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A plan document purports to limit the money sources under the Plan that can be subject to a QDRO. A valid order purports to attach 50% of all assets. Which controls?


Guest SpenceMiles
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Guest SpenceMiles

A plan document sponsored by a governmental entity provides that a distribution under a QDRO is limited to funds from some sources (PSP) and that no QDRO distribution may be made from others (Match). The plan has been presented with a QDRO awarding 50% of the entire account balance to the alternate payee. Is the Plan permitted to require amendment of the QDRO such that certain assets in the Plan are sheltered from the reach of a valid court order? If so, on what basis? I understand that a plan may restrict the timing and form of a distribution, but I have never encountered a situation where plan assets are excluded from consideration altogether.

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Guest Grabitquick

I'm not sure what the legal answer would be, particularly since the plan in question isn't governed by ERISA and presumably is subject only to applicable state law. However, I wonder if there is a particular rationale for restricting QDRO awards in this plan to only certain assets. It sounds like a deliberate plan design feature. Do you have any insight on why the plan provisions are the way they are? Also, is it a 401(a) qualified plan?

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Yeah, and.... be careful about proper interpretation of the plan provisions. You appear to use the terms "award" and "distribution" interchangeably. Is it possible that the plan states a DRO (no Q) permits immediate distribution from certain sources but requires later distribution (upon EE severance of employment?) from other sources? That scenario may not be valid, but be careful.

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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I agree that you need to have the provision very carefully and get proper plan interpretation. It could be a difference between amount and source of dollars for the distribution. E.g. if PSP is $10,000 and match is $5,000. QDRO may be asking for half of $15,000, or $7,500. It could be that the entire $7,500 has to be taken out of PSP account based on liquidity, etc.

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Guest SpenceMiles

Thanks for the responses. In this case, the assets are not sufficient in the account to which the plan permits access. I did not confuse award and distribution. I merely meant to say that in private plans, alternate payees can be forced to wait for distributions and can be limited as to the form of distribution permiited under the plan. As far as the rationale, it appears that the employer's goal was the protection of assets of its employees. We did not represent the employer at the time that the plan was drafted.

My question is whether anyone else has ever encountered a plan that limits the money sources available for access under a domestic relations order and whether there is any authority for such a limitation.

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The administrator of the plan is required to follow the written terms of the plan.

If a court has proposed a DRO for funds that cannot be taken, then the administrator has a responsibility to follow the terms and deny the DRO, thereby preventing it from being a QDRO.

The court and the attorneys have to go back and refine their property settlement to find the money elsewhere.

Of course, consult the plan's ERISA attorney because plan disqualification in operation is a very big deal.

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