Belgarath

Just idle curiosity here - if you had to guess, for a sort of "plain vanilla" QDRO dividing up a profit sharing plan 50/50, how much would the attornies fees be? I'm just wondering at what level does the entire account balance get eaten by such fees, if the plan is charging them against the participant's account? And, is there any alternative to two attorneys and a court filing if it is a small account balance? I don't see one, but just wondered. (Other than the attorneys in the divorce exercising some common sense and dividing up another asset rather than the qualified plan.)

Yes, and if the employer is a "prove it to me" sort, then you can start with IRC 414 - which will, of course, lead you to other pertinent sections as well.

Sorry if my lack of specificity offended you or wasted your time. To be precise, here's what I remember (from page 7 of) the skim I referenced: "For a defined benefit plan, these regulations provide that a death benefit that is not part of an optional form of benefit is an ancillary benefit and, therefore, is not a protected benefit under section 411(d)(6), even if paid after retirement. The regulations also clarify when a death benefit under a defined benefit plan is part of an optional form of benefit. The definition of optional form of benefit is defined in 1.411(d)-3(g)(6)(ii) of these final regulations and in 1.411(d)-4, Q&A-1(b)(1), which has been revised by this Treasury Decision to coordinate with the definition of optional form of benefits in these final regulations."

You might want to take a peek at the new final regs on 411(d)(6) protected benefits. I haven't read them yet myself, and have only skimmed the first 7 pages of the "explanation" but it seems to me that I saw something indicating that a death benefit in a DB plan (but not a DC) could be eliminated. If true, seems kind of rotten, but I have to read it before I can form an opinion!

Ignoring for the moment any possible negligence (and I'm not implying that there was) on the part of the Plan Administrator for not purchasing the policies in a timely fashion... Don't insurance policies generally have a 2 year "suicide exclusion" so that even if the policies had been issued, there would have been no death payout other than a return of premiums? You might want to check this out with the insurance company.

You still have to satisfy the gateway requirement, which will usually be higher than the top heavy.

Flosfur - I'm not aware that there's a qualification requirement to offer the policies for sale to the participants. It may be that LRM language does this, but I don't know. I do know that every plan I've ever seen that allows insurance has this provision, but again, I don't know if it is required - I'm inclined to think not, but I haven't done any research on the question. Even if not required, I can't imagine why a plan with life insurance wouldn't allow it - there's no detriment to the plan other than some small amount of administrative work in selling as opposed to a simple surrender. If you had a participant who was uninsurable, or terminally ill, etc., and the plan didn't offer this option, I would think that beneficiary lawsuits might ensue. (Whether they would be successful I have no clue, but who wants to get sued if easily preventable.)

No, I'm not sure of anything at all! Apparently Big Papi's second home run bounced off my skull. But I think you are right, and I was confused. So would you test former employees only if the plan is frozen? I mean, for a normal active plan, then you'd test based upon current accruals, where this person wouldn't be excluded - is that right?

I think you are correct on the 410(b). I also think you are right on the 401(a)(26). It appears to me that 1.401(a)(26)-6©(4) agrees with what you said.

This seems a little confusing to me. In no particular order: Is the death benefit really defined as the larger of the PVAB or the life insurance policies? I only ask because the DB plans that I have seen generally either use the 2/3 rule, or the "stated times" method, where the benefit is the larger of the (in this case) 100 times projected benefit that you mention, or the PVAB. Not the larger of the PVAB or the life insurance. Of course there are variations, and what you mention may well be one of them - I just haven't happened to see this particular one. As far as surrendering the policies, I agree that this is no problem. As far as keeping the policies in force in one form or another, so that under the apparent current definition some folks will have a higher death benefit than others, I agree that this is a BRF subject to testing. And I'm frankly dubious that it will pass, or at least not for long. Presumably all the current HC's will receive the higher death benefit, and all the newer NHC's as they are hired will not. If this is a small plan following "normal" hiring and turnover patterns, it is likely to fail as the percentage of NHC's with lower death benefits rises. What I've generally seen in such a situation is that the plan sponsor amends the plan so that there is NO insured death benefit, then surrenders all the insurance (after first offering all insured participants the option to purchase the policies on their own lives under PTE 92-6.) This seems a lot cleaner to me.

I just noticed that - didn't have time to edit my post. Oh well, I'm used to looking foolish anyway!

I haven't read the decision, so I don't know if the specific situation and decision changes the "normal" interpretation of current law or not. But based on my current understanding, I agree with Mbozek that you can exclude any class you want to (subject to a few restrictions) and I also agree with Moe that these excluded classes, if considered "employees" would have to be counted in the testing. So if you want to exclude your leased employees, no problem as long as you pass testing. Whether this decision says something different, I don't know until I read it. Moe, do you know the name of the case, or have a link to it? Thanks.

My experience on this is that once the bond is in place, the DOL doesn't proceed any further. No guarantee, of course, that the DOL would be this benign on every case, or that they will continue this practice...

Kirk - the 10% limitation is only for future benefit payments once benefits are in pay status. See 1.401(a)-13(d)(1). But for a single payment, (e)(1) and (2) would allow it. At least that's how I read it.

WDIK - but it was amusing. Maybe we'll have to add a category: Splendidly Sarcastic? Brilliantly Bantering? Inimically Ironic? Dangerously Discerning?

Most plans I've seen say something to the effect that if no beneficiary is named, then the benefit is payable to the spouse, (if there is one) and otherwise payable to the Participant's estate. Particularly if the amount is large, you should check with an attorney.

Singing or trumpet? Be careful if the trumpet - you might be accused of blowing your own horn... Will MTV be doing a music video of the performance?

Good luck! S. Derrin Watson, in "Who's the Employer" (my bible for CG/ASG) states that "Determining the value of stock in closely held corporations is one of the thorniest tasks of estate tax and divorce practitioners." He goes on to state that for CG issues, such considerations as voting rights, dividend rights, liquidation preferences, and potential for appreciation come into play. He gives a couple of basic examples - one for instance: "Consider a corporation with both common and voting preferred stock outstanding. Assume that upon liquidation the preferred stockholders are entitled to the first $100,000 in distributions. If the corporation is only worth $50,000 at present, almost all of the value will be in preferred stock." And, he mentions other convolutions as well. If questionable, might be very wise to request an IRS ruling on CG status. Yuck...

I think that a VOLUNTARY assignment is probably ok. See 1.401(a)-13(e)(1) and (2) for the requirements. I don't see why a hardship distribution would be treated any differently from another distribution for these purposes.

I seem to recall looking this up once upon a time, and found it rather frustrating. I THINK that there isn't necessarily a specific monetary penalty (i.e. - no set amount per day, etc.) but that there is a potential for a 20% penalty for a fiduciary breach, under ERISA 502(l). So if the DOL sues, as Tom mentioned, then I think this comes into the mix. Furthermore, if you don't have the fidelity bond, then you can't take advantage of the VFC program. So an inadvertent breach that is otherwise correctible under VFC could really come back to bite you. 8-16-05 update - I think the above paragraph is incorrect. The revised VFC program released in April modified Section 6 to remove the Fidelity Bond documentation requirement. Perhaps they may still come back and request it for violations that aren't really "minor" - I don't know.

Here's one I've never seen. Participant in a 401(k) requested a hardship withdrawal. TPA incorrectly calculated the allowable hardship, and told them they could take (x) when in fact they were only allowed to take (y), which was a couple of thousand dollars less than (x). By the time the error was discovered, check already cashed, and money spent. What would be your approach to correcting this? Seems like Rev. Proc. 2003-44, Appendix B, .04 (2)(a)(iii) is appropriate, but I'm wondering if there isn't a simpler method. I think recovery from the participant is unlikely, since they have no money which was why they took a hardship in the first place. And I'm dubious about the legality of the employer withholding this from pay if participant doesn't agree to it. So if participant can't pay, just code the excess on a separate 1099 as premature distribution, and that's that? It doesn't seem appropriate for the employer or TPA to deposit this into the plan as you would in some situations, since this would result in a windfall to the participant. Appreciate any thoughts!

I don't think so. 1.401 through 1.401-14(inclusive) reflect the provisions of 401 prior to ERISA. The reg sections following 1.401-14 and preceding 1.402(a) reflect the post-ERISA provisions of section 401.

KJohnson - Sal Tripodi, on page 7.496, discusses taxation of disqualified trusts, and states that the Grantor Trust rules generally don't apply. Don't know if he's right, or if you agree, just thought I'd pass along FWIW.

IMHO, the participant absolutely can be forced to sell. The investment is still owned by the Trustee of the plan, in spite of the fact that the participant has been allowed to direct where the Trustee invests the money. The right to direct investments, or the right to a particular investment, is not a protected benefit. See 1.411(d)-4, Q&A-1(d). Now, there may be an issue of fiduciary breach, where the Trustee/Plan Administrator allowed an investment that was too risky/didn't have sufficient liquidity, etc. - then sells it. The Trustee/Plan Administrator is still responsible for due diligence/prudence in the allowable investments, and while this may be mitigated if it is a 404© plan, it could get tricky. Especially depending upon the amount of money/loss, this one sounds like ERISA counsel should be called in.

Cool! Fortes fortuna juvat. Best of luck in whatever approach you take. The discussion has been interesting, and has prompted me to read up on some of this stuff, which is a good thing.