Mike Preston

Absolutely. Already in the plan (it is a requirement of all 401(k) plans). Not quite. The HCE determination is made with respect to what people made LAST YEAR, not this year. There is an exception for 5% owners, but I'm ignoring that for now. Hence, you say that HCE's get a 3% match and NHCE's get a 5% match. As long as the HCE's get less (as a percentage of pay), it will certainly pass all of the non-discrimination tests. If I can take a liberty and answer for David, what he is getting at is that usually employers want to increase matching percentages for NHCEs so that their HCEs are allowed to defer more money into the plan. That is, if the ADP test is failing, an employer might increase the match in an attempt to get more NHCE's to contribute which would then cause future ADP tests not to fail. In your case, however, I sense that the ADP test is irrelevant and you are looking for a way to increase benefits to rank-and-file employees without it causing an uptick in the expense for the employer with respect to the HCE's. That is easily doable. We normally deal with the reverse: plan sponsors that wish to increase the benefits for HCE's and who specifically do not wish to cause the additional benefits provided to their HCE's to require them to contribute more on behalf of their NHCE's.

Neither. I see your position and I understand it. I just feel that the general interpretation of the regulation supports the alternate view a tad bit better. Your view is based purely on logic. <g> That won't get you anywhere! I see no problem with the extrapolation. In for a penny, in for a pound. Or something like that. Whether it is $3,500 contributed in 2006 and a catch-up determination of $4,000 or $0 contributed in 2006 and a catch-up determination of $4,000 matters not to me. They are functionally identical. If I would have had a problem with the extrapolation I would have had a problem with the initial facts. Note that my interpretation is a bit less favorable to the participant than yours, if you are effectively borrowing from 2005 (rather than insisting a refund must be made). You would then be using a portion of the unused 2005 catchups and leave the 2006 catchups at $3,500. Looking at the next 9 months you would let your hypothetical participant enjoy additional catchups for 2006. In my interpretation, the participant loses that $500 for the balance of the 2006 year. Of course, if your interpretation requires a refund, you are taking the most disadvantageous position possible for the participant, but you at least still get the $500 for use in the next 9 months.

Andy, where did you hear that the IRS does not agree? It seems kind of clear in the regulation.

There is no restriction on offering a less generous match to HCE's. Hence, you can retain your 3% match to HCE's and improve your match to NHCE's as you see fit.

Lil, this area is very difficult. In general, one would think that over-payments are recoverable. It isn't that simple. First off, the plan must ask this question of ERISA counsel familiar with local court decisions. With that said, the basic rule is that ERISA allows recovery (through a lawsuit) by the plan only if the recovery is "equitable." Various circuits have interpreted that differently and have applied different standards. A lot of this law actually comes from health plans (ERISA plans) that have co-insurance clauses. I think a famous case has "Great West" in the title some where. The general rules are litigated more frequently in the health plan arena, but are applicable to retirement plans, too. Essentially, I would think that as long as the beneficiary can't claim that they have already spent the money and that it would be inequitable to force them to cough it up, a plan would be successful. However, if, for any reason, a court might decide it would be inequitable, the plan can kiss the recovery goodbye. Examples? OK, how about a plan that is paying $1,500 a month to a participant as a retirement benefit and finds that it should have been paying only $300 a month. We find the participant is 90 years old, has no other assets other than this pension and has no savings and has been receiving this benefit for 25 years. No court in the land would allow the plan to recover (I would hope). Contrast that against a lump sum of $5,000 "too much" to a participant age 50, who received the lump sum as part of a $500,000 payout, who rolled the money over to an IRA, who has $3,000,000 in other assets and where that IRA still exists (with no other money ever having been deposited). I'd bet on the plan in this case. My guess is that your circumstances fall somewhere in between.

I think the regulations are silent on this issue. Very nice example, by the way. You might want to correct the mathematical errors, though, via editing. But the basic premise is well stated: can a 2006 catchup determination exceed the amount of deferrals made in the 2006 calendar year? I think the answer is yes. I see nothing in the regulations that indicates otherwise. I see glimpses of language that supports it. Basically, the hallmark of the catch up determination is that it is made at the end of the plan year. For a calendar year plan, the catchup contributions are coincident with the calendar year limits. For a non-calendar year plan, the catchup contribution limits are determined with reference to the calendar year limits of the calendar year that the last day of the plan year falls within. While not completely clear, the language in 1.414(v)-1©(3) seems to be close to authorizing this: "For purposes of determining the maximum amount of permitted catch-up contributions for a catch-up eligible participant, the determiantion of whether an elective deferral is a catch-up contribution is made as of the last day of the plan year.....". This certainly seems to say that in your case, you determine the permitted catch-up contributions as of 3/31/2006 and if that amount is $4,000, then by golly, it is $4,000 whether the contributions that made the $4,000 required were made in calendar 2006 or 2005.

The concept of withdrawal liability is specific to multi-employer plans, isn't it? Can you point to something which establishes statutory withdrawal liability in multiple employer plans? I'm just curious. Assuming that there isn't any statutory authority, you are left with "whatever the plan says", aren't you?

Yes. Yes. I'm not sure that them being on notice means anything in this regard. That is, I'm not sure you can ever move retirement plan assets from a US domiciled financial institution to an Australian one. Maybe there exists a special tax treaty that allows it, but it isn't something that is generally known. There was a list of attorneys posted here just the other day. Have you looked for it?

Could you be more precise in the formulas, especially the way the plan is accruing the benefit? The reason I ask is that I frequently see plans that mis-apply the pro-ration rules when this circumstance comes up. Also, are the benefits being provided from a single plan or from multiple plans (it matters a lot).

There are no cut and dried answers. Essentially, the marital settlement agreement is the document that controls things, as much as they CAN be controlled. Hence, if this is a concern, the employee should ensure that the marital settlement agreement specifies what the ex- is entitled to. If that is "absolutely nothing", then the marital settlement agreement should state that. This is no different from any other asset that the employee has at the time of divorce. When finalizing a marital settlement agreement, I can't imagine a divorce attorney being imprecise when specifying who gets the Rolls Royce (if one exists), but yet, an asset which is sometimes even bigger in value is left to twist in the wind. Unfortunately, even if the MSA is clear on the issue, an employee is not completely protected. The fact is that an ex-spouse can, if they want to pay an attorney to do so, march back into court and ask for a share of a pension that was, under the original MSA, not contemplated. There are a number of cases in California that allow this. They typically deal with plans that provide some sort of retroactive benefit increase, not known at the time of divorce, but which are actually benefits based upon service that overlaps the marital period. In this case, it is perfectly reasonable for an ex-spouse to claim a portion of that benefit as it came about because of service during the marital period. Unfortunately, the court system being what it is, this allows attorneys of non-participant spouses to claim all sorts of theories as to why they should be allowed to march in to court and ask for similar treatment. Most of the time, the courts see through the cloud of smoke and reject the request. But as the employee/participant, your only rational choice is to hire an attorney to defend against this sort of thing, just like you would hire an attorney to defend you if you were sued by anybody for any reason. The suit might be totally frivolous (in your eyes) but the litigation system in this country demands that you defend yourself if you are caught up in something like that. Getting back to your situation, if your ex- has decided to hire an attorney to try and get a court to approve an order compelling your company's plan to give your ex- a share of your benefit, you have little choice but to hire an attorney and fight it. The more documentation you can bring to the table that supports your position, the better off you will be. Good luck.

I'm going to challenge your statement that there was no "property agreement." The divorce was finalized with some official writing. That writing might be meager, but if there is nothing else then that writing IS your agreement, as sanctioned by the courts. It might just have a phrase or two that makes it clear that your benefits were to remain yours. So it is in your best interest to dig up that document and see what it really has to say. With that said, you of course need legal representation and you need it badly. For you to be out of the country and so far away puts you at a significant disadvantage. But with proper representation that disadvantage should be neutralized. Once you get a lawyer, see if s/he agrees that you might want to give her/him whatever you have that support your contention that the official, but not documented, agreement was for your ex- to walk away from your retirement assets. I would be surprised if s/he said it wasn't necessary or helpful, but then again, this depends on the actual court order, which might, in and of itself, prove your case. Good luck.

You are kidding, right? You say the client has a TPA that doesn't have or can't provide loan docs? Unbelievable. You should be able to find a firm or two just by using google that does nothing but loans.

When you say "I have" can you clarify? What is your role?

Indeed.

Indeed they are theoretical. How many non-profits do you know that have put 1 mil into a plan for one HCE and one NHCE where the IRS has not challenged it? <g>

mjb, I think my record on BenefitsLink speaks for itself. You will find many more messages from me to those involved in divorce which are empathetic than those which are not. Have I turned into a curmudgeon suddenly? Hardly. Are YOU sticking to your side of things in the face of the "new facts" that there previously was a pension DRO? I guess time will tell.

You are correct. Sort of. This is why a 403(b) and a 401(k)/PS can make soooooo much sense for a non-profit. Essentially, the 100% of pay 415 limit provides for a very large contribution. But it isn't unlimited. In the DB side, there are no immediate 415 limits to cause concern. But the IRS has two prongs with which to attack super-aggressive funding. The first is "exclusive benefits". Basically, if the contribution is deemed excessive the IRS can claim that the real purpose of the plan is something other than merely providing benefits. I don't know what else it might be, but that doesn't matter. If the primary purpose of the plan isn't to provide retirement benefits it is disqualified. The other way the IRS can attack a large contribution is in the area of reasonable compensation. There are some cases on this you should be able to find. The IRS takes the position that reasonable compensation is measured against the sum of the actual compensation plus the deferred compensation. If 1 mil is going into the plan, basically all for a single HCE, that is going to cause a pretty big blip on the reasonable compensation side of things. So, while you are right that 404 itself doesn't apply, that doesn't mean that a non-profit doesn't need to worry about how much money goes into a plan.

Still don't buy it, sorry. Something doesn't ring true when the DRO for the pension was done a long time ago and now the DRO for the 401(k) is somehow not understood. At all? Come on. Nonetheless, I'll bite on the OP's statement that the delay is caused exclusively by the ex-spouse and/or her lawyer. There is a marital dissolution document of some sort, that defines what the OP said his ex-spouse is entitled to and that is 1/2 the value of his 401(k) as of a certain date. It appears to be silent on the issue of what happens with respect to the passage of time and the changing value of that account. [Please double check that.] Let's presume that his ex- and her attorney will state that either the marital dissolution document is clear or, in the absence of it being clear, that state law is clear on the fact that the OP's ex-spouse is entitled to gains/losses since then. Note that this is a two-edged sword. If the account is, in the overall, less valuable today than it was on the date previously described, it is the OP that will want to see this interpretation, not the ex. But, for now, let's assume the value is "up", we just don't know how high "up" is. Your ex- and her lawywer, will no doubt submit a DRO to the your plan asking the plan to determine the value of the account as of that date and then to "trace" the gains/losses associated with those funds through to today. Your plan will either respond with "OK, here is the value you asked for." Or, they will respond with: "we don't do that sort of calculation." Let's assume it is the latter, because there isn't much controversy if it is the former. Now it becomes an interesting issue for a judge to decide if you and your ex- can't work it out. You might have the records (or be able to get them from your plan), but not be volunteering them. Or, they may not exist. Maybe your ex- has somehow been given statements every quarter and actually has the information herself from which to prepare an analysis. Whatever. If you volunteer to work with them (with or without counsel - and I'd suggest counsel of course) and come to an agreement, then it ends there and the DRO is drafted consistent with what you agree. If you can't come to an agreement, then your ex- can attempt to get a judge to agree with her version of what is fair. If the judge agrees, then again, a DRO is drafted which incorporates that agreement. Whether it is best for you to actively participate in determining the calculation or to let them try and put it together without your help is something that only competent counsel can guide you about. While I don't see it happening, if the judge decides that the lack of information is caused by your ex-'s delay and that therefore she shouldn't get a share of the gains/losses since that date, then that is what the DRO ends up saying. And, to round out the discussion, if there is state law where you are which says that she is not entitled to gains/losses because the marital dissolution agreement is silent on the issue then you should have a right to reject the DRO that you've been asked to sign. Only competent counsel can guide you there. Good luck and let us know what happens.

mjb, you are kidding, right? This isn't an engagement where somebody has hired me to be impartial, or to advocate. This is a public bulletin board where it is not at all inappropriate to "take sides" as in "have opinions." All I can say is that if you really can't see it, then you are intentionally covering your eyes.

fivepoint sounds like somebody who is trying to take advantage of his ex-spouse. I have no sympathy for these sorts of people. fivepoint, if you had money in the hands of somebody else, and then you claimed it many years later, would you think it fair that any gains/losses attributable to those monies would rest with the person who held those monies? If you answer that you would expect to get the original amount, and no more (or less) then you are either being dishonest or are a bit on the naive side (I'm trying to be kind here). Why wasn't this darn thing finalized? Could it be that your "interpretation" gave you a reason to delay (your first clue that your interpretation was off base)? Sorry to come off without much empathy, but the fact is that this situation should be decided on the basis of fairness. If, as mjb implies, there is some mechanism that would allow you to escape with all of the gains, then I suppose you are entitled to it. But I wouldn't be able to sleep at night.

If the plan has "auto-411" language, that basically precludes an amendment from taking away any right that is inviolate under the regulations, then a change to NRA merely causes future accruals to have a distribution date which is later. The participant retains the right to a distribution at the original NRA with respect to the benefits accrued through effective date of amendment. Is this really a problem?

I think corporations get until Monday for a deposit to be counted if it is deductible based on the maximum deductible rules. The IRS is fond of saying a weekend/holiday deadline is not extended for minimum funding purposes. But you haven't seen a suit on this issue, have you? I thought not.

Yes, it would be necessary to make a contribution to those who should have received one. Did you leave out a "don't"? The 5500 is the least of your worries.

Ouch. This one screams for you to engage ERISA counsel immediately. If the old plan is not a qualified plan at the time of its termination then the new plan is at risk for accepting the funds. While the IRS may be forgiving if a plan accepts monies from a non-qualified plan that is unrelated, they are much less likely to be forgiving in the case of related entities. From the story you tell, the old plan sponsor played fast and loose with the rules. Is it possible that the two picadillos you mention are just the tip of the iceberg? I challenge your assertion that "there was to be no employer contribution for that year". If they deposited funds into the plan, then there was an employer contribution. To state otherwise is a very dangerous path to follow (qualification wise). The only escape is if you can fit the fact pattern for a mistake-in-fact contribution (very narrow interpretation, as far as the IRS goes). Something sounds very fishy.

De-merge. (Spin off).