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QDROs


Guest kurt johansen
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Guest kurt johansen

Now that governmental 457 plans must set up a trust for the exclusive benefit of its participants and beneficiaries, are they allowed to distribute benefits to alternate payees via a domestic relations order? Am I reading too much in to the exclusive benefit requirement? A gov't 457 plan is not subject to ERISA and is not qualified so the QDRO exception does not seem to apply here.

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Guest CVCalhoun

The problem is that although governmental plans (either 401(a) plans or 457 plans) are not subject to the ERISA provisions concerning QDROs, they are also not subject to the ERISA provisions which preempt applicable state law. Thus, if a domestic relations court within a state issues a domestic relations order (whether or not the order would fulfill the requirements of a QDRO), ERISA will not provide a defense against having to comply with it.

In informal conversations with IRS representatives, we have been told that IRS will not treat a DRO applicable to a 457 plan as violating the exclusive benefit rule. However, they do not believe that a DRO would preempt the rule that a 457 plan cannot distributed benefits until attainment of age 70½. (As you will recall, a plan can distribute benefits to a spouse under a QDRO as early as "earliest retirement age," even though the employee has not at that time separated from service or attained normal retirement age.) Thus, under this position, a 457 plan could divide benefits pursuant to a QDRO, but would have to delay paying out (even to the spouse) until the employee (not the spouse) attained age 70½, or until the employee terminated employment.

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Employee benefits legal resource site

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Guest kurt johansen

Q1 Does Reg 1.1457-2(k)(3) prevent 457 plan to plan transfers where the transferring plan gives the former participant the option of taking a distribuiton or transferring the benefits to his new eligible 457 plan?

Q2 what if a QDRO directs the plan to transfer the husband's benefits to the ex-wife's elgible 457 plan? The husband has recently terminated employment so the order would not cause the plan to distribute benefits prior to the time mandated by 457(d). I see adminstrative problems in that the husband must be taxed on the final distribution to the wife. Both plans are sponsered by the same entity and allow for transfers.

Any thoughts or suggestions?

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Guest PeterGulia

As someone who works with over a thousand government 457b plans (including some in Michigan), I can help you with practical experience from the plans' administrators and service providers. Also, I'm the author of the Plan-Approved Domestic Relations Orders chapter of 457 Answer Book. If you give me your law firm's address or fax number, I can give you a courtesy copy from that material.

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Guest kurt johansen

Peter, our firm has a copy of the 403(B) Plan answer book which has a chapter devoted to 457 plans and has your name listed as a contributing editor. Is there a separate book devoted entirely to 457 plans or is this the book you mentioned?

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I am dealing with a QDRO that went the usual "route." Rejected by Plan Administrator for technical deficiencies, cleaned up, refiled and accepted by Plan. Prior to cleanup and final acceptance, husband remarries. New spouse (she is now the surviving spouse) claims that QDRO should be ignored because her rights accrued upon marriage, prior to the existence of a valid QDRO, and the subsequent entry of the QDRO could not defeat her rights.

Comments?

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  • 4 months later...

A new letter ruling just come out on this issue. It is listed on page 1690 of the BNA Pension and Benefits reporter for this year, but without a number????

Basically, it says that the plan won't lose its eligible status by honoring a DRO, as long as it does not violate the distribution rules with respect to the participant.

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  • 3 weeks later...
Guest kurt johansen

What happen if the DRO violates the Plan's distribution requirements. Under what authority can a governmental plan tell a court that it won't honor its court order?

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