Mike Preston

Lori, I repeat my request for you to demonstrate how it is less beneficial. In other words, I'd like to see the details of how you are doing the two calculations. The documents are intended to be identical if the contribution is enough to ensure that the maximum permitted disparity factor is used. Are you allocating an amount which is less than the maximum? If so, the two formulas will most certainly differ due to the way the math works out.

After a lot of energy expended on this issue (remember that before the IRS came out with the last notice, we had resigned ourselves to the fact that it was physically impossible to provide an AFTAP before the valuation date - which meant that for any EOY valuations they would, perforce, be subject to the non-issuance of an AFTAP for 2008), I decided that the best course of action in many cases was to issue the AFTAP's on 10/1/2008 and to plan on issuing the required employee notice stating that accelerated payments [lump sums] were restricted for the balance of the year, along with some language indicating that the plan has already been provided with a certification which in the absence of negative feedback from the IRS or Congress before the end of the year provides the restriction on lump sums will be lifed on 1/1/2009. In light of the late notice from the IRS that AFTAP's for EOY vals would even be allowable this year, and in light of the market melt down which pretty much guarantees that we will not be able to satisfy the IRS' requirements that a final AFTAP be done which doesn't involve a material modification, I just decided that the safest course of action for all plans was to bite the bullet and issue the Notice. Note that it is not too late for others to do so, even if they have a purported AFTAP certification dated 9/30/2008 or earlier. In light of all that is uncertain about these things, even for those where the AFTAP was issued before 10/1 (for an EOY val, of course, since if it is a BOY val there is no question as to its validity) I can see a Plan Administrator determining that it is not prudent to rely upon such a certification and instead insist upon a Notice with a corresponding freeze on amendments and accruals (if the plan was in existence before 2004) and a restriction on accelerated payments in all cases. I expect this position to be impractical for those who have a gazillion plans. My shop is considerably more boutique than many so I am enjoying the opportunity to discuss this with my clients (to the extent they want to delve into it).

The website says it the other way around. That email sounds like it is seriously misguided. I asked the reporter to send me a copy of the article via email after it was published but he did not comply. I tried to register for the free trial so I could read the entire web article but it wouldn't let me register. But the tease on the website now says it the other way around from your email so I presume they now have it right. There has been nothing hostile in the entire process.

Neat discussion. I think we all agree that a shared interest gets paid predicated on the participant's life and the plan is merely told who to write the checks to. In the case of a separate interest, doesn't it depend on the separate interest being perfected? I'm not sure when that happens, but whenever it does, it should be irrevocable. And by that I mean that the death of the opposite party no longer has an impact on the other's separate interest. Take the $500/$400/$100 example. At the point when the $100 is perfected as a separate interest, the death of the P shouldn't reduce the benefits payable to AP. In the case at hand, does it? If so, then it really isn't a separate interest DRO. What typically happens once a separate interest is perfected is that the plan will provide a stream of actuarially equivalent payments predicated on the AP's life and give the AP the right to elect certain (typically somewhat restricted) optional forms. With the most telling element being that all of the optional forms are keyed to the AP's life and no longer contingent on the P's life. I think once that happens there is no potential for reversion. This is inherent in the calculations and the benefit levels being offered. In the case where there is confusing crossover in the form of a separate interest DRO that purports to key the payment based on the P's life, that is where it gets interesting and no, I'm not aware of any case to cite on this specific issue. My own view would be that it is a facts and circumstances test. If we measure the actuarial value of the payments to the AP including a value for the death benefit (that is, a reversion) and find that it is equal to the amount carved away from the P's benefit, I find it hard to see an argument that the plan has provided a benefit not otherwise available. OTOH, if the actuarial value is enhanced, it seems a clear violation of the Code. Is it really that simple? Nothing ever is in the QDRO world it seems.

If date accuracy is an important element of this watch's intrinsic value, you should consider listing it on eBay shortly before the December or July months where the 1 matches up. That gives you five opportunities to maximize the watch's sale price in this century.

The proposed regs require that the present value be determined for the lump sum ignorant of 417(e) interest rates and instead, appropriate use of the funding rates. 417(e) mortality is used, however. Let's presume that the present value is being calculated 20 years before benefit commencement. This crystalizes the concepts, I think. One first determines the presumed lump sum to be paid 20 years hence. That amount is determined using the third segment rate and 417(e) mortality. Assuming a 6.09% third segment rate, that value is 131.41876. One then discounts that amount to the present day (assuming no pre-retirement mortality) using that same third segment rate: 6.09%. So, the present value at age 45 of a benefit commencing at age 65, assumed to be payable as a lump sum at age 65 is 40.28732 for a 1/1/2008 valuation using funding segment rates with phase in. If there is pre-retirement mortality in play, then the discount from age 65 to age 45 would involve that mortality discount (for example, the 2008 Male Combined table). Have I just repeated what others have said above or is my description different?

Note that LRM94 is only applicable to M&P plans, not volume submitter or individually designed plans.

How is it different? How is it less beneficial?

Since your accumulation rate can't exceed a market rate, if the FT is greater than the account balances, there is an obvious issue.

So either we can never be wrong or we can never be right. Sounds like the words associated with a SNAFU.

Nah, we need consistency. Shouldn't be in the test.

But don't the proposed regs say to measure from the end of the plan year?

Actually, I think it is great place to jump to conclusions. Better than a client meeting! I'd rather be gently informed here than have to back track there!

Wow, I stop visiting for a while and come back to THIS! The OP really, really needs somebody to help her through this. It appears to me that there are a couple of facts that need to be pinned down and I apologize to the OP in advance for sounding a bit condescending. 1) The OP really needs to check the paperwork that was signed when the benefit commenced. I find it a bit unusual that the plan wouldn't have asked her to certify as to her marital status. In fact, a lot unusual. Having a beneficiary designation on file is not enough. Plans will routinely insist that the information be certified to when the benefit commences. 2) The OP needs to get all of the beneficiary designations and scour them for the exact wording which allowed the naming of anybody other than her spouse. As mjb points out, what she is looking for is evidence that he waived his rights to a death benefit and that he did so permanently. But that isn't good enough. Some courts have held that even a permanent waiver is given only with respect to a specific form. So she will want to look not only for the right to name somebody else, but also the right to name somebody other than the person being named (that is, a really permanent waiver). The above is a discussion of the death benefit that may or may not be payable to the spouse. A bigger issue for the OP is the retirement benefit. 3) If the plan erred by providing a benefit that is larger than it would have provided had they properly taken into account the spouse as beneficiary, then the plan is entitled to recover those "over payments". 4) Notwithstanding whether the plan has overpaid in the past, the plan has now been put on notice that there is a spouse and that there is the potential for that spouse to be awarded a share of her pension. This is the part of this "battle" where the OP has the most to lose, in my opinion. As has already been indicated, the courts won't care very much who gets what. If she leaves it to her spouse to put together an updated report, she is leaving herself open to manipulation. At the very least, she should insist that somebody she hires reviews the report. As has already been mentioned, I think, it is not, technically, her responsibility to have the QDRO drafted. That would typically fall to the non-participant spouse. But as has also been mentioned, the court can order the participant spouse to have it done. In my experience, she is better off just going ahead and getting it done (or updated), paying for it herself and asking the court to have the spouse pay for 1/2 of it. If she walks into the court hearing with that document and the spouse has no report, she stands a 1/2 way decent chance of the judge just saying that her report is the way to go. In the meantime, she might consider authorizing the plan to provide any information to the spouse that is requested by him or his advisors, and make sure he gets a copy of that letter. And with all that said, since nobody (especially me) knows all the facts, she really needs lawyer to look at this and decide what is the best course of action for her to follow, since the best anybody can do without knowing all the facts is general statements that may help, but may not!

This gets to the ambiguousness issue. When a DRO is accepted as a QDRO, we sometimes find, at a later date, that there are still some unclear items (there shouldn't be, but life isn't perfect). At that point, the story goes, the Plan Administrator usually writes a letter to the parties saying "this is what we intend to do, let us know if this is inconsistent with what you think the DRO tells us to do" and then waits an appropriate amount of time and then just does it. So, in answer to your question, if you choose the disclosure route, I don't think you have a problem at all. As long as what you think the DRO is asking you to do is consistent with what it actually is asking you do to. Make sense?

Not an attorney. But I played one on TV once. Wait. Scratch that. In any event, the plan does what it normally does. Nothing more. Ever. The parties take that and tell the plan what to do or how to calculate something (a formula, not an action verb). Me thinks you agree with this. The alternative is chaos. "Earnings attributable to days where the stock market was up are to be credited to alternate payee. Other days, the earnings (losses) are to be credited to (debited from?) participant. Why not? It is clear. It is calculable? Surely an extra 30 or 40 hours work means little. If the QDRO says that, and the plan is willing to do it (that is, it accepts the DRO as a QDRO), wonderful. Anything which the parties agree to, that the plan is willing to implement, is acceptable. There is no place for "defensible" as that doesn't enter into the determination.

We aim to please.

Didn't miss it at all. It is just plain wrong. Are you really saying, with a straight face, that every final check should have the deferral election reset to zero because there no longer exists an employee/employer relationship? Besides being blatantly discriminatory, I think your comment about defining (or not dealing with) compensation is the real issue. By definition, if it is not compensation under the plan then you can't defer from it. The opposite is also true: if it *IS* compensation under the plan, you must be able to defer from it. Let's take your position: it isn't compensation under the plan. Great. Talk to me about top-heavy benefits. See any qualification issues? I knew you could. Look, your position that a final check, of regular wages, can be ignored is just plain ludicrous. It isn't that it is just "not arbitrary and capricious", it disqualifies the plan.

If it is the thread I think I just read, it is because your formulas and calculations were correct.

Huh? Please point out the thread where I said that. I *think* what I said was: the mere use of an average benefits test which utilizes cross-testing does not result in a gateway requirement. Only if the "regular" test (under 401(a)(4)) uses cross testing is there a gateway requirement. What you say I said makes no sense.

So, I'll question your judgement! Your proscription reigns supreme. The plan simply doesn't do anything that it wouldn't otherwise do, period. If a DRO comes through asking for something they wouldn't otherwise do.......REJECTED. Back to the question raised... is it the correct way? Possibly. We call it the tracing method. And the plan leaves it up to the participants and their advisors to do the tracing and come up with a clear instruction to the plan that it can implement without violating the previously mentioined proscription. Slight disagreement on the records, too. The plan is required to disclose what it is required to disclose. Nothing more. Nothing less. If the plan participant received said disclosure and now has lost it and goes to the plan for that information and it isn't normally available, then tough toenails for the participant and/or spouse. They have to deal. Of course, in most cases a plan does have the information available, but in various takeover cases I've seen the correct answer be: "Huh?"

Shot in the dark, here. Any chance this individual is really participating in a DB plan where the number of years of plan participation are something other than one? Maybe a past DB plan where he has 6 years of participation, but a small prior benefit? While it would be hell on the general test, such a large "catch-up" funding is theoretically possible.

Having been gone for a few days it is interesting to come back to a thread like this one. erisaNUT is up to his/her old tricks, I see and by that I mean suggesting something which really has no basis in the law or regs, whether we are talking about the new 415 regs or the old ones. Caution to anyone who decides that regular paychecks delivered after termination of employment should just "not count." I wonder if that is why California has a rule that one's final paycheck must be made available within a very short period of time after termination of employment? http://lawzilla.com/content/ca-emp-005.shtml In practice, however, final paychecks are sometimes significantly delayed and, rumor has it, that there are other states in the USA besides California. I note that even in California a voluntary quit on 12/30 doesn't require that the final paycheck be cut until the next year. With all that said, anybody who interprets their plan to completely exclude regular compensation merely because it is paid in a subsequent plan year is just plain wrong. Strong letter to follow. You can, if you choose, by plan provision, or, if you can believe it, just by wiggling your nose, include it in the year during which the quit took place. If you don't have a plan provision, and choose not to wiggle your nose, it is compensation in the subsequent year and would be included in the ADP test, 401(a)(4) non-discrimination testing, etc, etc, for that year. Any other treatment is, how did I put it earlier? Oh, yeah, WRONG. Nose wiggle provision: 1.415-2(d)(5)(ii).

We are talking about arguing with a reviewer here. No reason not to float the argument.

What Andy said.