Artie M

tl;dr version Nowhere in your facts do you say anything about the participant or alternative payee presenting an order or decree (something that could reasonably be interpreted as a domestic relations order) to the plan QDRO administrator to determine if there is a QDRO.... whether 11 years ago or recently. Your statement that a QDRO can be put in place well after the divorce is accurate but that doesn't mean it can be retroactive. Once benefits are being paid, then the QDRO would need to conform to the payment structure. A DB plan QDRO could be a separate interest or a shared/stream of payment QDRO. These are significantly different. Also, if there was no QDRO in plan when the participant elected his 10-year certain and life annuity, I find it difficult to believe that the plan would have made any adjustments to the annuity payment for a "potential" QDRO. Also, if the P elected the 10-year certain and life annuity, there is very little protection for the spouse (unless it is a JSA with 10-year certain annuity, which is very unusual). Under the usual 10-year certain and life annuity, payments will stop when participant dies (10 year certain period already over under your facts) and there is no survivor benefit. From a plan perspective, the alternate payee could get a new QDRO to conform to the current situation, perhaps even getting a greater percentage of the income stream that previously contemplated to make up for benefits already paid. But again, I don't see where the plan would have adjusted anything (and no liability for the plan) without a QDRO in place years ago. If the plan and reduced the partcipant's benefit without an actual QDRO in place, the participant should file a claim for benefits of the shorted amount. The alternate payee could sue the participant for any benefits they already collected... the QDRO they have may have a "constructive trust" provision... but this would be outside the plan context.

Not sure if I have ever been called "mainstream". I would say I can be overly conservative at times. Granted some of this goes (way) back to one of my first IRS audits where the client was berated--no penalties but was told don't do it again--for paying a participant's legitimate medical expense but the substantiation provided to the auditor was the participant's master card receipt from the emergency room. The IRS agent said this was not payment for a medical expense but was payment for credit card debt. I think it was harsh but the client changed its procedures as this was an old school "resident agent" for a very large corporation where the audit examination process was essentially continuous. I have also had internal auditors sample some of the documents and come back with similar issues. Perhaps it is battered-lawyer syndrome but I "shy away" from these issues when I can.

I don't believe there is a provision in the hardship regulations that states that a plan “must provide” that self-certification is permitted for an administrator to rely on a participant's representations. Thus, if a plan simply permits hardship distributions and does not require a different substantiation method, the administrator can ordinarily use self-certification operationally without a specific plan provision authorizing it. However, if a plan’s governing documents (e.g., the plan document, SPD, and/or incorporated administrative hardship procedures) require documentation or substantiation, operating solely on self-certification would cause an operational failure. So, self-certification need not be expressly authorized but using it cannot contradict the plan’s existing substantiation requirements. If the client desires self-certification, our approach, ultra conservative, is to include explicit language in the plan document, the SPD and other hardship procedures to permit self-certification and, by doing this, we will review all the "relevant" documents to ensure they are consistent (and inconsistent language shouldn't exist). .

If he already paid for the furnace repairs etc. then there is no immediate and heavy financial need. The hardship rule @Peter Gulia cites is intended to cover an existing need to repair. Here, the need is for a reimbursement. It would be different if these were unpaid repair invoices. Without that, approving a hardship solely because the participant previously spent money on repairs and now has cash-flow issues could be difficult to square with the “immediate and heavy” requirement even if the company is sympathetic to the participant's needs. Now, if the plan doesn't use the safe-harbor rules and the administrator can reasonably conclude it still meets the general "immediate and heavy financial need" standing, it might be possible. The other thing they might consider would be if she has any eligible medical expenses. Though she is not a dependent--I don't advise this but it is a technical possibility--he could name her as his primary beneficiary under the plan. See http://https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(1)

I don't think it can be repaid like the husband requested and @CuseFan's suggested course of action is the way to go. The issue is that upon the participant’s death, the loan typically becomes immediately due and payable under the plan terms. If not repaid within the applicable cure period, the outstanding balance becomes a deemed distribution or loan offset. However, because of the death of the participant there is a legal/operational barrier to the beneficiary repaying the loan because the loan was an obligation of the deceased participant. That is, pursuant to §72(p) the plan loan was made to the participant and only to the participant. (There are provisions in §72(p) that would permit a loan to a beneficiary from the beneficiary's own interest in the plan (e.g., a loan taken after the participant's death from the account that has been transferred to the beneficiary) but that is not what would be occurring here.) Here the original loan was to the participant and the beneficiary repaying the loan would be an assumption of that loan. Not saying it couldn't happen, but no plan documents, loan policies, or promissory notes that I have ever seen provide that a beneficiary (or anyone for that matter) can assume an outstanding loan and almost all of those documents would have flatly stated that the loan cannot be assigned or assumed.

I am unaware of any direct IRS authority squarely addressing de minimis balances of terminated participants where fees (distribution or otherwise) exceed assets> However, anecdotally, I was at a seminar/conference many years ago where some practitioners posed this question to an informal IRS panel. Can't remember where or when or who said it but an IRS agent stated that they see the issue and related that they had seen plans structure these as expense allocations specifically to avoid characterization as an impermissible forfeiture of vested benefits and they (another agent agreed) felt that was likely a better way to do it. Notably, there were no DOL agents present and the IRS agents, of course, stated this was their personal opinion blah, blah, blah. (I assume they had seen this on audit or something and did not find a violation but don't recall anyone pressing that issue.) Apparently, under this administrative process the recordkeeper would conduct periodic sweeps of accounts with balances less than the distribution/recordkeeping fee through some kind of administrative write-off process and then use the swept amount for some type of expense allocation that was characterized as some type of bookkeeping procedure. My understanding was that the key to this was that the swept amount was used to pay or reimburse actual permitted plan expenses and not ostensibly as a forfeiture available for employer benefit, e.g., reduce future matches. Again, a DOL agent being present would have been nice as this could be a plan asset question). I have never been asked to look at this and am not sure how this expense allocation would work but I do prefer the view that it is an expense allocation as opposed to a forfeiture (as I agree there are several issues raised with characterizing it as a forfeiture --violating the exclusive benefit rule, anti-forfeiture/vesting requirements under IRC §411, and potentially ERISA fiduciary standards). Forgive me for the lack of details, e.g., continued use of "some type", but my memory is not as good as it once was....

Make sure you don't sign anything and you don't sign off on anything. Document and communicate your view that legally other things should be occurring. Then at the bottom of your communication state that of course what the client does is its choice. From what they want it seems there could be several civil penalties, breach of fiduciary duty exposure, and potential criminal exposure (extremely rare but not unimaginable) e.g. with regard to signing and filing a Form 5500SF that the signer/filer knows contains incorrect information. The 5500SF is signed under penalty of perjury that it is "true, correct and complete" Issues arise under ERISA 502c2, IRC 6652e, and 18 USC 1001. it seems the IRA provider is also working with the participant to correct this in a "clean" manner. Here, "clean" and "cleanest" are being defined as documented in a manner that is the least problematic for the participant.... who is the individual who created the problem.

You state what the post-PPA plan document. Is that the document that was in effect when the participant dies? What did it provide as the general rule? If it provides the "typical" rules for pre-SECURE Act, since the participant died after his RBD, the participants remaining 2018 RMD had to be distributed if not already taken before death and beginning in 2019, each son could take distributions over his own single life expectancy (ie. stretch IRA), using each beneficiary's age under the appropriate table if the account was timely divided into separate inherited accounts by the end of 2019. If separate accounts were not established by then, the beneficiaries usually would use the life expectance of the older beneficiary. Under the old rules, the sons are not required to empty the account within 5 or 10 years. Again, this is assuming the plan provides the typical rules, the plan document could have imposed a faster payout as many employers required a 5-year lump payment or even immediate distribution even though the tax law permitted stretch treatment. If the assets were rolled into inherited IRAs and stretch treatment was properly established, the life expectancy rules should govern. Noting that if the separate inherited accounts were not established by December 31, 2019, then the payout period for the beneficiaries is permanently determined using the life expectancy of the oldest beneficiary. This doesn't affect ownership, the two beneficiaries still each own their separate economic shares but if the deadline was missed, it would affect the RMD divisor (s). So after the deadline the accounts can still later be physically divided but the inherited accounts would use the older beneficiary’s life expectancy factor. See Treas. Reg. §1.401(a)(9)-8, Q&A-2, etc. This is basically from recollection (though I did look up the cite to get some comfort) so you need to research this for yourself.

Your recitation of the facts imply that the participants were paid the exact benefits owed under the qualified plan and the employer simply used corporate/company cash as an administrative convenience. If this is the case, the employer has an argument that it satisfied plan liabilities on behalf of the trust and the trust should reimburse the employer. This is akin to the employer advancing expenses for the trust. But I worry if everything was done properly if the distributions were not processed through the plan. Were proper Forms 1099-R provided, withholding (if any) correct, spousal consent (if required) obtained, rollover rights provided, etc.,. Also, need to look at the plan to determine what is permitted if there are excess assets in the plan. The DOL or IRS could argue this is a reversion. Wouldn't seem right but they could do that. or even that there is some prohibited transaction if paid. If the plan and trust documents, including the termination amendment, only permit payment of benefits, payment of expenses, reallocation of residual amounts, then the reimbursement may be questioned. At a minimum, you should ensure that all plan liabilities have been paid off before returning the "excess" to the company/physician. At that point, it could be documented that all participants received their plan benefits, the plan had no more liabilities, remaining assets are economically duplicative ad the reimbursement merely prevents unjust enrichment by the participants. One should attempt to be able to make the alternative arguments first the employer owns the excess assets and/or second the employer advanced and satisfied plan obligations that otherwise would have been payable from the trust, so the trust should reimburse the employer for those specific liabiilities previously discharged. Once we get past those hurdles, especially all benefits paid, if the physician's company is still intact, the "reimbursible" amount arguably are owed to the company and it seems that either the amount could be wired into any account held by the company or a check in that amount could be written to the company (and providing it to the company's authorized representative). If the company has been liquidated or dissolved and all of its creditors have been paid off, assuming the company was a solo physician PC with one shareholder and there was no sales transaction, the practical answer likely would be the residual value of the dissolved PC (which would include these amounts) ultimately belongs to the physician-shareholder. So, if already dissolved and liquidated and all creditors were paid off, the payment likely could be made to the retired physician. Lots of assumptions here, and of course the form of organization of the employer and state law could affect how the company's receivables are handled. As usually just thoughts....

I am saying that an agreement between the parties does not equal a QDRO so there is no authority under which the Plan should have altered any benefits to anyone based on that agreement, whatever it is. The plan is only permitted to follow a QDRO. The Plan's QDRO administrator may have decided some decree, judgement, etc. met the requirements of a QDRO, but if that is the case there was a QDRO. All the facts reflect there was no QDRO. I stated my view that what they did could only have occurred under a separate interest QDRO,. But again no QDRO so what they did was likely wrong. Since the plan had not authority to pay the AP, I agree with @fmsinc the only claim the AP has is against the Participant. Now, though, the Participant may have a claim against the claim because, if what the OP says reflects the actual facts, the Participant's benefit has not been based on his actual accrued benefit but a lesser amount. If he sues and gets the amounts he has been shorted, the AP has a claim against those amounts.

How did the plan treat this as a separate interest when the participant began his benefit as a straight life annuity and from the facts it seems that there was no QDRO in place. The Plan cant informally treat this as a separate interest because the parties "intended" to share benefits. Only a QDRO could affirmative create the separate interest and the plan doesn't seem to have a legal position to have recognized the separate interest. I have never seen a separate interest QDRO applied retroactively... that doesn't mean it is permitted... and haven't seen any authority to permit it. If a separate interest, it would carve out an actuarial portion of the benefit and allow the AP to commence payments independently. But I believe that only happens from the date the order is determined to be qualified and doesn't relate back. Seems like you're saying this is a "de facto separate interest". Most cases, at least that I recall, where APs have tried to obtain retroactive treatment involve pre-commencement benefits or, even if won at the district level, were lost on appeal. I haven't researched any of this and am just kinda brain storming....

What they are saying is that the answer to your query depends on the specific drafting of the plan eligibility language. "Six months of service with 500 hours consecutive" can be interpreted in at least two ways.

Like @rocknrolls2 says get that SPD, and then review the SPD for what the contributions were but there will not be enough detail in there to get a precise calculation. I recommend the SPD so you can review the claims procedures. Make a formal written claim for benefits and follow the rules in those claims procedures. If there is no movement on the claim, contact the DOL EBSA by phone or I think you can file a complaint online at AskEBSA. Also contact the IRS. Maybe contact the taxpayer advocate service and they can direct you to the right office. You could contact an attorney, but this will cost you dollars, as most are not going look at this pro-bono... you are an HCE... or on contingency. Personally, I only point people to attorneys when the amount lost is substantial, the DOL or IRS don't move the needle, or employer is retaliating for making the claim, etc. Sometimes a delay is not bad. For example, under the missed deferral opportunity rules, where there is automatic enrollment, sometimes the required missed deferral contribution is lower if the error is corrected shortly after notice (whereas it goes up if they drag their feet).

Beware of AI is the first lesson here. I have found that AI will often use "intuitive" thought as opposed to actually looking at guidance or authority. Here, it likely responded simply with "taxable compensation ---> must be W-2 wages". First, any contribution under a qualified plan will be deductible by employer upon contribution. This is the whole concept behind qualified plans.... meet the rules and get the accelerated deduction. Moreso here because the Roth employer contribution (match and nonelective) is immediately taxable. Then, Notice 2024-2 says that it is other plan-based reporting under 1099-R. Needs to hit income this year and not W-2 because they are not wages for withholding or FICA. Folks who receive these Roth match/nonelectives should be told that they may wish to increase their withholding on their normal wages or make estimated tax payments.

you need to lay out the facts better. if there was a 401k plan termination, they did not have a unilateral right to move the distribution into a new plan. There would have had to have been a plan merger, not a plan termination. The only way we can assist is you have to have the facts. Also, you need to try to be precise in the terms you use of at least provide more information in the way you describe things... e.g., some will say rollover, when it is a transfer, etc. etc. etc.