RTK

I have not seen any cases that would prevent an AP from presenting a shared payment QDRO to a db plan after payment of pension to the participant begins, or for that matter, barring the qualification of the DRO in such case. There have been cases barring benefits to APs who present a QDRO to a db plan after the participant's death, particularly where the participant's benefits are payable to a second spouse under mandated spouse benefits.

From an ERISA/Code perspective, I think that an alternate payee can present a shared payment QDRO to a db plan after a participant's retirement (providing for deductions from participant's pension during participant's life). This would not provide alternate payee with the same benefit as a separate interest qdro, but would still provide some benefit to the alternate payee. Actually, some in my office have argued that an alternate payee should be able to present a separate interest qdro after participant's retirement, but I think that presents more difficult issues to be resolved.

Andy, I think yes - it is a db plan if a life annuity paid is from plan assets (and not by purchase of life annuity from insurance company with account balance). There was a long post a number of years back on this issue, with one group arguing you could provide a life annuity from a dc plan account by adjusting the amount each year based on then account balance and remaining life expectancy. Was not very convincing.

Follow up to prior post. I pushed the wrong button and off it went. I hope it reads ok. Thus to Mal's questions: 1. I think W can submit a separate interest QDRO for retirement benefit. (Also stream of payment for disability benefit). 2 & 3. Plan should not ask or request anything, but should advise parties of their options under Plan terms and QDRO procedures. Re Kirk's approach: 1. Never received a welfare plan QDRO of any type. Not sure what I would advise, although I am aware that a fair number of circuits have said ok to welfare plan QDROs in life insurance context. (In such a case, I may just count up number of circuits and the amount of dollars plan has to pay in legal fees at that time.) 2. Depends upon type of QDRO or plan terms. For a separate interest QDRO assigning an alternate payee his or her own retirement benefit payable over his or her life, and assuming that plan does not allow payment to AP before earliest retirement age, my position (so far - never seen a case) is that payment of a disability benefit (i.e. contingent on participant's ongoing disability) will not establish earliest retirement age permitting payment of AP's separate interest lifetime award to begin. I have some difficulty with the idea that payment of a welfare type benefit contingent on participant's ongoing disability would allow payment of separate award of lifetime retirement benefit to AP to begin. Consistent with above, though, would accept stream of payment QDRO for disability benefit. Another issue: If plan's ancillary disability benefit is based on accrued benefit, and if separate interest QDRO unconditionately assigns a portion of accrued benefit to AP, would that then reduce the amount of ancillary disability benefit payable to participant. I have seen plan terms and procedures address both ways.

2 cents: I work with a number of db plans which provide an ancillary disability benefit to a retirement age (65 or early retirement). For QDRO purposes, the plans treat the ancillary disability benefit and the retirement benefit as separate benefits and treats the ancillary disability benefit as a welfare type benefit. For example: (1) Spouse AP obtains separate interest qdro for retirement benefits providing for payment to the AP at earliest retirement age. The Plan will not treat the later payment of an ancillary disability benefit as a distribution to establish the earliest retirement age for payment of the separate interest assigned retirement benefit to AP. (2) Plan will allow a stream of payment assignment of the disability benefit in addition to separate interest assignment of the retirement benefit - in separate or the same QDROs. I've been told the state law in many states would not treat benefits payable as the result of disability after a divorce as marital property capable of assignment, but plan does not look beyond state court order to make that determination. This may explain why I have encountered only a couple of these QDROs. In any case, if the state court assigns the disability benefit under a QDRO stated to be issued pursuant to state domestic relations law, the plan will assume this to be the case (and not independently review for complaince with state law). (3) Plan would accept a separate interest QDRO for the retirement benefit while participant is in receipt of disability benefit (and would also accept stream of payment QDRO for disability benefit). Thus to Mal's questions: 1.

I wonder if the testing methods of 1.410(b)-8 come into play.

my $.02 My experience with child support orders is that the agencies/court want the amount specified in the order. Using the $5,000 example, their perspective is that the participant owes $5,000, and they want a check for $5,000 - and not $4,500. My experience also is that the agencies/courts are not familiar with the tax laws. To short cut all of the issues that could arise if the participant does not waive withholding (or refuses to make an election), I ask that order specify that the $5,000 is net of withholding. And then to comply with the tax withholding requirements, I send a W-4P to the participant with a cover letter explaining the amounts that will be distributed from the account with and without a waiver of withholding. To do otherwise likely would result in a question from my client as to why I did not anticipate and address the issue.

You may want to check plan loan terms and loan documents to see if they address extra payments. Mine simply prohibit partial prepayments to avoid this issue. Downside then is that acceptance of extra payments would the violate plan terms.

I've looked at this issue in the past. The correction principles seemingly conflict - on the one hand, the plan and participants must be restored to the position they would have been in absent the failure, and on the other hand, corrective allocations must come from employer contributions. I've discussed this with the IRS in the past and have taken away the following points. 1. The IRS is aware of the windfall issue resulting from the employer contributing the salary reduction dollars. However, an interesting perspective is that the elective deferrals are employer contributions made as the result of an employee's election to reduce salary in exchange for the employer contribution (notwithstanding the different treatment often mandated for these contributions by the DOL and IRS). From this perspective, there was an underpayment of employer contributions and an overpayment of salary. 2. The IRS generally still wanted the employer to make up the missing elective deferrals. My cases have all involved NHCEs, which may have made a difference. 3. Where the employee has made an election, the election could (should?) be used to determine the employer's corrective contribution. 4. This issue will be addressed in new correction method guidance in the "soon" to be released update of EPRCS, which I understand will look at lost opportunity costs.

Part of this may be what the cafeteria plan and the medical plan provide. It is not clear to me that the employer contribution is paid through the cafeteria plan. I saw nothing that said that an employee could elect to receive the employer medical plan contribution in cash. As a result, I read the comments to say that the employer makes an employer contribution to the medical plan, and a premium conversion cafeteria plan is maintained for the required employee contributions. If the cafeteria plan is premium conversion only, most of the plans I have seen provide that to the extent the medical plan requires an employee contribution, the employee may elect between taxable salary and a pre-tax employer medical contribution in the amount of the required employee contribution. Thus, no choice is provided under the cafeteria plan for the "regular" employer contribution. If so, the question then is can the employer make an additional employer contribution to the medical plan for a disabled employee. I assume that the employer wants to do this so that medical coverage can be maintained for the disabled employee, and not for the purpose of providing the employee with an election between an employer contribution for medical coverage or cash receipt of the contribution. If so, the contribution would be like any other employer contribution to a medical plan and should not be run through the payroll system. All bets are off if the cafeteria plan is like the traditional cafeteria plan established after 125 was first enacted where the employer made a contribution to the cafeteria plan and employees could elect to have the contribution applied towards medical plan coverage (or other nontaxable coverage) or receive the contribution in cash (or other taxable benefits). In such case, an additional employer contribution for only some of the disabled employees would raise 125 discrimination issues that should be reviewed.

It might be helpful to separate the tax/Code and ERISA issues. Tax first - no discrimination requirements for favorable tax treatment of contributions made to and benefits provided by fully insured group health plans, so no tax issues. ERISA second - unlike tax law, ERISA is substantive law enforceable in court by participants. But generally, ERISA has no substantive requirements that apply to an employer's decision on what employees can be provided with medical benefits, the level of benefits, and the amount the employer will contribute to pay for those benefits (leaving aside COBRA, QMCSOs, portability and the like). Thus no general ERISA issues. The issue that comes to mind is the extent to which the employer contribution made for disabled employees must be documented to comply with ERISA's requirement that there be a written plan document that (among other things) specifies the basis on which payments are made to and from a plan.

The basic IRS position is that "affected employee" required to be vested upon plan termination includes any terminated nonvested participant who has not yet incurred a parity break or forfeited a nonvested accrued benefit under the cash out/buy back rules. This position started out in private guidance and I think was later set forth in some sort of public guidance. This was when the deemed cash out of zero percent vested participants provisions were added to plan documents, allowing immediate forfeiture of the accrued benefit upon a zero percent vested participant's termination of employment. Unfortunately, I don't have the time right now to pull the old files where I stashed the guidance. If you get stuck, let me know and I will try to track it down. Thus, if your plan has the proper forfeiture and cash out and buy back provisions, your plan should not be required to vest the partially vested participants cashed out in 2005.

As a cautionary note, if a db or mp plan, distributions forced at distribution must be made by the purchase of an annuity unless pv does not exceed $5,000.

If db plan, definitely consider an amendment to freeze plan in the event plan termination does not occur. Also, useful if want to add specific distribution options for the termination. And, may want to address benefit accrual and computation period if terminating in the middle of the period.

Andy Client was bankrupt and the plan would have satisifed requirements for distress termination under ERISA 4041. PBGC contacted me after the filing of the notice of reportable event for client bankruptcy and proposed that the plan adminstrator agree to termination of the plan under ERISA 4042. Essentially ended up at the same place, but no distress termination application had to be prepared and filed.

A comment. I don't know if your plan is subject to Title IV. One of my GUST applications was for the termination of a db plan not subject to Title IV that did not have sufficient assets to cover all benefits. The plan covered at that point a participant owner and a spouse receiving benefits under a j&s. I did not have the owner waive benefits. Instead, I relied on plan language providing for the payment of benefits solely from plan assets (and on ERISA 403(d)(1) providing for an allocation upon termination in accordance with ERISA 4044) in determining distributable benefits upon termination. I explained this to the IRS agent and got the favorable determination on this basis. If your plan is subject to Title IV, I think what the IRS is proposing is not going to allow a standard termination (assuming you don't have sufficent assets to cover benefit liabilities). As you probably know, there have been a number of prior threads on whether waivers for PBGC purposes will be accepted by the IRS (with respect to nonforfeitability). I have not tried the waiver approach - my underfunded plan terminations have been "agreed to" involuntary terminations by the PBGC (in lieu of a distress voluntary termination).

You may want look at dol reg 2530.204-1(e) on change to accrual computation period. It provides for use of a short accrual period, rather than an overlap.

Santo, I think you are right that you would have a tax qualified plan under the Code. My only point is that plan documents create rights (to benefits) that can be enforced. IMHO, the benefit provisions should be the primary focus of a document. Many of the mass produced documents are written from the Code perspective, often using LRMs from IRS. I've used LRM language or like language in past disputes to argue for results that the plan sponsor contended were not intended.

Santo, plan document is akin to a contract that creates rights that can be enforced in federal courts by (among others) participants. From this perspective, IRS blessing does not necessarily mean everything is ok. IRS opinion letter merely addresses form of document under IRC tax qualification requirements.

I know I am late with my comments, but I can't pass this one up. That fee may not be unreasonable, depending upon the circumstances, the terms of the plans and the skill of the lawyer. Before looking around for a cheaper non-lawyer fee, you should check to see if your client will want the spds reviewed by counsel (since they can create rights, duties and obligations). If yes, you may want to ask counsel if counsel will even review the spd and an estimated fee for doing so. I often warn clients that it may cost more to review a spd (or document) than to prepare one. And of course, you often get what you pay for.

My comments. I concur with JKG & 5500. Since TRA-86 (as technically corrected of course), dc plan as matter of tax qualification must state whether it is ps or mp. If not in document. ask the drafter of the doc what it is. The existence of qjsa rules is not the test, since ps plans can use those rules. If ps plan, plan is not subject to minimum funding standards regardless of CBA provisions. I already fought this battle in bankruptcy court in connection with a bankrupt participant's creditors attempts to seize the participant's account. Note if plan has been or will be converted from mp to ps, the contributions made while a mp plan will retain their attributes as mp contributions and must be accounted for accordingly (qjsa rules apply; no in-service withdrawals).

Thoughts and comments. My standard (single employer) db plan language covers this as follows: (1) if rehired before nra (which does not use dol suspension rules), prior form of payment election revoked and entire accrued benefit paid under pre-retirement death benefit provisions, including qpsa; and (2) if rehired after nra, form of payment election applies for all purposes including for purposes of the payment of additional benefit accrued after rehire. Thus, in my case, the document provides the rules. Other documents might as well. If no document provisions, 1.401(a)-20 Q&A 10(d) provides some default rules from IRC tax qualification perspective.

Mike, thanks for the kind comment. I've been really busy lately (I guess not a bad thing), but I am going to try more active on the boards.

A little late to the thread, but here are my comments. My view is that the off calendar plan year ADP test never changes the total elective deferrals and catch-up contributions a participant can make for a calendar year under 402(g). The impact instead is on the amount of elective deferrals considered to be catch-up contributions for the next plan yearADP test. Thus, in the example, HCE after the ADP test had $1,000 elective deferrals and $4,000 catch-up as of 6-30-05. This means that HCE can have $13,000 more of elective deferrals for the remainder 2005 without violating 402(g), because only $1,000 of elective deferrals would have been made as of 6-30-05. Thus, total elective deferrals for 2005 would be $14,000 and total catch-up contributions would be $4,000. However, none of the $13,000 of elective deferrals for the remainder of 2005 could ever be considered catch-up contributions for purposes of the 05-06 plan year adp test.