J. Bringhurst

I'm sure that this has been addressed, but I cannot seem to find the question posed: With regards to the new 75% QJSA requirements (effective for plan years beginning after 12/31/07), are the requirements effective for elections made for plan years beginning after 12/31/07, or for distributions made for plan years beginning after 12/31/07? Thanks in advance.

Thank you.

Has anyone had to "cancel" a separate interest QDRO once payments had commenced to the AP? I assume that you can request an amended order that supersedes the prior QDRO with respect to future amounts payable, but I'm just not sure how you can return payment to the participant. The parties would have to make up outside the Plan the amount of any previously distributed benefits, so I'm really just worried here about prospective payments...thoughts?

Thank you.

Client received correspondence from AP's attorney placing all parties "on notice" of AP's claim, per property settlement agreement, to a portion of former husband's (Participant's) benefits under client's qualified retirement plans. Property settlement agreement does not, by itself, constitute a QDRO and no proposed DRO has been received. Correspondence from AP's attorney was drafted two weeks AFTER death of Participant and also states distribution of funds under the plans should be prohibited. (1) Must I look to state law (PA) as to whether a post-death QDRO can assign benefits to the AP? (2) If yes, does it matter that no proposed DRO was received prior to Participant's death? (3) In any event, must Participant's benefits be suspended? If yes, for how long? (4) If benefits need not be suspended, are benefits distributable in accordance with any valid beneficiary designations on file? Ugh.

Thank you. This seems to be a correction for a good faith error rather than a correction for a failure to meet one of the statutory deadlines (i.e., the instructions discuss the penalties involved with a failure to meet various deadlines). In either case, I just don't see the method for apprising the PBGC of the issue and obtaining their blessing...other than their discovery of the error on audit. The client really wants to do the right thing and would be willing to pay the penalty (at this point, the notice is not prohibitively late). Hmmm...

We just discovered that a client untimely distributed one Notice of Plan Benefits for its terminated defined benefit plan. I have found information on the PBGC's penalty policy and notice of noncompliance, but cannot seem to locate information on how to report the delay...is there some kind of program that we can enter to pay the penalty or is this just something that we have to wait for them to discover on audit?

Perhaps the prototype sponsor will help you out if you use them for the new 401(k) documents....

Did you use one interest rate for the entire amount (and if so, was it a rate for the year in which the mistake was made, or the year of the distribution), or did you use a separate interest rate for each year? And what rate did you use--a money market rate? I'm not entirely clear on the rate that was used for the make up amount. :-) My assignement in the project was only to check on the cash out rules.

In addition, the amount that the former employee received in error is not eligible for rollover. The participant should be contacted and informed of this additional issue.

Since the filing of Form 5330 and the payment of the 15% excise tax may not be required if the DOL's voluntary fiduciary correction program is used, I would not consider payment of the excise tax to be part of the correction itself. What I've seen debated is whether or not the payment of lost earnings must be completed for the prohibited transaction to be fully corrected. I'd think that full correction would include lost earnings (i.e., putting the plan back in the position it would have been in had the PT not occurred), but some have taken a more aggressive approach on this.

The link above takes me to a discussion on user group meetings...

Client undercalculated lump sum distributions from its defined benefit plan. They have recalculated the accrued benefit (with an interest adjustment on the "make up" amount) but are not sure how to handle the cash out issue (e.g., if the prior lump sum paid in 2003 was $4,000 (and was cashed out) and the corrective allocation is $1,500, is the new amount subject to the automatic rollover rules or would it, in the aggregate with the prior lump sum, be considered to be in excess of $5,000). Just curious how others may be handling this as I don't see it specified in Rev. Proc. 2006-27.

Revenue Procedure 2006-27 provides earnings methods under Section 3 of Appendix B. With regard to a participant who made investment elections, I think that actual earnings is required...for administrative ease, the highest rate of return under the plan can be used if all affected participants are NHCEs. For late deferrals (deferrals that have been taken from paychecks and just not remitted to the trust), the VFCP online calculator can be used.

Do the plans have the same investment options? Will you have to map funds and, if so, will there be a blackout period for which notice will be required? Any employer stock issues? You may also want to ask questions re operational issues so as not to taint Plan Y with any of Plan X's problems...What about provisions for predecessor service crediting, compensation definitions, definitions of disability (i.e., employer discretion versus LTD/SSA determinations)?

Have you taken a look at your plan's general claims procedures? I think that some take the position that an executed order is an official claim for benefits under the plan (regardless of QDRO procedures) and that an order that has not been executed by both parties (or their representatives) is subject to waiting period before disbursement of funds to the alternate payee. If this is the position of the plan and the plan administrator did not follow this...could you not bring suit under ERISA? As for Fidelity...what are your plan's procedures for releasing your benefit information? Some take the position that they will not disclose information until you provide consent or a subpoena is received...if she received info from Fidelity or the PA without your consent...long shots, I know, but possible avenues....

Exposure is that they have a failure to operate their plan in accordance with its terms...let's just say the plan provides that compensation for plan purposes includes bonuses, commissions and overtime but the employer is operating it based on base wages (not a qualification issue, but a plan design issue). If discovered on audit, best case is that the employer may have to kick in the extra money (money that would have been deducted from participant paychecks) plus earnings...plus some punitive amount because there are other failures...worse case...plan disqualification...I wouldn't mess with it and I'd fire that attorney. Tell him/her to read Rev. Proc. 2006-27.

I could not find anything specifically on point with regard to favorable determination letters with regard to a plan's termination, however. Obviously, it's a settlor function to decide to terminate a plan...but going to the IRS for a letter helps to implement the termination (i.e., the decision has been made, the employer is now just carrying out that decision).

Check this out: http://www.dol.gov/ebsa/regs/aos/ao2001-01a.html "In Advisory Opinion 97-03A, the department expressed the view that the tax-qualified status of a plan confers benefits upon both the plan sponsor and the plan and, therefore, in the case of a plan that is intended to be tax-qualified and that otherwise permits expenses to be paid from plan assets, a portion of the expenses attendant to tax-qualification activities may be reasonable plan expenses. This view has been construed to require an apportionment of all tax qualification- related expenses between the plan and plan sponsor. The department does not agree with this reading of the opinion. The opinion recognizes that, in the context of tax-qualification activities, fiduciaries must consider, consistent with the principles articulated in earlier letters,(1) whether the activities are settlor in nature for purposes of determining whether the expenses attendant thereto may be reasonable expenses of the plan. However, in making this determination, the department does not believe that a fiduciary must take into account the benefit a plan’s tax-qualified status confers on the employer. Any such benefit, in the opinion of the department, should be viewed as an integral component of the incidental benefits that flow to plan sponsors generally by virtue of offering a plan.(2) In the context of tax-qualification activities, it is the view of the department that the formation of a plan as a tax-qualified plan is a settlor activity for which a plan may not pay. Where a plan is intended to be a tax-qualified plan, however, implementation of this settlor decision may require plan fiduciaries to undertake activities relating to maintaining the plan’s tax-qualified status for which a plan may pay reasonable expenses (i.e., reasonable in light of the services rendered). Implementation activities might include drafting plan amendments required by changes in the tax law, nondiscrimination testing, and requesting IRS determination letters. If, on the other hand, maintaining the plan’s tax-qualified status involves analysis of options for amending the plan from which the plan sponsor makes a choice, the expenses incurred in analyzing the options would be settlor expenses."

Thank you...I also looked at the Act and the Explanation but had been told by a consulting firm that the IRS had unofficially indicated that the effective date relates to the provision of the notice rather than the ASD. It's kind of academic, as you note, but I like clarity. Are you amending your plans at this point for the PPA or waiting for regulations?

yes...most of the plans that I've seen to not permit partial prepayment...only repayments in full.

If you don't want to go the retroactive plan amendment route, and want to try for scrivener's error, check your other benefit materials, such as the SPD, and see if you can find any evidence supporting "intention." You may be able to get the sponsor to certify (through board action, secretary's certificate, informal memorandum) as to the fact that this was truly just a drafting error.

I cannot seem to find a definitive answer on whether the increase from 90 days to 180 days under the PPA for participant notice/spousal consent requirements applies to notices distributed after December 31, 2006 or annuity starting dates commencing after December 31, 2006. Obviously, if it applies to the latter, notices will have to be revised now to apply to distributions made after December 31, 2006. Thoughts?

I'm not entirely clear on how the IRS views this, but the PBGC considers a commitment to sufficiency (agreement between plan sponsor and plan to make plan sufficient to satisfy benefit liabilities upon plan termination) as part of plan assets (check out Appendix D of the the following site to get a model document: http://www.pbgc.gov/docs/500_instructions.pdf). To be safe, you could always indicate that you consider the plan sufficient and drop a footnote explaining that the sponsor will be executing the commitment to sufficiency. We did this when terminating under a standard termination and the IRS did not question our application.