QDRO to the same Plan - Related or Unrelated Rollover

Both former spouses work in the same company. If the rollover due to QDRO is moved from one spouse's 401(k) account to another's (within the same plan), would it be considered a Related Rollover or an Unrelated Rollover (for Top Heavy purposes)?

Thanks,

Interesting question. Similarly, what if one spouse worked elsewhere and there was a separate QDRO set up for the non-employee spouse within the plan, would you count that? I do not have a definitive answer but my inclination is that in either case you continue to count, and if distributed then count for 5 years. When a key or HC employee's account or benefit is partitioned or otherwise attributed to a spouse, beneficiary or ex-spouse, some restrictions/requirements remain attached. For example, in the DB world, if an HCE is restricted then his spouse/beneficiary/alternate payee is also restricted. In your case, I think it counts toward top-heavy determination, whether key or non-key, and the QDRO doesn't change that. IMHO.

Hunch: this question may have been addressed previously.  Try using the Search feature.  Maybe search words "related rollover" and "QDRO", but don't restrict your search to only this forum.

Define and distinguish types of rollovers: (i) from participant's own account; and, (ii) form spouse's retirement account pursuant to a QDRO. 

Here’s the Treasury’s rule:

T-32 Q. How are rollovers and plan-to-plan transfers treated in testing whether a plan is top-heavy?

A. The rules for handling rollovers and transfers depend upon whether they are unrelated (both initiated by the employee and made from a plan maintained by one employer to a plan maintained by another employer) or related (a rollover or transfer either not initiated by the employee or made to a plan maintained by the same employer). Generally, a rollover or transfer made incident to a merger or consolidation of two or more plans or the division of a single plan into two or more plans will not be treated as being initiated by the employee. The fact that the employer initiated the distribution does not mean that the rollover was not initiated by the employee. For purposes of determining whether two employers are to be treated as the same employer, all employers aggregated under section 414(b), (c) or (m) are treated as the same employer. In the case of unrelated rollovers and transfers, (1) the plan making the distribution or transfer is to count the distribution as a distribution under section 416(g)(3), and (2) the plan accepting the rollover or transfer is not to consider the rollover or transfer as part of the accrued benefit if such rollover or transfer was accepted after December 31, 1983, but is to consider it as part of the accrued benefit if such rollover or transfer was accepted prior to January 1, 1984. In the case of related rollovers and transfers, the plan making the distribution or transfer is not to count the distribution or transfer under section 416(g)(3) and the plan accepting the rollover or transfer counts the rollover or transfer in the present value of the accrued benefits. Rules for related rollovers and transfers do not depend on whether the rollover or transfer was accepted prior to January 1, 1984.

26 C.F.R. § 1.416-1 https://www.ecfr.gov/current/title-26/section-1.416-1.

BenefitsLink mavens, interpret away!

You would think that if i searched every one of the estimated 400 million records, including journal articles, books, case law, and patents indexed by Google Scholar, and 9,426,534 published and unpublished cases decided by every court and judicial tribunal in the United State, you would find at least one instance where the words "top heavy plan" or "26 U.S. Code § 416" and QDRO or DRO or "Qualified Domestic Relations Order" or "Domestic Relations Order or rollover" or "eligible retirement plan" or spouse or "former spouse" or husband or wife might intersect.   

But that appears not to be the case.  

I don't see that the purpose of the top heavy rules are impacted by a QDRO-directed rollover to an eligible retirement plan.  Especially would this be the case if the divorced husband rolled over a share of his ABC 401(k) account to his former spouse with an ABC 401(k) account, with the result that the new amount in the cumulative hands of both parties would be the same.  

But what do I know?  The worse grade I received in my academic life was in my first year of college - a "D" in "Accounting 101".   

David

I agree that the phrase in boldface above as presented by @Peter Gulia might lead to the conclusion that the rollover described in the original post IS as "related rollover".  However, the original 416 regs date to 1984, with some later amendments; I observe that the QDRO universe has evolved significantly since then.  Is it possible to conclude that the 416 statute and reg did not imagine the situation at hand?  I say Yes.

The spouse receiving the QDRO award had the choice (OK, I'm assuming) to take a rollover to his/her IRA or a transfer/rollover to his/her 401k account.  IMHO, the TH treatment should NOT differ for these two choices. 

BTW, I checked the Gray Book; nothing on point.  Maybe some of our attorney contributors could check prior IRS/ABA Q&As?

One of my favorite state supreme court decisions (the state does not matter) held that the state taxing authority’s  proposed treatment of a particular item (the item does not matter) would not prevail because the regulation on which it was based was quite unclear, at least as to the matter in dispute. The reasoning of the court was that, since the state taxing authority had the ability to write the regulations, failure to write the regulations to provide adequate guidance a the taxpayer who wanted to comply with the law meant that any reasonable good faith position by the taxpayer would be upheld.

On a darker note, this industry works under the knowledge that enforcement is lax and marginally competent, so fear over a technical nitpick should not keep anyone up at night. The private sector professionals I know don’t like to resort to this reality but sometimes it is legitimate rather than shady.

I express no view about what is or isn’t a related rollover.

The CFR section cited above includes this: “[T.D. 7997, 49 FR 50646, Dec. 31, 1984, as amended by T.D. 8357, 56 FR 40550, Aug. 15, 1991; T.D. 9319, 72 FR 16929, Apr. 5, 2007; T.D. 9849, 84 FR 9234, Mar. 14, 2019]”.

According to that note of the Federal Register history, the rule was published just months after the August 23 enactment of the Retirement Equity Act of 1984, which added ERISA commands and tax law recognizing a qualified domestic relations order.

The 2019 amendment was in a Trump I cleanup of obsolete rules.

Could the Treasury’s interpreters have thought about how QDROs relate to top-heavy measures when considering the 1991 amendment or the 2007 amendment? What, if anything, should an interpreter infer from what wasn’t revised?

Is there a logic for suggesting that the amount moved from the originating participant’s account to the alternate payee/other participant’s account ought to count for top-heavy measures in one of those individual accounts (I don’t know which), but not both?

When in doubt, there is always the risk/reward factor to consider. Does this amount, if counted as a related rollover, make (or is it likely to make) the difference between top heavy status or non-top heavy? If it does make it top heavy, how much extra employer contribution will be required vs. non-top heavy? Is the plan a large plan subject to audit? If so, what does the auditor think?

FWIW (nothing) my inclination is to count it as a related rollover.

Am I right in guessing that most plans facing a meaningful risk that the plan might be top-heavy seldom engage a lawyer? And seldom engage an independent qualified public accountant? Leaving only a TPA to consider whether a top-heavy measure is counted correctly?

If my surmise is right, are there variations for kinds of businesses?

For example, if the employer has few nonkey employees, a disproportion of key employees, and is a small professional-services partnership, does it engage help beyond the TPA?

Two decisions from the highest appellate court in Maryland: 

Blaine v. Blaine, 336 Md. 49, 646 A. 2d 413 (1994) - 
        "Even where the language of a statute is plain and unambiguous, we may look elsewhere to divine legislative intent; the plain meaning rule is not rigid and does not require us to read legislative provisions in rote fashion and in isolation. Motor Vehicle Admin. v. Shrader, 324 Md. 454, 463, 597 A.2d 939 (1991)."

Rosemann v. Salsbury, 412 Md. 308, 987 A.2d 48 (2010) -
        "If the language of the statute is clear and unambiguous, we need look no further than the language of the statute to ascertain the Legislature's intent. Anderson v. Council of Unit Owners of the Gables on Tuckerman Condominium, 404 Md. 560, 572, 948 A.2d 11, 19 (2008)."  

....and they have no shame.  

I was on the losing side of the Blaine case. This was NOT what I learned in law school about interpretation of legislative enactments. Here is a recent and very comprehensive discussion from the Congressional Research Service.  https://www.congress.gov/crs-product/R45153

David