RatherBeGolfing

I don't think I would want to be on a list of advisors "certified" by this company in the art of sham divorces....

They could always compensate the employee outside of the plan and amend prospectively. Not quite the same but at least they would be able provide some sort of benefit to a loyal employee. Edit: I see jpod beat me to it

ASPPA/ARA filed a comment letter today on the VCP fee changes. The link to the comment letter should work even if you are not an ASPPA/ARA member, but if it doesn't just let me know. Since we might have lurkers who don't get ASPPA or ARA Newsletters, here is the article in todays ASPPA Connect

"They let me do it in my old plan, therefore I must be allowed to do it in this plan" - old participant proverb

@jimK please consider very carefully what @Mike Preston detailed in his answer, he knows what he is talking about. The last part is especially important, and I cannot highlight it enough:

ASPPA's "Retirement Plan Academy" is a little pricey, but I think it is well worth it. The books are well written and both the material and testing are put through a gauntlet of writers, editors, and reviewers to make sure that it is accurate, understandable, and most importantly that it makes sense to the reader and test taker. Make sure that they get real world hands-on experience along with their studies. There is no better way to get the studying to stick than to see it done with real world examples.

Yea many already do and this just makes it harder to successfully advocate doing the right thing

Thanks Mike! I figured they would be on top of it.

Can we maybe hope that this will lead to a self correction option without the need for VCP at least for loan corrections? I would imagine that ARA would push this very hard since it will hit small plans/employers pretty hard. @Larry Starr have you heard anything from GAC on this?

Only if that duty has been created by the statute or possibly the QDRO procedures. If the plan requires receipt of a DRO (as provided in the statute), the mere existence of settlement agreement does not create a fiduciary duty for the Plan Admin. In that case, the alternate payee would have a claim against the participant for violating the settlement agreement. It does not create a claim against a plan that follows its written procedures, which would certainly be reasonable if they follow the statute.

The statute calls for a plan to "establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders". Some practitioners interpret the reasonable procedure part of the statute to mean that the procedures can be more liberal than the statute as long as they are reasonable. In other words a procedure that requires more than the receipt of a DRO is not reasonable, but it could be reasonable to allow a something more liberal like "notification of pending DRO". While I agree that the procedure should follow the statute, I have read very few (if any) that are that narrowly tailored. Chances are good that the procedures in question allow for something more liberal than actual receipt of the DRO, and in that case the procedure should be followed. Ignoring the procedures (even if they are questionable) could also open the door to a fiduciary breach claim.

Yep, I agree with K2 and Lou.

The answer should be in the plans QDRO procedures

I think we agree that the distribution is what the participant gets, and the fee is a fee not included as income on the 1099 , right? I'm fairly certain that most RKs will actually distribute the amount requested on an in-service and take the fee from the remaining assets.

Id say it is the opposite. The 1099-R reflects the distribution, which is $10,000. The fee is just that, a fee, not a distribution, so why would you need to gross up what you are asking for? The fact that the fee is charged because of the distribution doesn't make it part of the distribution.

If participant gets $10,000 cash and $50 is taken from the account as fees, the 1099 is $10,000. It just isn't reasonable to treat a fee from plan assets ,even if it is an individually assessed fee, as distributed and therefore income to the participant. I can imagine some service providers trying to play this game if they want to hide what they collect in fees. Very convenient to have it listed as a distribution rather than a fee...

Or "Well, we have a couple of employees we have never told you about because their employment agreement excludes them from all benefits so they were never eligible for the plan anyways...."

That would make sense to me. FWIW, my document defines "union employee" as an employee covered by a CBA and makes no reference to union membership.

In my experience, most broker type firms don't offer this service. Outside of platforms or bundled providers, it usually falls on the sponsor or TPA. I had one client a few years ago who said his broker took care of it, only to find out that they sent the IRS a check marked taxes with his SSN in the memo line and said they took care of the withholding

@Pammie57,The plan administrator is the responsible withholding party. The IRS can recover the withholding , with interest, from the withholding party. The IRS will most likely not take any action if the tax liability is actually paid by the recipient of the distribution. If the participant does not pay the taxes owed, the IRS can recover from withholding party. The 1099-R should reflect what actually happened. If no withholding was done, you report no withholding.

Off the top. I assume you report those as fees/expenses paid by the plan right? If so, why would the participant get a 1099 for that amount?

good point. I have always looked at it as prospective. FWIW, both the EOB and study materials for ASPPA credentials use the language "for the next 12 months" rather than "for up to the next 12 months" that is used in the reg.

I wouldn't have a problem with the current semester or quarter, even if it is somehow billed after it starts.

First impression, I'm optimistic that the limitations on service businesses for pass through will mean a limited impact on plans.

Is this an actual situation the client is facing? It has been a while since I went to school but in my experience you ALWAYS have an opportunity to pay tuition before the semester starts, and most schools will require payment before the add/drop period is over.