Locust

This is my last reply, because I've said plenty already. We have as Dirty Harry would say, a failure to communicate. I'm not saying that a divorce decree is the best way for a spouse to present the court's order, and I'm not saying that most divorce decrees wil qualify as a QDRO. I'm saying that a PA has to review a domestic relations order that is a final divorce decree that is submitted to it (or made known to it - to be safe) as a possible QDRO. Effen and Nate: If you as a PA received a divorce decree that had all of the elements for a valid QDRO, would you deny it simply because it was not in the format you usually see, that is, a separate order dedicated to the QDRO? And if you as a PA got a package that included both a final divorce decree and a conflicting order dedicated to the QDRO, would you ignore the divorce decree?

Effen - I'm not saying a divorce decree is the best approach to a QDRO, but I don't think it can be disputed that a divorce decree is an order of the court issued in connection with a domestic relations order, and as such could meet the requirements for a QDRO. I've seen a few divorce decrees and some of them cover everything. Also, so far as ignoring the divorce decree when there is a separate order, probably not a bad idea, but what if the separate order and the divorce decree are inconsistent and both have been submitted? Doesn't that create an ambiguity that the plan administrator should resolve? J - my point is that a decree could be considered a QDRO and that the plan administrator had better treat it as a potential QDRO.

The divorce decree itself could be a QDRO - if the Plan has it (or is aware of it), it ought to be run through the QDRO review procedure. The payment to the husband should be suspended until everything can be worked out.

First, termination of the plan in mid-year doesn't create a short plan year. The plan continues to operate on the regular plan year until all assets have been distributed. The effect of termination is to: 1. fully vest everyone as of the termination date, 2. suspend further benefit accruals, and 3. initiate the final payout procedure (assuming that the plan says that payments will be made asap after termination of the plan). Second, (Sull) you might be able to undo the termination as of 4/30 and set a new termination date, such as 8/1, but there are issues: 1. Everyone would have to be fully vested, I think, as of 4/30. 2. You'd have to count compensation to the new termination date in determining allocatiions. 3. There might be some employee issues - some expectations created by the termination that would have to be considered. If everyone stay employed between the initial and new termination dates, it may not be an issue.

You'll have to do some research. You can start with Rev. Rul. 86-142, 1986-2 CB 60 which says broker's commissions paid by the employer are contributions subject to the deduction limits of Code s 404 - but it doesn't refer to the nondiscrimination rules. My assumption has been that a contribution for deduction purposes would be considered a contribution for nondiscrimination purposes, but maybe there is some distinction that can be made?

I believe the IRS has said (Rev. Rul - early 90s?) that payment of broker fees by the employer would be considered a contribution - could be discrimination and deduction issues.

WDIK - I'm not a recordkeeper but it seems to me that it is more complicated that having the payroll make the investment splits. The recordkeeper has to do some reconciliation work to insure that the contributions are correct. In a daily plan it is very difficult to undo contributions, so it has to be absolutely correct going in. In the multiple employer context you may receive data from different sources with variable capabilities. If you receive it directly from the company (rather than through a payroll service), it is likely to have mistakes occasionally. Even if you receive it from a payroll service, you can't really rely upon it without checking. I've worked with recordkeepers (big ones, thought not necessarily competent) whose systems completely shut down if everything is not done exactly right - the assumption is that data and contributions will be perfect and timely - and that's not the real world.

It would be nice to have it both ways - treated like a big plan/employer for investment and administration purposes, and like a small plan/employer to get some slack on the deposit requirement. Isn't this the challenge of the multiple employer approach - to establish efficient and compliant procedures to get all of the data and information from the many small companies and to administer the plan properly?

It's a facts and circumstances test. To be safe all the terms should be 100% vested. It looks to me like a classic partial termination - the nonhighly compensated employees are terminated, they forfeit their nonvested accounts, and the forfeitures go to the owners! Pretty bad deal for the terms, pretty good deal for the owners.

I agree with the comments above. It's probably not a qualifying employer security because the 407(e) definition is stringent. It would probably be considered a loan from the plan to the company, which would be a prohibited transaction. As a prohibited transaction, it would have to be corrected - coming up with cash to pay off the note - and would be subject to excise taxes until corrected.

From the DOL perspective, the important act is the deposit in trust, not the allocation to pt accounts. So you might get a recommendation that the deposits be made to a holding account that was in trust before the actual allocation to accounts. The allocation to accounts would presumably coincide with the investment of the funds according to pt direction. The question I have is how to invest the holding account. Is it acceptable to have it in a no-interest account for a short period of time? Arguably, yes for a couple of reasons: 1. if the money wasn't deposited until the allocation, no earnings would have been credited, and 2. the cost of allocating the earnings to pts would be greater than the earnings. If it didn't seem right to put the funds into a no-interest account, perhaps the interest could be credited against fees otherwise owed by pts.

There's no need for an SPD for an executive welfare plan - the retiree medical benefits, executive physicals, financial planning, legal services, life insurance, and use of the company jet are all part of his employment contract.

How about the "Masters of Numerical Deviation" or "Pension Wiseguys" or "The guys who've got your numbers"?

No disrespect to you actuaries, but who cares? The only ones who ever use the term are pension specialists, and they know what it means. But "actuarial variance" has a nice harmless sounding ring to it. Nothing to get excited about, tres snoozy! What about another name for actuaries? Lawyers have all sorts of pejorative and other names that make them sound sordid and dangerous - sharks, ambulance chasers, legal eagles, crooks etc. But actuaries - I can't think of any colorful names? I propose "Numbers Drudges." Or how about "Numerical Manipulators"? Actuaries - this is your chance to add a little color to the profession!

What are your responsiblities for payment? What does your contract say and what do you actually do? Are you a fiduciary? If so, you may have violated your fiduciary duties to the ex-wife. If you're not a fiduciary, you're just a recordkeeper and not responsible. The problem is that the definition of "fiduciary" is often a factual issue, and the ex-wife might consider you a fiduciary.

Mark - Thanks. A very lucid explanation.

Vebaguy - What you describe is not what I would call split dollar, but the purchase of life insurance by the employee that is facilitated by the company. Isn't that what's happening? Someone tried to explain to me why this was a benefit, and the answer was that life insurance for executives through a corporation is cheaper to buy than regular insurance because executives are richer and have health insurance. I'm not sure I buy this but I'm not an insurance guy. Warning - I've seen enough blown insurance deals to be highly skeptical.

You've got a plan administrator and trustee who should be making these decisions. If I were the trustee/plan administrator, I might want the amounts necessary for the missing contribution and earnings to be reallocated directly from the owner's account to the other participants' account,s that is, that this amount not paid be paid to the owner first. If I were trustee/plan administrator, I might hesitate before paying the owner anything until the deficit was made up. [Of course I can guess who the trustee/plan administrator actually is and he might not agree.] Seems like there are some fiduciary issues here.

You might consider hiring an unaffiliated consultant to do an RFP. As noted, there are many vendors that would be interested in the type of plan you describe. The RFP process will result in a competitive bid plus you get to see what is out there. You want a vendor that provides as many services as possible - communications, impartial investment advice, good investment choices with low costs, enrollment and payment services. Another advantage of the RFP is that it can make the process less political - it makes it possible to blow off the local, connected, broker if he or she doesn't measure up.

There was a fairly extensive discussion of this earlier this year. I think it depends upon whether the new plan is a separate plan, which I think (others disagreed) depends upon whether the plans have separate pools of assets. There are costs associated with a separate pool of assets - separate trustees, accounting, 2 5500s, separate Plan #s and EINs, etc. Is the CPA's audit really so expensive? I know they've gotten more extensive and cover all sorts of things that I (again my opinion) do not think are necessary, but is it really that bad for a company that has more than 100 employees? Sometimes IMHO (Ha ha) clients are penny wise and pound foolish when it comes to professional expenses.

How can you fund a salary continuation agreement with split dollar insurance? [split dollar means (to me) that the employee will get the death benefit and will have some rights to the equity in the policy. Is it possible that the idea is that life insurance on key persons (perhaps the one with the salary continuation agreement) is owned by the company and the inside buildup will provide the assets to pay the benefit, that's not my concept of split dollar.] Are there insurance guys out there who think (wishfully) that split dollar is still a way to provide deferred compensation?

Several picky points: 1. The 5500 is filed under penalties of perjury. The form asks for the current value. If the person who signs the 5500 knows a value reported on the form is not the current value, has he or she committed perjury (even if no one has been hurt)? 2. The valuation is made by the trustee. It doesn't have to be done by an independent appraiser, although for any year in which there is a payment, it ought to be. Why doesn't the trustee come up with a current value based on best efforts instead of simply valuing it at book? 3. The IRS/DOL has said that it reviews the asset statement on the 5500 and that if the value of an asset doesn't change from year to year, that is an indication that assets are being carried at book value - a problem it may want to review.

I didn't mean to imply that local administration/investment services were inferior. I won't name names but clearly some large investment shops provide terrible administration. Clearly some national payroll firms are in the learning stages and are terrible. As a rule, the insurance companies are terrible. A good point has been made that local firms provide much better value than these. But that's the marketplace going with the better and cheaper alternative. Eventually, the competition will be between the big banks/mutual funds and the local (consolidating into regional) and then who will prevail? It used to be that all the business was handled by local consultants and banks. Now only the smaller plans stay local. It used to be that every plan document was different - now everyone uses Corbel/Sungard/PPD (another example of consolidation). Standardization is good - it lowers costs and makes it easier to compare quality - but it also favors large distribution systems.

Perhaps all of this is obvious, but I thought I'd post it to get some thoughts from those in the hinterlands. There was a post on the 403(b) forum that lamented the fact that some school districts didn't get the benefit of a Vanguard or Fidelity for their teachers' 403(b) accounts. 403(b) vendors are protected by states and other governments, which are inherently conservative in choosing their vendors for political and other reasons. But that's not the case with 401(k) plans (even governmental ones) that are moving quickly towards standardization and lower costs and arguably better services. The question is what has been lost in this process. I live in a city that used to have several bank trust departments that did 401(k) administration and there were several regional consulting firms, and these are now gone, absorbed into bigger banks and bigger national consultants. Colleagues have moved to Charlotte, Atlanta and Philadelphia. Who's left are financial advisors who pretty much provide the same services and make the same recommendations (and shift the technical work to those financial centers). It's like Wal-Mart isn't it - a relentess move to a bigger distribution system with more uniformity and lower costs. It may be good for the participant, but you lose the regional flavor and the local expertise (which I guess wasn't really all that good). I assume that every 401(k) plan in every part of the country will be substantially similar provisions, so the main job of the local advisor will be to sell a fungible product.

Unfortunately (or fortunately depending upon your point of view) when you're talking school districts or any governmental entity, you're talking politics. Who sells these insurance 403(b) contracts in these small school districts? It's the local insurance guys, the ones who are on the PTA and the school board, and who play golf with the school administrators. If you're a state legislator, would you restrict their ability to sell their product? This is not to say that there are not advantages to local service. Your more savvy teachers will choose the better product - they'll get the literature and go with a Vanguard or Fidelity, but many will just go with old Joe (or old Mary) who sells "Old Charter" insurance, because they know them, they can call them on the phone, and there is certainly a benefit to that.