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Former Spouse doesn't want the benefit


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Is the benefit in pay status?

The plan probably allows a spouse to elect out of the QJSA so they would probably have the same options in a QDRO.

Though I don't think the kids would qualify as an alternate payee unless it was a support order.

Though I'll be the first to admit I'm not the most knowledgeable about what can and can't be done in a QDRO beyond some of the real obvious basics.

There are a few QDRO experts on this board so hopefully one of them can chime in for you.

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Very likely, this is a payment form not permitted by the plan.

If the retired participant dies first, and some portion goes to the (soon-to-be-ex) spouse, that spouse can give the after-tax portion to the kid(s); unlikely the plan will be a party to that transaction.

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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IRS reg 1.401(a)-13(e) provides that a participant or beneficiary can direct that all or any portion of a plan benefit be paid to a third party if the arrangement is revocable and the third party files a written acknowledgement of the arrangement with the plan administrator within 90 days after the arrangement is entered into. This arrangement is not considered to be an assignment of interest. The assignment of benefits would be taxable to ex spouse under the rules for constructive receipt. The plan would have to allow for such a payment.

Corrected cite.

mjb

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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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You need to pin down the benefits that the soon to be former spouse does not want. It sounds like both are currently alive so you could be talking about a portion of the primary annuitant's benefit. Alternatively, you might be talking about the soon to be former spouse's receipt of the QJSA. Or both.

The benefit amounts are fixed in stone (it is forever equal to the primary annuitant's entitlement under the plan payable as long as the primary annuitant survives plus the secondary annuitant's entitlement payable after the primary annuitant's death). The recipient can be changed to a different person providing said different person is an alternate payee and they get a new QDRO directing the payment to the alternate payee.

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"The recipient can be changed to a different person providing said different person is an alternate payee and they get a new QDRO directing the payment to the alternate payee."

Not true for the contingent annuitant's QJSA interest; possibly true if the plan is expressly designed to allow it, but no plan should be designed that way.

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QDROphile, can you provide a citation that precludes an alternate payee from receiving benefits due under the plan? I'm not talking about changing the amount being paid. I'm not talking about changing the measuring life. I am merely talking about changing the recipient. Consider it a shared payment QDRO where the share is 100%-0%.

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Carmona v. Carmona, 603 F3d 1041 (9th Cir. 2010). The survivor interest under a QJSA cannot be invaded directly or indirectly. The opinion cites the earlier Fourth and Fifth Circuit decisions to the same effect, but with less convincing analysis. Until Carmona, I and others (in the minority) asserted that the Fourth and Fifth Circuits were wrong.

The participant's payments can be assigned.

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negotiating a new QDRO and getting it approved by the Plan will be prohibitively expensive. Do you really think its a better option than to have the ex spouse receive the benefits and gift them to her children? After all she will have to pay taxes on the benefits anyway.

mjb

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Since the participant is in pay status, it is very unlikely that all benefits, particularly survivor benefits, could go to the kids. With that said, one route would be to have the spouse sign a qualified waiver. No QDRO is required to eliminate an interest. She could not designate a beneficiary via such a waiver since it violates the qualified waiver rules, but a new QDRO could be drafted under a shared approach so that the kids would get payments so long as the participant is alive. If the kids are minors, an irrevocable trust could be created as a recipient for the benefit of the kids. I would be reluctant to simply gift the payments to the kids since there are gift tax implications depending on how much money is gifted. Also, supposing the spouse predeceases the participant, another payment scheme would have to be created anyway to ensure the kids continue to be paid.

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...another payment scheme would have to be created anyway to ensure the kids continue to be paid.

But not unless it is permitted under the terms of the plan.

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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My point is that gifting is short sighted because a deceased former spouse would not be able to continue gifting payments. Those payments would stop upon death because QJSA's are reversionary if the participant outlives the alternate payee. It is immaterial whether the plan approves of such gifting. Therefore, a QDRO is the best course of action.

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Why would the spouse want to incur the cost of drafting a new QDRO instead of just gifting the funds to the kids which cost 0. Gift tax is inconsequential to 99.8% of taxpayers because taxpayer can gift $14,000 to each person without making a gift and excess would not be subject to gift tax until taxpayer made over 5.4Million in lifetime gifts. 709 form is a no brainer.

mjb

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  • 3 months later...

I'm having the same issue. I appreciate the regulation cite regarding an exception to anti-assignment. I'm confused by the situation. I agree with the position that simply gifting it is the best solution. The exception for anti-assignment seems to be limited to a maximum of 10% of the benefit. So even if she were to successfully direct the PA to pay the third party, she'd still be receiving 90% of the benefit. Am I correct?

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