Tigerket

No answer in the PEP legislation, but it appears that the decision whether or not to terminate the employer’s portion of the PEP remains with the employer - and it appears that leaving the PEP does not automatically terminate the employer’s portion - the employer can leave the PEP without terminating the employer’s plan. But if the employer decides to terminate at that time then it would seem the participants must be full vested. Your question begs for a answer from the agencies. Presumably the DOL will describe an employer’s decision to use the PEP as a fiduciary decision - as it has under similar circumstances, but the decision to leave the PEP looks like a settlor function?

Would you like a minority view? The only plans in which an overpayment matters is a DB plan, and even there the agencies suggest that the PA is not required to recoup, and needs to weigh the equities first. The PA is also supposed to consider the source of the mistake, and attempt to recoup the loss first from whoever is responsible. vAlso, the plan document and SPD have to make it clear that the plan has a right to recoup - much more easily done when the recoupment involves a third party insurance recovery that the participant is required to provide. The DOL has also suggested that the plan's recoupment effort is a benefit claim denial and the plan needs to send the participant an official compliant claim denial, inform the participant of appeal rights, etc, and let the participant go through the claims process. The collection is also murky - the plan can't resort to self-help (and probably should not - even if the participant still has an account balance). Can the plan sue the participant under 502(a)(3) for the overpayment? Can the plan bring a collection action in a state or deferral court? Where the mistake involves on going payments, all of the above should apply. Courts find it easier to reduce future payments to the correct amount, but sometimes balk at making a participant repay the past overpayments for a variety of reasons. Just sayin. There are two sides here.

ldr - Some of your instincts were correct, despite the doubt leveled at you by QDROphile. Obviously from these posts, it seems like lots of plans still expect to get some additional order covering the plan benefit, or requiring a separate order directed to the plan from the judge, for the plan's "protection," but it is not necessary, and causes, as here, extra expense for the parties. Take a look at DOL Handbook Q1-2 and Q1-7. The only plan administrator who may ask for a court order directing it to pay is the PBGC - and that is because when an AP seeks a division of a pension benefit from a plan administered by PBGC, the claim is for a federal benefit, not just asking a private plan to honor a state court division of property. I am sure I will get a fight back since QDRPhile thinks the DOL has been wrong too. And I don't mean to fault plan administrators in general -- (altho courts do when the PA is too hypertechnical in qualifying DROS) - there is sufficient ambiguity in the domestic relations laws, and in ERISA, its case law, and agency guidance to be confusing. Courts generally, if it comes to that, are deferential to the DOL guidance, even sub-regulatory guidance, so that is a safe bet. Your instincts were also correct on what protective measures a plan should take. The DOL Handbook is instructive there too. First Q 2-1 - on disclosure - altho the types of parties who are prospective APs is small, and some are entitled to benefit statements anyway (spouse), the plan may request proof that a request for information is in connection with a domestic relations proceeding, but then the plan must give the prospective AP any and all information necessary to draft a DRO. The question of how long a plan should protect benefits in a disputed situation is harder to answer, as you will see from the Handbook Qs 2-11-13. And there are variations. Courts don't generally fault a plan if the plan has absolutely no knowledge of a DRO (or perhaps even of a spouse), and makes a distribution to the participant. Plans aren't likely to be faulted by the courts for not paying out when a dispute is known, but there is much confusion about the "18 month period" for waiting when benefits are already payable. This waiting period does not answer all situations. For instance, most plans experience, at some point, receiving inquiries, and even draft DROs, or other evidence, but then not hearing back from the AP indefinitely. Then the participant applies for a distribution of the entire account. Things happen - the AP decides to accept the house, the boat, and the dog instead of a share of the pension. Or the parties reconcile (it happens!). A plan can protect itself, by writing to all of the parties, and their attorneys, stating that the plan will honor the participant's distribution request unless it receives notice that there is still a dispute over the plan benefit. I will now step down off of my soap box.

Two points, both drawn from the DOL QDRO handbook: 1.The court order between the parties is a DRO that should be qualified by the plan. If the participant is eligible for a distribution, 1/2 goes to participant, 1/2 to spouse, alternate payee. I am assuming the court did not enter a divorce decree without a property settlement, so assume that the property settlement dividing the account was incorporated into the divorce decree. I am also assuming that the participant had notice of all of the proceedings, and must have signed the settlement agreement? 2. There does not need to be a separate order to the plan to pay -- the plan is required to "honor" the division of property by the state court order. Long ago, and in a far away place - California - plan administrators refused to give account information to prospective alternate payees, and refused to honor division of ERISA benefits pursuant to state court DROs. In response, California enacted a law requiring automatic joinder of ERISA- covered retirement plans in state domestic relations matters in order to enforce information disclosure and property divisions in DROs. The DOL spent a number of years, unsuccessfully, trying to convince california courts that the joinder law was preempted by ERISA. Following that - DOL advice to plan administrators when receiving any state court order was to politely reply that the plan would comply with the disclosure or distribution (if the order complied with ERISA and the plan terms) based on the plan administrator's duties under federal law, not state law. Why would any plan administrator voluntarily submit itself to state court jurisdiction? What if the state court ordered the plan pay in a form of distribution (like lump sum) not provided for by the terms of the plan? Or ordered the plan to pay the parties' attorney's fees? Or ordered the plan to pay to an alternate payee not entitled to a distribution from the plan (like the third spouse when the second spouse already had a valid QDRO on the account?). If a DRO contained any of these provisions, the plan administrator should reject the DRO, and the remedy, after any administrative appeal that might be provided by the plan's QDRO procedures, would be for the putative alternate payee is go to federal district court.

A loan from a plan to a participant is a prohibited transaction unless the plan follows the requirements of the statutory exemption in 408(b)(2), and the terms of the DOL plan loan regulation in which the DOL hammered home that approving a participant loan was a fiduciary act, that the loan had to have reasonable rate of interest, be adequately collateralized, etc etc. The 50% rule was written by a DOL who thought deeply, or at least exclusively, about protecting the plan assets, and was reacting to abusive loan practices in ERISA's early days. There were also lots of concern generally about premature distributions. So -- weren't plans in a catch 22 on the account balance collateral problem with loans from pooled investment vehicles? The DOL position seemed to be that in the event of a default, the plan had to collect on the collateral to protect the investment, but the IRS made it clear that a plan risked disqualification if on the default the plan tried to collect on collateral from a participant's account at any time before that participant had a distributable event. Hence, a participant borrowing from a pooled investment vehicle could not borrow anywhere near 50%, in order for there to be sufficient assets left to his or her credit to pay interest into the pool until the defaulting participant had a distributable event. Based on these concerns - doesn't it look like the special provisions in the DOL plan loan regulation essentially limited using the account balance as collateral to loans from a participant's individual account? So the participant hurt only him/herself, and the carried interest was treated as a paper transaction until a distributable event? The IRS even said after the DOL reg was final that the plan did not have to issue a 1099 every year until a distributable event to report the " interest" on the defaulted loan as "income." Didn't some plans with pooled investments avoid the whole problem by rewriting the plan to segregate participant loans? Off my archival box now.

DOL participant loan regulation recognizes as legit loans from pooled investment and from individual account. Difference is in the collateral. If loan comes from pool, the collateral has to be sufficient to repay the pool if there is a default, and before there is a distributable event so plan can actually collect on the collateral. Doesn’t this make it difficult to make participant loans from the pool? And doesn’t 408(b)(2) make it a PT for a plan to treat a partipant loan from pooled investment as just an investment?