RTK

For whatever it is worth, I have handled and approved a small number of QDROs attaching the PS accounts of participants not in pay status for child support. All were issued by domestic relations section of the local courts (operating as the state collection and disbursement unit). The plans involved all provided for distributions under a QDRO before the earliest retirement age.

Just to emphasize QDROphile's comments. There are two separate requirements for a hardship withdrawal under 401(k) regs: first, the financial need or reason for the withdrawal; and second, the extent to which there are other resources or assets to satisfy the financial need. Each requirement can be addressed separately, and the safe harbor can be used for one or both requirements. The volume submitter I wrote in my prior life provided for those choices. Thus, at least in my VS, it would be possible to use the safe harbor for the financial need requirement so as not to have to make facts and circumstances determinations, while at the same time not to use the safe harbor for the other resources requirement so as to avoid the 6-month suspension rules. In any case, whatever choice(s) is made should be set forth in the plan document. If you are willing to go the individual plan route, you could write your own expanded list of definite reasons for a hardship withdrawal. You may be able to do the same with a VS plan, but IRS agents react differently to variations from the VS document.

The plan document provides that male mortality is used for participant and female mortality used for spouse, beneficiary and contingent annuitant. If the Plan treats all alternate payees as a beneficiary for this purpose, i.e., as female, then presumably no sex discrimination issue.

I second Jim's comments on the document. I have documents in the office that have been drafted to include and exclude such a union employee from the allocation. I'd guess that most of them include the union employee in the allocation for whatever that is worth.

SMB, you should review the document to determine what, if anything, needs to be amended. Many documents I use specifically define and name the Plan and the Company (without reference to successors and all that). In such case, I amend the document to reflect the new Company name, and if the Plan name is to be changed, the new Plan name as well.

I guess that would make them the fiduciary for those distributions.

Interesting. I recognize that the issues mentioned (vesting, partial termination, overvalued or undervalued assets, late contributions, testing and allocations) are important. But they would have to be dealt with in any case, regardless of a plan termination. I think that what happens is that these issues are often only closely reviewed at plan termination. If there are such issues, it would be better to delay the plan termination while the issues are resolved. In my experience, the only significant issues I have encountered with the IRS upon a DL application filed in connection with a plan termination are the vesting and partial termination issues (and I once spent more time on preparing an explanation for the DL application on why a partial termination had not occured than I did on the entire DL application). It may be that I have just been lucky. For whatever it is worth then, I think it is better to advise plan administrators to make distributions due under plan terms in the case of a plan termination. Of course, there has to be some flexibility based on an evaluation of the plan and issues, but as a general rule, I think that the regularly due distributions should be made. If there is some question about the amount of the regularly due distribution, I can see delaying the distribution, but not because of the plan termination or for the period of the IRS review of a DL application upon plan termination.

For my education, what are the administrative and fiduciary justifications that would allow a plan administrator to delay distributions due under plan terms because the plan is being terminated? I have approached this issue in the past as telling the plan administrator to make termination of employment distributions due under the plan terms even in light of a pending plan termination, in part because I could not come up with a theory that would allow a delay in the distribution.

My initial take is that a multiemployer plan could include a cafeteria plan (without any real research). The Code itself requires that participants be employees and that the employees would choose between cash (i.e. wages) or qualified benefits (i.e., contributions to multiemployer plan to provide qualified benefits). Plus, I'm not sure that maintaining a plan is the same as being the plan sponsor. That said, I don't believe that 125 plans have received a warm welcome in the multiemployer plan world(particularly for health FSA) because of the use it or lose it rule, the uniform coverage rule, limitation on mid year changes, and general administrative and collection issues. Premium conversion is generally not an issue, because most multiemployer plans do not require employee contributions for coverage.

I assume that the plan at issue is a 401(k) plan and that, like most, provides for distribution upon termination of employment. If so, I don't understand how the plan administrator can delay a distribution due under plan terms upon termination of employment merely because the plan sponsor has decided to terminate the plan. Seems to me (IMHO) that the participant would retain the right to receive the distribution notwithstanding a pending plan termination.

The IRS's position would be consistent with DOL regs on contiguous noncovered service (2530.210), which is required to be counted for vesting and eligibility. I suspect that the 90 day wait in this case reflects plan terms providing that a participant is deemed to have terminated employment after no contributions have been received for 90 days. Because multiemployer plan participants may work for a number of employers on an intermittent basis, it is difficult to determine when a participant has terminated employment under a multiemployer plan (so as to be eligible to receive a distribution). Thus, 90 days (or some other number of days) of no contributions is often used by multiemployer plans as a proxy for termination of employment. However, even so, the multiemployer plan terms should not allow for a termination distribution for a participant in continguous noncovered service, but this is often overlooked. Also, under many multiemployer plan reporting requirements, it would be difficult for the plan administrator to know if a participant for whom no contributions are being received is in contiguous noncovered service.

What does the plan document/loan policy and/or the loan documents say about repayment upon death? If states that loan is accelerated (or defaulted) at death, it seems to me then that repayment would be due from the estate. In such case, if the loan is not repaid by estate (and the loan secured by account balance), an offset distribution would be made and taxed to the estate.

I believe this has been addressed in a number of courts cases. I recall that Leigh v Engle in the 7th Circuit is one of them.

I might as well finish this off since I have an old research file out. Yes, there is no 10% limit. The old rules I was thinking of were set forth in Rev. Rul. 80-350 holding that total voluntary contributions equal to 10% of compensatino would not disqualify plan, restating similar holdings in prior Rev. Ruls. 59-185 and 69-217. Rev. Rul. 80-350 was declared obsolete in in Rev. Rul. 93-87.

One more on DOL audit done earlier this year. Auditor used highest performing fund to determine "lost opportunity costs."

I suspect that 10% refers to old nondiscrimination rules for after-tax employee contributions. 401(m) of course now covers nondiscrimination issue.

No preambles, but here is the text. Yes, I do save a lot of stuff. Let me know if there are any problems with file. 414m_5_regs.pdf

cs: had plan where contributions late because where new provider could not process contributions (although for far longer than a "normal" conversion and outside the 15 business day rule). DOL auditor did not care -- contributions are plan asset and need to be held in trust.

Not sure what type of plan A & B maintain. Different rules apply to different types of plan. Basically, my opinion is that consultant is right -- you cannot terminate part of the plan. Note that the IRS 414(l) regs treat a spin off and a transfer of assets or liability differently. A spin off is the splitting of one plan into two or more plans. A transfer of assets and liability is treated as a spin off from one plan and a merger of the spun off plan into another plan. Same result, but different paper work.

Thanks guys. Sort of what I thought, but big help to see your thoughts before I go running amok.

I don't (fortunately or unfortunately) do a lot of work in the governmental 457 plan area, so I am hoping someone can point me in the right direction. Question: Does the 457(g) requirement that assets be held in trust for the exclusive benefit of participants require that the 457 plan provide that the plan benefits are not subject to assignment and alientation (similar to that required by 401(a)(13) for 401(a) plans)? An attempt is being made to attach a participant's account under the 457 plan to satisfy a state court tort judgment against the participant. The plan terms do not address this.

As noted earlier in the post, under ERISA, plan terms must be followed to the extent consistent with ERISA. Besides ERISA, a failure to limit the allocation as required by Code 1042 and 409(n) would have bad tax consequences. See also Code 4978 and 4979A. I don't know what your document provides with respect to a 1042 transaction, but my reading of the Code requirements is that if stock is purchased in a 1042 transaction, the allocation limitation applies only to the ESOP assets attributable to that stock (or allocable in lieu of that stock). Thus, at least from the Code perspective, I think that a cash contribution unrelated to the 1042 stock (not used for the 1042 transaction or to repay any loan used to acquire 1042 stock) can be allocated to all participants.

Good point on 401(a)(9) -- I was thinking of the designated beneficiary to receive the death benefit. Designated beneficiary for 401(a)(9) purposes is different issue. For example, under final regs, a beneficiary who receives a distribution of entire interest by September 30 of calendar year following calendar year of participant's death would not be a designated beneficiary for 401(a)(9) purposes.

Who would be changing the beneficiary (and I'll state the obvious that I know it is not the participant)? Off hand, I can't think of a way of changing the beneficiary designation after the particpant's death. However, the designated beneficiary may be able to disclaim the benefit, in which case the benefit would be paid as if the beneficiary had predeceased the participant. See IRS GCM 39858 generally permitting a disclaimer under a qualified plan by the beneficiary so long as it satisfies 2518 and applicable state law. There are a number of IRS PLRs as well on the tax effect. Note that the final 401(a)(9) regs contemplate a disclaimer under qualified plans.

Some final comments of my own: 1. The rights of the AP to an assignment of the Participant's benefits will be decided by the state courts. The Plan Administrator should not be involved in this, including whether the AP may pursue a shared payment QDRO rather than a separate interest QDRO. The Plan Administrator's role is to review the DRO received for qualification under ERISA and the IRC. 2. I'm baffled how a shared payment QDRO providing for a deduction from the particpant's pension during the period of payment to the participant requires the plan to provide a type or form of benefit or option not otherwise provided for by the plan (or how it otherwise violates the ERISA and IRC QDRO requirements). Seems fairly close to the deduction required or permitted for tax liens, income tax withholding, insurance deductions, etc. 3. DOL's position (expressed in the preambles to its final claims regulations) is that the qualification of a domestic relations order is not a claim for benefits. The majority of courts have determined that this issue is reviewed de novo as a legal conclusion or question of statutory construction. In such case, the abuse of discretion standard of review would not apply to the plan administrator's determination. The courts that have treated the qualification of a DRO as a 502(a)(1)(B) claim, primarily in the 9th circuit, have done so in the context of finding state court concurrent jurisdiction under 502(e)(1) over the qualication of the DRO issue. 4. Rendering an opinion on the application of a statute on the basis of whether the matter is likely to be challenged is not necessarily a very sound approach. I have invested my own time in pursuing the rights of an AP (and for that matter, participants), where the primary questions from counsel for the plan administator seemed to be "why are you doing this? and "how are you getting paid?"