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Petition to invade 401k


PTR2234

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I have an active 401k participant who divorced (respondent). No QDRO. In the judgment of dissolution of marriage, respondent is required to pay the petitioner $xx. Petitioner was not awarded any portion of the respondent's 401k. Respondent is wanting to withdrawal such amount from respondent's 401k. Respondent is not eligible for an in-service distribution (under 59.5) or hardship. Loans are not allowed. I have informed the respondent that the respondent is not eligible for any distributions from the plan. The participant had an attorney draft a petition to allow the respondent to invade the 401k account. The petition is not a QDRO. Would this petition be enforceable?

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Does the SPD include a generic discussion of a QDRO? Has the PA pointed the participant to that section of the SPD?

Why would the participant pay an attorney to draft a "petition" but not be willing to pursue the existing legal avenue of a QDRO?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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If the intention was to obtain the funds needed to pay to the ex-spouse from the 401(k), sounds like somebody dropped the ball by not trying, in the first place, to accomplish that through a QDRO. They had lawyers, you say? Divorce lawyers (for either side) ought to be familiar with such things as 401(k) plans and QDROs.

Always check with your actuary first!

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Such a petition could not force a distribution not otherwise allowed by the plan. Lou S.'s suggestion to reject the petition as failing to meet the standards of a valid QDRO is well made. With the notification of the rejection, send the plan's QDRO procedures and any model QDRO the plan may have. Best of luck and May the 4th Be With You. (Couldn't resist.)

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If the plan administrator has determined that the petition is not a QDRO, then it is not enforceable. However, there are formalities associated with determination that an order in not qualified, and a reasonable time must be given to cure defects. Meanwhile the statutory protections afforded under the QDRO rules remain in effect during that reasonable time.

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I am not a lawyer, but it seems to me that a petition drafted by the attorney for one party cannot be considered (in the absence of explicit ratification by a court) to be a domestic relations order issued by a court and thus not something that the plan administrator ought to be considering whether to accept as qualified or not.

The petition does not seek to transfer the funds to the ex-spouse in any event, just to try to get the plan to release those funds to the participant, even though the plan does not apparently permit that to be done. Maybe it is not necessary to pay any attention to the petition (beyond saying that the plan does not permit in-service distributions). Perhaps it is not an anti-alienation matter at all.

Always check with your actuary first!

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From My2cents response, and re-reading the OP, it seems like the participant is having an attorney draft a petition to the plan to allow an in-service distribution, which doesn't have to specifically be for a divorce settlement. Maybe the plan can be amended to allow in-service distribution? Or does this open other issues for the plan.

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When I was in plan admin at a very large employer, our document contained language about "to comply with a court order". I don't have a copy of the plan to know the precise context (in-service, hardship, etc) of where that was. Back of my head, it was in the list of exceptions to no in-service before 59 1/2.

In theory (can't remember if I ever did it in practice), someone could have had a simple court order to pay $X to so-n-so and we'd have a processed it. BUT the participant would have been on the hook for the taxes and early distribution penalty.

A key advantage for using a QDRO is that it transfers the liability for taxes to the alternate payee.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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A key advantage for using a QDRO is that it transfers the liability for taxes to the alternate payee.

Another key advantage of a QDRO: it's the legal exception to the anti-alienation clause of IRC 401(a)(13).

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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As chc93 points out, it is the participant that is asking for the money. Maybe thought that an in-service distribution would be easier and cheaper than a QDRO, but forgot to check if an in-service distribution is available. Or maybe planned to get the cash from another source that didn't come through as expected. So it goes.

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When I was in plan admin at a very large employer, our document contained language about "to comply with a court order". I don't have a copy of the plan to know the precise context (in-service, hardship, etc) of where that was. Back of my head, it was in the list of exceptions to no in-service before 59 1/2.

In theory (can't remember if I ever did it in practice), someone could have had a simple court order to pay $X to so-n-so and we'd have a processed it. BUT the participant would have been on the hook for the taxes and early distribution penalty.

A key advantage for using a QDRO is that it transfers the liability for taxes to the alternate payee.

From my way back days, I thought only the IRS could put a lien on a participant's benefit. But maybe that was a lien and not an in-service distribution to satisfy some IRS tax/penalty... ?

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When I was in plan admin at a very large employer, our document contained language about "to comply with a court order". I don't have a copy of the plan to know the precise context (in-service, hardship, etc) of where that was. Back of my head, it was in the list of exceptions to no in-service before 59 1/2.

In theory (can't remember if I ever did it in practice), someone could have had a simple court order to pay $X to so-n-so and we'd have a processed it. BUT the participant would have been on the hook for the taxes and early distribution penalty.

A key advantage for using a QDRO is that it transfers the liability for taxes to the alternate payee.

From my way back days, I thought only the IRS could put a lien on a participant's benefit. But maybe that was a lien and not an in-service distribution to satisfy some IRS tax/penalty... ?

[i am not a lawyer, but] If it was neither an IRS tax lien or a court order determined by the plan administrator to be a QDRO (which would never be the case for a court order to discharge a debt owed to a non-dependent), the plan administrator has a fiduciary obligation to reject the court order. So if the plan complied and paid it out, the participant would have what would probably have been a sound cause of action against the plan administrator. If the participant owed somebody some money but had no funds other than those held by the plan, the creditor is plain out of luck until and unless the participant directs the plan administrator to pay the money to the participant. The money can never be paid directly to the creditor.

Always check with your actuary first!

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