Luke Bailey

Interesting. The 18-month period is specifically provided for in the law, but for review of a DRO to determine whether it is a QDRO, not as a period for suspension based on notice of a potential QDRO.

krw, is the participant an HCE or NHCE?

The law unfortunately does not address this issue forthrightly. I suggest doing what the PBGC does. You can change your Admin Procedures to add something like the following: WRITTEN NOTICE OF PENDING ORDER Anytime an interested party (including but not limited to the participant or alternate payee) notifies PBGC of a pending domestic relations order in writing (for example, in a letter or email, or on a pending benefit application), PBGC will delay the commencement of any benefits for a period of up to 120 days from the date PBGC was notified. For a participant who is in pay status, PBGC will not suspend any portion of the participant’s benefit based solely on such notice. Participants can notify PBGC of a pending order by fax or by logging into our secure online service (for both, see www.pbgc.gov), or by mail at the following address: PBGC QDRO Coordinator, P.O. Box 151750, Alexandria, VA 22315-1750.

The plan should consider interpleading. If the plan pays the children, the ex-spouse should consider an action in state court to impose a constructive trust on the funds to enforce the agreement in the dissolution.

Renee H, you can call the DOL to discuss without identifying your client. Ph #'s are listed in the guidance.

This has little to do with the answer to Tom's question, which G8R's has obviously crushed. However, I have wondered about this for 40 years: Is it just me, or is the term "immediately distributable" sort of a misnomer for what the regs are explaining here?

Belgarath, my thought would be that it depends on what the SPD says. If the SPD can be interpreted as consistent with what they've been doing, it would seem that an SMM would not be necessary.

I don't think you missed anything, tsrl01.

spouse I don't think so.

Right. Thanks for pointing that out, bito'money. It had been a while since I had to look at 2002-84. I should have reviewed it more thoroughly before posting.

Patricia, my guess is that it is a gray area. There are cases that are good law in some circuits, as I indicated earlier, that there can be a post-distribution equitable action in state court to enforce against the recipient of the plan benefit a non-QDRO agreement that the parties had entered into in connection with their divorce. Arguably the CA law that you describe, and with which I am unfamiliar, just codifies the result of those cases for CA. Supporting the argument for no ERISA preemption would presumably be the fact that the CA law does not attempt to change the identity of the person to whom the plan distributes the benefit. However, it seems to me there also might be an argument that the CA law goes further than the cases and attempts to change who is entitled to the benefit, infringing on ERISA's territory. In a very technical sense, the CA law seems like a property right, whereas the cases were an equitable remedy to enforce an agreement. Could be an interesting case if has not already been litigated to a conclusion one way or the other. Again, I'm just winging this because I am not familiar with the CA law you mention, Patricia. Was it enacted recently and have I understood your description of it correctly?

OK. Good luck, Nate S. Lawyers' Permanent Employment Act strikes again.

Nate S, totally go to the mat for your client, or friend, or whatever, I get it, but there is another side to the story, right? To get to this point the individual has to have been convicted of a federal crime that involves monetary damages to a victim. There is another federal statute that limits garnishments to the extent they would impoverish a person. Those may be involved here. It's been a while since I looked at that.

Totally. Only thing out there. However, because of TCJA's suspension of IRC sec. 67(a) misc. itemized deduction, the deduction for the payback is not available until 2026, right? I thought there might have been relief on this for this specific transaction, but just looked and did not find it in the Code. The employees should take the going forward reduction. Does anyone recall their being any relief on this issue?

I've been watching this issue for many years. I will only say generally that the tide of the cases seems to be in favor of MVRA enforcement against 401(a) plans. I'm pretty sure that if there had been any guidance or case law going the other way in the last 5 years, I would have noted it, but I don't think there has been any. Very recently MVRA was enforced in connection with a Shkreli/"Pharma Bro" case. You might want to Google it, Nate S.

EBECatty, in your example nothing was written in the plan document that would establish the allocation. So now that the employer has determined that an allocation should be made, wouldn't there be an obligation on the employer's part, as a fiduciary with respect to the employees' funds, to consider them used last, or at a minimum to assume that the allocation should be proportional, as suggested by Brian? Years ago, precisely for the reason you establish, I wrote a provision in an employer's document that said that employee contributions were always used first, and in effect the employer's contributions only came in at the end of the month to the extent necessary to fund any shortfall. That was never examined by anyone, however. Probably proportional would have been a better rule to put in the plan document.

Which it would. I guess there is precedent for this, sort of, in some circuits that impose a constructive trust where there was a divorce, no QDRO, but nevertheless an agreement between the parties that the state court finds enforceable against the party that receives the benefit from the plan. I suppose you can view state law, here, as the equivalent of the agreement among the parties. Very complicated because the parties' lawyers should be aware of this statute. But I'd be interested to know if this state statute has survived an ERISA preemption challenge, because unlike the decisions enforcing a state law agreement incident to a divorce, this seems to create state property rights in a plan benefit, which seems inconsistent with ERISA. Certainly, in a DB plan it's not going to create a benefit that does not exist under the plan, so seems relevant only to 401(k). I was involved in a case a number of years ago that involved this fact pattern, where the nonparticipant spouse predeceased the participant (who had retired many years previously, but had left his benefit in his employer's 401(k) rather than rolling to an IRA) by just 15 days and had attempted to will her alleged community interest in the participant's benefit to, if I remember correctly, her children by a different marriage. The outcome, in Texas, was completely different from the outcome that the law you describe is trying to achieve. Very interesting. Thanks, EBECatty.

Patricia Neal Jensen, for nongovernmental plans, state law would not be an issue, right?

fmsinc, I'm not sure I understand. Are you talking about a situation where the non-participant spouse predeceases and the participant does not remarry before dying him- or herself? In that case, the participant is simply single at death. Some plans would provide a death benefit (probably small unless a governmental public safety plan) to children, but that's about it. Maybe I'm not understanding your point correctly.

This could be in the regs, but my recollection is it's in one or two old notices, maybe from 1997 and/or 1998. Would need to look them up. Just saying that in case someone needs and wants to look for this. If you don't find it in regs, Google the old notices. Actually, try 98-1 and work back from there. I don't recall this having been worked into/superseded by regs as Stated by Ilene Ferenczy, but that may be.

For any other purpose, we would not think of either plan in a merger as terminating. It may make sense to think of it as terminating for ADP purposes, but I don't think there is any published guidance saying that.

austin3515, I'm not good with global issues. Is this a small plan that needs an audit because of its assets, or a large plan? Someone please correct me if I'm wrong on this, but it would seem that a plan that qualifies to file a 5500-EZ (which may not be involved with austin3515's question at all; I'm just asking) would not need to have an audit, even if it's assets did not qualify for the audit exemption for a small plan under 29 CFR 2520.104-46. Such a plan would not be subject to ERISA (which is the source of the audit requirement) and the 5500-EZ instructions make no mention of an audit.

Connor, what type of abuse do you have in mind? The only one I can think of is a disguised contribution in the case of a small DC plan, but Treas. Reb. 1.415(c)-1(b)(4) would in theory prevent that.

austin3515, I assume the client did file the IQPA by the end of May, so you are good with DOL, and your issue is that although you are not delinquent with DOL, the IRS penalty could apply since you didn't use DFVCP?

Maybe, but better to formally terminate. If never had a contribution, the fallout should not be great.