QDRO for Governmental 457(b) Plan

[Guest Bob Collins]

When the alternate payee is the spouse is the amount transferred to the spouse taxable to the employee or the spouse? Do you have a reference on this topic. It seems that if the employer is a governmental employer it is taxable to the spouse, but if the employer is a non for-profit the employee is always taxable. I cannot find any good reference material on this topic.

[Guest [Pat M]]

Bob, guess you've already hit all the regular QDRO references. Remember that the tax consequences to the parties may vary in child support situations. Try these for more info re 457(B) Plans: http://www.benefitslink.com/articles/qdro.txt http://www.cupa.org/publicpolicy/Washington/arch99-1101.htm http://www.bnatax.com/tmweb/sreport.htm

Excerpt follows:

[bill §322; Code §§403(B), 415, 457]

Clarification of Tax Treatment of Division of §457 Plan Benefits Upon Divorce

Under present law, benefits provided under a qualified retirement plan for a participant

may not be assigned or alienated to creditors of the participant, except in very limited

circumstances. One exception to the prohibition on assignment or alienation rule is a qualified domestic relations order ("QDRO"). Also, amounts distributed under present law from a qualified plan generally are taxable to the participant in the year of distribution. However, if amounts are distributed to the spouse (or former spouse) of the participant by reason of a QDRO, the benefits are taxable to the spouse (or former spouse). Amounts distributed through a QDRO to an alternate payee other than the spouse (or former spouse) are taxable to the plan participant. The QDRO rules do not apply to §457 plans. The Bill would apply the taxation rules for qualified plan distributions pursuant to a QDRO to distributions made through a domestic relations order from a §457 plan. In addition, a §457 plan would not be treated as violating the restrictions on distributions from such plans due to payments to an alternate payee under a QDRO.

[Guest PeterGulia]

Bob, you might be asking the wrong question. For a service provider, the more important question is about tax reporting and withholding, which doesn't necessarily follow the parties' income tax treatment.

Because the federal income tax treatment of a payment to an alternate payee under a 457(B) plan-approved domestic relations order is unsettled (and there are arguments for at least four different treatments), a service provider should not attempt to express any conclusion to either the participant or the alternate payee. A service provider should encourage each inquirer to ask the advice of his or her lawyer. (Yes, I know that most inquirers will refuse to spend enough to get real legal advice, but nevertheless sending an inquirer back to his/her lawyer is the right procedure.)

The real question for a service provider is whether the participant or the alternate payee gets the W-2. Since this involves the payor's liability, you'll want the advice of Fidelity's office of general counsel.

For information on plan-approved domestic relations orders in the context of 457 plans, see chapter 13 of 457 Answer Book (Panel Publishers).

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[Alonzo]

QDROs and 457 plans are a difficult combination. The first thing you should know is that ERISA does not apply to these plans. Therefore, the US Department of Labor does not have any authority over them.

Who does have authority over these programs, and how are these programs obliged to respond to a qdro? This a is a good question, and a very difficult one. State laws, and maybe even local case law will determine the answer. Your lawyer needs to return to his books, and do some more research.

One suggestion, for you and your attorney. Review the rejection letter sent out by the 457 plan administrator carefully. The letter should spell out the reasons the QDRO was rejected. It may even suggest how you can get the QDRO approved. If you are still confused, get in touch with the plan administrator. If his plan is one that is obliged to accept QDROs, rest assured that the thing he wants most is to find a way he can accept your QDRO and close the case.

The one thing you need to remember in talking to the plan administrator is that it is unlikely he will tell you the "best" method of dividing up 457 assts, and may even shy away from giving you more than general advice to resolve the QDRO. It's up to you and your attorney to come up with a property settlement. A plan adinistrator who makes suggestions about the divvying up the assets can make himself liable to one divorcing party or the other if one of the parties is disadvantaged by an order drafted in accordance with the plan administrator's advice.

[Guest SBEHM]

I read that QDRO rules do not apply to Governmental 457 Plans. What does apply? Can a participant assign a portion of his 457 Plan to an alternate payee if the Plan states that he can't? It is my understanding that 457 Plans are solely the property of the employer & that the participant has a contractual agreement with the employer and only the employers creditors can have an attachment to the funds. Also, if a Plan Administrator accepts a QDRO do they have to abide by it? My attorney sent an amended QDRO to the Plan Administrator for pre-approval and they approved of it. We had the State Judge sign the order and sent it to the Plan Administrator and they accepted it but now will not abide by it. Shouldn't they have rejected it when we sent it in for pre-approval? I am told by the Dept of Labor that I should take them to court. They use QDRO's which are a product of federal legislation but from what I understand only applies to private pension plans. Government Plans are not subject to ERISA. I thought that QDRO's came about because of ERISA. I am very confused about all of this. I am told by the State and the Plan Administrator that they have to abide by the Plan document and the IRS (Section 457) and yet there is nothing in those that says anything about QDROs. So where do they get the right to use a QDRO? I know this is long, sorry.