 2. In order to obtain a funding waiver, I believe that it is necessary to show, not just financial hardship, but also a demonstration that the sponsor is expected to be recover. Inherent in asking for and receiving the waiver is the promise that it will be repaid in the next five years. If the sponsor is not expected to be able to support the plan going forwards, what good would obtaining a waiver do anyone? 3. Watch out for terminating a plan while there is an outstanding deficiency. Such a situation (involving a majority owner waiving benefits) is the only time I have ever seen the 100% excise tax assessed. I thiink that threat is still out there.

Personal opinion: Enrolled actuaries, in performing their duties as enrolled actuaries to a defined benefit plan, should not have been providing the Circular 230 notice to begin with. Reliance on an enrolled actuary's determination of the amount required under IRC 412 or 430 should perforce be considered entitled to treatment as good-faith reliance (so any kind of Circular 230 warning, indicating that reliance would not be able to be asserted as being in good faith, would have been entirely inappropriate). Especially if accompanied by a comment recommending that the sponsor consult with its tax advisor, determinations by the enrolled actuary of the limitations under IRC 404 should also. Circular 230 was intended to apply to potentially abusive legal positions or products, not routine funding of qualified pension plans.

Wouldn't the auditors (or whoever provided the financials so late) take the brunt of the blame if there is to be a penalty? What could you have done differently?

Still wondering how the participant is going to cover the rent six months later. Is this truly just a temporary cash flow issue (i.e., one month at a time is doable, not a combination of rent and a deposit)? What percentage of the total account balance is being sought for the hardship withdrawal? 5%, 10%, 60%? Any chance that the person can borrow a bit from the aunt instead to facilitate getting out on his own?

Could have been money market funds. Maybe bank CDs. Two-year Treasuries. Any low duration fixed income investment. Gold didn't do so well, especially if one excludes the beginning of the year.

Even if he could, what would he do for an encore? The next month's rent comes due awfully quick (and the next, and the next...), and something about the question keeps me from feeling confident about his financial condition. This does not sound like a fix for a temporary problem.

Agreed - process should be qualify order, then pay out based on it, not the other way around! Have a sound process for qualifying DROs and follow it! How did this one get paid out so quickly? This would seem particularly straightfoward in dealing with QDROs in a 401(k) plan (where there would be no changes in equivalency rates and no actuarial adjustments for differences in ages or any of the other complications that must be handled when there is a QDRO for a defined benefit plan).

Not a 401(k) practitioner, so I may be unaware of significant reasons to the contrary, but in the absence of employer matches, wouldn't employee deferrals be virtually free to the employer? Why would an employer have to stop accepting employee deferrals (especially from non-HCEs)?

Figure that the plan provisions are a given. If the vendor cannot handle annuities but the plan permits them, they should not be competing for that piece of business and the plan sponsor should not be picking them even if they do compete for it.

The well-written ones, anyway. What is the answer if the amendment just changes the schedule as of the amendment's effective date and says nothing about former employees or hours on or after or anything?

Any views to the contrary?