Mike Preston

Saying that ASPPA lobies on behalf of individual companies is a silly characterization of what has taken place over the 20 years I've been involved with ASPPA. Each and every comment is made by somebody who is employed by some firm where that firm has at least one ASPPA member. A comment is made by a member to those at ASPPA and if the comment bears bringing "political capital" to bear on the issue, as defined by those in charge of these things at ASPPA (the Government Affairs Committee, typically) then resources are mustered and a campaign, either light-handed or heavy-handed is begun. If the comment was initiated by a firm with significant numbers of ASPPA members (such as Corbel/Sunguard/Relius/whatever) that comment is given no more weight than a comment made by a firm with insignificant numbers of ASPPA members (the sole practitioner). Where the comment comes from is just not relevant. If the issue is real, then ASPPA will gladly take up the good fight. I've seen it happen. From the inside. To imply otherwise is just not close to reality. If you don't believe me, volunteer for the Government Affairs Committee or a sub-committee thereof and prove it to yourself.

There are so many reasons to run from this client right NOW that a single post on this bulletin board could not possibly cover all of them. You are certainly not being overly cautious. The main point you have not mentioned is that IF this gets picked up and the plan ends up with a disqualification, you can bet your life that the four owners in question will look back to the day you allowed this to happen with a very selective memory. They will then proceed to rationalize that you and your firm should have absolutely told them not to go forward and they will sue you and your firm for damages. You just don't need that kind of client. Cut them loose. You are under no legal obligation to report them, that I am aware of. It is a much more interesting discussion to wonder if you are ethically bound to report them. Ethics are a personal matter, so there is no one answer. But if their actions could cause serious harm to others (such as disqualifying the entire plan) then I wonder what your ethics demand in that circumstance?

I have seen situations where firms have insisted upon GAAP financial statements to satisfy significant lines of credit. Typically, although not limited to, construction firms.

If it wasn't payable as compensation, then payroll records should be revised and the employer should reflect any overpayment as an asset due from the employee. No way do you count improperly paid monies as W-2, you just have to correct it properly. If the employee never pays it back, it is like any other bad debt of the employer. Write it off or go after the recalcitrant in court.

Thanks, Mike needs all the support he can get. It is a jungle out there!

I think this is indeed correct. I look for Congress to force 2 or 3 year 100% vesting soon anyway on all plans.

Berna, It looks like you are, actuarially speaking, either 15 or 16 years younger than your ex (depending on what time of the year the measurement is taken and how the plan in question deals with age determinations when a partial age is involved). A 15 or 16 year age difference is quite significant. All other things being equal you can expect that a benefit based on your life will be significantly lower than a benefit based on your ex-spouse's life. It also sounds like he continued to work between your divorce and the time he retired. Any benefit he is getting based on that period of employment is probably not being included in your share of benefits. mike

Yes. Are you familiar with "standardized" and "non-standardized" plans? They only come from one source: prototypes.

They weren't?

Wow!

I have a question . . . Would a QDRO with the following provisions also be considered a "frozen separate interest?" 1. Awarded a specific dollar amount for the AP's lifetime 2. AP treated as "surviving spouse" 3. AP not required to wait until the Participant retired, but may elect to receive benefits at participant's earliest retirement date It sounds like it to me. (2) is irrelevant to the determination of the AP's frozen separate interest benefit. (2) applies to whether the AP can gain an additional benefit [beyond the frozen separate interest] from P's benefit predicated upon P's death. So we ignore (2). Assuming the intent of (1) and (3) is to provide a specific monthly benefit to the AP, and that amount begins at the age that the AP is when the Participant (P) reaches the earliest retirement age, then it sure sounds like a frozen separate interest to me. What does that mean? What is that opinion based on? Sorry, about these questions, but I'm involved in a court matter with my former spouse and I guess I'm hoping that some of this might be helpful to me. Thanks very much. Well, I'm not sure how to say it any differently. So, let me cite an example or two or three and maybe that will illuminate the issue: (1) At divorce, after 10 years of participation (all of which were during the marriage), with an accrued benefit of $2,000/month, all of which are community, the AP and P are each awarded a separate interest benefit of $1,000/month beginning in 10 years. If P retires in 10 years with a benefit of $5,000/month, the AP still gets a benefit of $1,000/month. That would be a frozen separate interest. Change it to a "non-frozen" separate interest and we find that AP and P were married and participating in the plan for 10 years, while P was unmarried and participating in the plan for an additional 10 years. Hence, the plan's benefit is 50% marital interest. AP is entitled to 1/2 of the marital interest and therefore 25% of $5,000, which is $1,250. So, if it is a frozen separate interest, the benefit is $1,000/month. If it is not a frozen separate interest, the benefit is $1,250/month. (2) Now change P's benefit from $5,000/month to $3,600/month. If "frozen", AP gets $1,000 and P gets $2,600. If non-frozen, AP gets 25% of $3,600, which is $900 and P gets $2,700. As you can see, a "non-frozen" benefit is better for the participant if the benefit accrual rate AFTER marriage will be slower than the benefit accrual rate BEFORE divorce. And, of course, the opposite is true. If the benefit accrual rate AFTER marriage will be faster than the benefit accrual rate BEFORE divorce, it is better for the AP. I refer to this as the "coattails" effect. Does the AP wish to ride on the coattails of the P? That would be a resounding "yes" for any P who is expected to have a significant increase in the rate of accrual in the future (such as a rising young executive might expect). The above two examples highlight the coattails effect. (3) Another example might be based on a separate benefit being written into the plan after divorce. Imagine, if you will, that after the divorce in question, the company implements a lump sum arrangement on top of the existing plan's provisions, but predicates that lump sum on total years of participation in the plan. Something like $1,000 per year of participation. Our hypothetical P will get a $20,000 lump sum at retirement, on top of whatever monthly pension the plan provides. Is the AP entitled to any share of that $20,000? Don't answer as the question is unanswerable in its current form. The basic question that courts have had to wrestle with is whether those first 10 years were used by the plan sponsor "enough" to establish the AP's right to a share of that lump sum. For now, let's assume that the design of the plan is such that it is unquestionable but that the first 10 years are the reason for 1/2 of the lump sum. In the case of a "frozen" separate interest, the AP would not share, since the benefit didn't exist at the time that the divorce took place. In the case of a "non-frozen" separate interest, the AP would share. As Randy Cohen (the NYTimes columnist) is fond of saying: Intent matters. If the intent is to award an individual for all service then the additional benefit is rightfully attributed, in part, to those early years. If the intent is to award future effort (from the date of amendment onwards) and the formula is merely a convenience, then the additional benefit should not be attributed, even in part, to those early years. Whether such a benefit is subject to the claims of an AP is therefore the purview of the courts to decide, after reviewing the plan and discerning the intent of the plan sponsor (usually easy to do once you get your hands on the communication sent from the plan sponsor to the participants). A careful plan sponsor will be aware of this issue and design their benefit formula to take into account future service only if they wanted to ensure that the increase would not be allocated to an ex-spouse. Otherwise they risk having monies they thought were intended for current employees instead redirected to their ex-spouse, in part. We've dealt with increases due to normal events associated with employment (raises, etc.) and with increases due to plan changes which take place subsequent to divorce. There is a third category, and it has perplexed the courts, as well. What about a future benefit, not yet earned, but fully identified at time of divorce, that matures between divorce and retirement? A classic example of this is an early retirement subsidy. (4) Let's say that on divorce, the expectation is that our P will have a benefit at retirement, in 10 years, of $5,000/month. But the plan has a benefit that says you can begin your benefits early, without reduction, if you have a total of 90 points (where you get one point for each year of your age and 2 points for every year that you work for the company). Our P will have 90 points at the end of his 15th year of employment, when he reaches age 60. Clearly the increase associated with being able to begin benefits early, without reduction, is of value to the participant. How much of that is attributable to the years during which the marriage was in existence? Once you can answer that question you can then decide how much of the increase goes to the ex-spouse. In the case of a frozen separate interest, nothing. In the case of a non-frozen separate interest, maybe something. Each state has their own rules for each of these sorts of things. You really need to talk to somebody in your own state to determine which, if any of these, can have an impact on your case. I can quote you cases in California (Oddino, Lehman, Brown, Poppe and others) that deal with these things. I can't cite them in any other jurisdiction. Good luck.

Berna, The problem with trying to collapse a mountain of information into a single post on this bulletin board is that something always gets a little lost in translation. There just is no way that you can lay out 100% of the information necessary for somebody to definitively help you. It sounds like you ackowledge that the plan sent you the Summary Plan Description. That document should have the legal name of the plan in it and it should have the name/address of the Plan Administrator in it. It should have the name/address of where to send a claim for benefits (or a claim for a recalculation of benefits). It should also describe the appeal procedure you must follow in order for the plan to consider an appeal from you, assuming that the plan initially denies your claim. I strongly encourage you to have all documents that you have, including notes as to when telephone conversations took place and what was said during those telephone conversations, reviewed by somebody who can explain things to you to your satisfaction. You haven't given us your age and your ex-spouse's age, but I can tell you one of the reasons why your monthly benefit may be less than his. *IF* you are younger than your ex-spouse, since your benefit is being determined based on your age, the actuarial tables say that you are likely to live longer and therefore the monthly benefit you would get, all other things being equal, would be less. Whether $500 less is correct or not isn't something that can be answered here, but I did want you to be aware that since your payments are based on your life, and not the life of your ex-spouse (which means they will continue as long as you live and not stop if your ex-spouse dies), the amount of the payment would correctly be adjusted (downward) to account for your longer life expectancy if you are indeed younger than your ex-spouse. To recap: the SPD has the information you seek about what to do and when to do it, in order to properly time your appeal for additional benefits. If the plan refuses to respond to you in the timeframes mentioned in the SPD, then the SPD will indicate (or at least it should indicate) that you can take the non-response as meaning the same thing as an affirmative response that your claim has been denied. You could then follow the procedures outlined in the SPD for appealing a denied claim. At the same time that you are filing a claim to the plan or filing an appeal of a denial of a previous claim to the plan, you should be following up with somebody who can explain things to you to your satisfaction. I understand that this may be easier said than done. Certainly, if you hire a pension attorney they should be able to do so, although the expense may be significant. The advantage of hiring your own pension attorney at this point would be that should it be necessary to serve the plan with a lawsuit to protect your interests, the attorney can help you with that process. If you hire a pension consultant, they may be able to help you understand things, but they may not (in fact, probably will not) be able to help you protect your rights through the courts. I hope you succeed in getting the help that you are looking for. mike

I'm pretty sure I've seen these sorts of provisions. So I *think* it can be done. However, the nomenclature needs to fit the benefits being paid. That means to me that a participant electing the equivalent of a 100% J&S is actually electing a benefit of a 1 year pension payout with death benefit equal to 60 months minus number of months benefits have been paid plus a one year deferred benefit of a 100% J&S. Documents with that sort of language can take a while to digest. Benefit election forms can be a challenge, too.

Agreed from my end.

I agree with Kim.

Yup.

Me thinks the gateway will cause an increase to both.

If the distribution was improper and the money belonged to the plan, then I would insist it be put back before signing anything. This is actually in the client's best interest because it shows intent. Of course, this is subject to discussion with ERISA counsel, but every ERISA counsel I have worked with lo' these many years has said that if a course of action is determinable pre-IRS concurrence, then you do so prior to finalizing correction. Only if there are potential alternative courses of action do you delay. This does not seem like a situation where delay is appropriate.

Why aren't B's participants in a separate plan?

Indeed. Not even jpod can object to that fact pattern!

It is more than just indexing, isn't it? It is a whole new table. If you go down the route of saying that the plan is not ambiguous, and therefore strip the decision from the plan administrator, then there should be some consistency of approach, yes? So, what is the interest rate of which you speak? Is it the same interest rates in use for lo these many years and currently hovering between 3% and 4%? In which case, my answer would be a resounding yes. Or is it the rates which are intended to be combined with an entirely different mortality table? In which case, I will be forced to admit that you should not use UP-84+1. But since I find it hard to believe that you would have asked this question if the interest rate was something other than the tiered rates, I'll wager (but not too much) as to the result. Will I lose?

Not even close. Yes. No doubt you are talking about a plan that hasn't been amended for a while. Or two whiles. No way would I interpret the plan as providing for a mutating mortality definition in the absence of clear proof that they were intended to have it morph. And, since I'm a betting man, that means I'm willing to bet dollars to donuts (not nearly as big a spread as when I was in college, but I digress) you won't find any. Now, fact is, you got yourself a real live am-bye-gue-it-eee. That means it is time for somebody, and by somebody I mean the plan administrator, to make a decision as to what was intended. But I would be shocked. SHOCKED< I tell you! <smile> if the plan administrator intended a change.

Yes, but I've stated that you can not do what you think you can do. Surely even a purist jurist sees the need to ensure that his or her opinion will not be overturned on appeal. In our world, the general rule is that unless it is prohibited, it can be done. I'm saying it isn't prohibited. Asking me to prove that it isn't prohibited is impossible. The only thing that can be proven is that it *is* prohibited. I've admitted I can't come up with any scenarios where the OP's inquiry would make ethical sense and the amendment be prohibited. You have stated that the opposite is *possible*. Ball. Court. Yours.

Not a single one of them can apply to this circumstance, though. But I'm willing to be convinced otherwise.

Use your imagination. Come up with *something* that would fit your own definition of discriminatory. Share.