ESOP Guy

Yes, that is my understanding of the thinking behind such a provision in a DRO. However since it isn't relevant to me I don't always ask so I can't say if that is always true.

Oddly, I just got a QDRO today that says the Alt Payee is due 50% of the marital share. It defines marital share as the 12/31/2016 ESOP balance less the 12/31/2008 balance. Since we were the TPA since the ESOP's inception I have the data. I however find it interesting (funny maybe) on the very day you say you have never seen one I just got another one across my desk. For what it is worth I wish you were writing the QDRO's that come across my desk it sounds like they would be more thought out.

Not unless it allows for an in-service distribution. Read the document again. Unless there is an in-service distribution provision all other distributions are will say they happen after some kind of termination. It doesn't say when one is no longer eligible. Going to get on my soapbox on this one.... This really is one of these questions that is very easy to answer by reading the document.

I get where the other group is coming from but I have always told clients my recommendation for this is pay an RMD by 4/1/2018. I think when an IRS agent comes in they are going to see a 2017 DOT and expect an RMD 4/1/2018. The other answer requires you to convince an auditor you are correct. Like I said I get the other answer. If you search the board I think we have had this conversation before. Just too late on Fri for me to do the search.

Just as an aside if they did declare your loan a deemed distribution (properly which needs to be addressed first) that raises issues about the payments you are currently making. By making the loan deemed you paid taxes on the loan principal. However, they are still putting loan payments into the plan. Those payments should be creating an after-tax basis in your account. You don't have to pay taxes twice on the loan coming out of the plan- once when it was deemed and again when the cash your putting into the plan is paid to you. In a sense I am getting ahead of things. You should primarily focus on the other advise and figure out what happened and was it deemed properly. Only if you determine it was deemed properly should you start to follow up on how the payments are being accounted for by the plan.

To Fiduciary's point can you disqualify the QDRO for lack of data? Doesn't the plan have an obligation to keep the data? The few times it has come up since my hard lesson the way I frame the conversation with people isn't the DRO isn't qualified by the data seeming not to exist but the cost of the split is going to be huge if you make us track down the data from prior TPAs. They are going to charge to get data from storage plus their time. This doesn't include the time it could take. That simply convinces the husband and wife to go back and come up with an amount/method we can compute quickly and affordably.

What Mojo said is why I see the need for old data. In fact I learned a very important lesson early in the career about these kinds of QDROs. I had been tasked to go through our firm's QDRO check list to see if we would recommend if the DRO was qualified. I went through the check list and said "yup the plan should accept this as a QDRO" because it met all the requirements to be a QDRO. It was the type of QDRO that said you had to give the AP 50% of the benefits earned between two sets of dates. I didn't check to see if we had the data becasue that isn't part of the legal question. It turned out the data no longer existed and we didn't find that out until after the judge had made the QDRO official. The firm I worked for ended up agreeing to pay the legal costs to get a new QDRO approved with a number the husband and wife could agree upon. It was one of our larger clients and no one was willing to upset them over this issue. I now check to see if the data exists before we make a recommendation about the QDRO.

I don't think this is a problem if the plan says forfeit after 5 BIS and doesn't require a termination. Then there can't be a restoration if there has been 5 BIS. I have clients whose document says forfeit after 5 BIS. It doesn't say and terminated.

Although to be clear I have had documents that simply say forfeit after 5 BIS. At which time you do that even if they never terminated. it is odd looking but what the document says.

Yup never increase the chance for lost participants.

Your facts are a little confusing. It might be you aren't sure of all the facts. You say a QDRO was done in 2017. Was if brought before a judge and made official? Did the plan accept the QDRO as qualified? One of you might have to talk to the attorneys who helped do that QDRO. They might have records from the judge and plan. If the DRO was accepted by the plan as qualified and thus a QDRO and they failed to split the accounts the plan has an problem as they didn't do their job. If there was in fact a QDRO in 2007 then your ex-spouse doesn't need another QDRO to get her funds she needs the plan to do its job and split the account. It is their problem to get the needed data. If the 2007 DRO was never accepted as qualified then there are other issues. I would advice to the plan administrators and see if they have any records regarding if the DRO was determined to be qualified by the plan and thus a QDRO. If so, then find out why the account wasn't split. If not, see if they have any records why not. Also, if not then there is no need to modify anything as there was no previous QDRO to modify. There is a good chance you are going to need an attorney in my opinion.

I don't know if you are thinking of mostly south of the border or north of the border as source but there are plenty of credible stories of bad/fake pharmaceuticals from south of the border. Mexico doesn't have something like the FDA. Canada at least you can trust more in my mind in that regard. Does the plan have any liability if they send someone to Mexico to get a prescription on the cheap and it is fake or bad? Nothing above is an endorsement of the idea just an observation and question.

This reminds me of back in the '80s people who would market trips to Mexico in late December. It included a quick divorce on December 30th and remarriage on January 2nd. Back then if you had a high enough income each the saving by undoing the marriage penalty in the married filing joint status vs single could more then pay for the trip. There is now an IRS regulation about this and sham divorces for tax planning reason. I was working of the IRS back then and the cynics would always joke but what happens if one party doesn't agree to get remarried. It would be interesting how these people manage that risk. How does it stop the : Thanks for 100% of your million dollar 401(k) plan but I am not remarrying you and going to the tropics with my 25 year old lover says the Alt Payee!

If the buyer is buying the assets of the old company then the old company still exists. It will be a company with nothing but the proceeds from the sale. The person who owns old company needs to wind down the PSP before he fully liquidates the old company. So until old company is fully liquidated there is a sponsor.

I am not sure it is as clear cut as Mike says. Here are the regulations about non-discrimination in regards of amendment and there is a facts and circumstances rule. https://www.law.cornell.edu/cfr/text/26/1.401(a)(4)-5 I think there is a risk making a one year amendment that clearly benefits a person who will become an HCE and then get rid of that amendment. Not saying it is a slam dunk no you can't do it but it isn't a slam dunk yes either.

Do you have a Partial Termination? We tend to mostly think of that with the 20% rule but the actual rules are broader then that. I quote: Whether or not a partial termination of a qualified plan occurs (and the time of such event) shall be determined by the Commissioner with regard to all the facts and circumstances in a particular case. Such facts and circumstances include: the exclusion, by reason of a plan amendment or severance by the employer, of a group of employees who have previously been covered by the plan; and plan amendments which adversely affect the rights of employees to vest in benefits under the plan. The 20% rule is just a presumption. Is this a plan amendment or a severance by the employer which will adversely affect the rights of employees to vest? You might want to talk to an ERISA attorney to see and make sure you aren't setting some kind of precedence you don't want to set. I know not a direct answer to your question but it really was the first thing that came to my mind when I read the fact pattern.

In fact I would say you have been told at least twice at this point that if this is a Qualified Plan then the whole distribution would be rolled to a Roth IRA- it would just be part of it would be taxable at that time. The part that is the earnings that have never had taxes paid on them would be taxable upon being rolled to a Roth IRA. That is simply the law regarding qualified plan rollovers.

I think QDROphile hits it. You can always roll a distribution from a qualified plan to a Roth IRA. The NEXT question is how much of it is taxable when that happens.

I think the easiest way to explain why it can't be done is this: Before the loan this person had $50k in pre-tax IRA and $50k in pre-tax 401(k) money. A total $100k he will need to pay taxes at distribution. They take a loan and have no taxable income. The use the $50k in IRA money to repay the loan. So now they have $0 in pre-tax IRA and only $50k in pre-tax 401(k) yet they received $50k in cash without paying any taxes. Clever but I don't think it works for the reason Tom says. A rollover is a rollover. They would have to take an IRA distribution and then pay the loan. A rollover can't be both a loan payment and a rollover by definition. I think that is why you can't find a cite. it is embedded in the very definition of the words.

I worked for the IRS back in the '80s and my impression back then was if they got a W-2 and you did not put it on the 1040 they had a problem with you. If you put a W-2 on a 1040 they didn't have a record of they didn't care. They figured no one is going to report income they didn't earn on a 1040. So if is still true I would say no they didn't care when they got 1040s with W-2s listed they had no record for the W-2s a few years ago.

Oh I do think you have the answer. If you can do the General Test on dollar amount then giving the same dollar amount to everyone means you will always pass the General Test. So it doesn't matter if it is Safe Harbor or not you pass the General Test 100% of the time if you give exactly the same dollar amount to everyone.

I can't help but point out but "following the close of the plan year" doesn't mean right after the close simply at some point in 2018. As point out by others there are deadlines but it doesn't have to be within days of 12/31.

I am replying to your duckthing question below even though it isn't directed towards me. I guess I would have to read that provision carefully. What I can tell you is back when I did balance forward PSPs and now with ESOPs that would be 2018 compensation for every plan I can think of . In fact if the person was over NRA and the plan didn't require retirees to work 1,000 hours and be active on the last day of the plan year we would give such people a 2018 PSP or ER discretionary contribution in the ESOP. I see that all the time in my job. A retiree gets a small cont in the year after they termed if they termed during the last week of the prior year. I know way back when I did 4k plans (all balance forward) I would see these small checks hit in the following year (2018 in this case) with a small amount of deferrals. We always treated them as comp and deferrals in the year they were paid not earned- ie 2018. I agree a plan can be written such that is income in the year worked (2017 in this case) but you can always count it as comp in the year it is taxable per the law has always been my understanding. And most people I know think it is a pain to have the census comp to not match up with the W-2s for any given year. So I can't recall the last time I saw someone who treated this as 2017 comp. Most plans I have seen over the decades starts the definition of comp as either gross comp or W-2 comp. If it is W-2 comp as the starting point I don't see how it can be anything other then 2018 comp unless it then specifically says in this case to push it back to the prior year. But that seems like a mistake waiting to happen. It will always be easiest to have your plan comp starting point to match the sum of the employer's W-2s as that is easy to reconcile to. . Even gross comp was treated as when paid for that definition. But you could go back to the year earned but once again that meant the census didn't match the payroll system so I know of no one who does that. In that regard I agree with Tom you can pick one or the other but you do have to pick.

I think you should read example 1 again. I quote the question: EXAMPLE # 1: 7/31/2005 falls on a Sunday. If an employee's last day of work was on 7/29/2005 and the plan sponsor is closed on Saturday & Sunday, would the employee be considered to be employed on the last day of the plan year ending 7/31/2005? E I quote the answer: So, your example 1: as long as the person wasn't terminated, he is still employed on 7/31 even though it's a Sunday and not a work day. Note the question says "an employee's last day of work" so he did not come back to work on 8/1. So to me this is exactly the situation you have. Maybe I am reading this wrong but to me terminated has to mean more then quit otherwise none of the questions matter. If the IRS' answer mean as long as the person doesn't quit the Fri before that Sunday he is still employed they didn't answer the question as far as I am concerned.

Was this post severance comp? Or was this money paid in 2018 because that is how the last payroll period in 2017 fell? If it was that then I think it is 2018 compensation and the deferrals were good and you test it in 2018. Or was this say vacation pay and other items cashed out? Or was this some kind of severance pay? I would add I once had a plan that excluded all pay in the subsequent year even if it was like my first example and we determined that a safe harbor definition of comp and in theory had to test via 414(s) test. It was just this plan had 10ks of employees and this was never more then 100 to 200 people so no on believed it would ever fail that test so it was never done.