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QDRO for now eligible cashout


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Wife notifies Plan of pending divorce.

Plan puts hold on account and notifies both parties they need QDRO to divide.

Participant separates service before QDRO is drafted and has under $5K vested and is eligible to cashed out under Plan provisions.

I assume because of the potential pending QDRO the Plan can't auto cash out. Is this assumption correct?

Also if parties decide cost of drafting DRO from divorce lawyers and cost to review DRO for QDRO status by Plan is too much given the small size of the account then the plan can release the hold and distribute the account only if spouse consents but that distribution could only be to participant and not alternate payee?

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... and the plan's QDRO procedures say what?

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 court hasn't issued the divorce decree when the participant quits the job, I'd do the distribution to the participant (following the usual plan distribution rules). The couple can figure out another way to divide the assets when they do the divorce paperwork. As you note, this is probably the least expensive way to divide the participant's plan account, anyway. Spousal consent to the distribution would be required only to the extent that it would be required if there were no pending divorce.

Until the plan receives the signed-by-the-judge DRO, the plan has no obligation to segregate the participant's account. If the plan knows the DRO is coming, the plan can decide to hold from distribution an amount that will cover the alternate payee's portion if the plan determines that the DRO is qualified. As Mr. Rigby notes, the QDRO procedures should outline what the plan does prior to and after receiving a DRO.

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Thanks all. I'll double check the Plan's QDRO procedures. But I thought they were silent on this particular issue. I was just curious if the Plan's cash out procedure or the Plan's QDRO procedure should control when the potential alternate payee notifies the Plan of a probable QDRO.

But it sounds like absent something official from the court a cash out is fine in this cash unless it conflicts with the written QDRO procedures.

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I agree with GMK except for the penultimate sentence. Unless the QDRO procedures speak to what happens before receipt of a domestic relations order, the plan should not do anything out of regular course in anticipation of receipt a dometic relation order. If the procedures are silent, the "hold" is a mistake and the plan administrator can be liable for any adverse consequences of interfering with the pariticipants rights or benefits.

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The hold on the account is triggered by some notification, but it's not permanent. This is where the procedures come in.

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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