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QDRO - cash or in kind


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Background: Currently stock market is going through an upheaval

QDRO is defined as a cash value at a certain date, to be adjusted through current for g/l

Distributable amount as of most recent year end was sent to payee, forms signed and returned and waiting for distribution

Plan allows for in-kind distributions

Participant has asked if dollar amount as defined in QDRO can be converted to equivalent shares for distribution

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12 minutes ago, TPApril said:

Background: Currently stock market is going through an upheaval

QDRO is defined as a cash value at a certain date, to be adjusted through current for g/l

Distributable amount as of most recent year end was sent to payee, forms signed and returned and waiting for distribution

Plan allows for in-kind distributions

Participant has asked if dollar amount as defined in QDRO can be converted to equivalent shares for distribution

Plans should NEVER allow for  in-kind distributions if there are employees other than the owner in the plan.  But ok, you are stuck with what you have.  And yes, payee is entitled to in-kind if the plan so provides.  Amend plan to eliminate in-kind:

§ 1.411(d)-4 Section 411(d)(6) protected benefits.  See Q2 (b)(2)(iii)(A):

 

(iii) In-kind distributions -

(A) In-kind distributions payable under defined contribution plans in the form of marketable securities other than employer securities. If a defined contribution plan includes an optional form of benefit under which benefits are distributed in the form of marketable securities, other than securities of the employer, that optional form of benefit may be modified by a plan amendment that substitutes cash for the marketable securities as the medium of distribution. For purposes of this paragraph (b)(2)(iii)(A) and paragraph (b)(2)(iii)(B) of this Q&A-2, the term marketable securities means marketable securities as defined in section 731(c)(2), and the term securities of the employer means securities of the employer as defined in section 402(e)(4)(E)(ii).

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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I am not sure I understand the question.

 

If the value of the QDRO was supposed to be $1k for example adj for g/l through date of payment what difference does it make?

The market is down by about 20% so now the amount is $800 not $1k.   It doesn't matter if they get $800 in cash or shares does it?  

I am curious also on this point:  Share of what?  Are there actual stocks or mutual funds at stake here? 

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ESOP Guy - great question for clarification.

instead of saying value updated for g/l through current, I should have said last valuation date. Payee received 12/31/19 values, took their time to send in forms, and is now demanding that cash amount be distributed.  Sounds like plan is going to insist on an updated valuation anyway but it was a testy divorce so they are contemplating how to minimize issues.

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1 hour ago, TPApril said:

ESOP Guy - great question for clarification.

instead of saying value updated for g/l through current, I should have said last valuation date. Payee received 12/31/19 values, took their time to send in forms, and is now demanding that cash amount be distributed.  Sounds like plan is going to insist on an updated valuation anyway but it was a testy divorce so they are contemplating how to minimize issues.

First, the participant ALWAYS has the right to demand NOT IN KIND. So he can surely demand cash. The only thing is he thinks that means he gets the 12/31/19 value, and the plan SHOULD be revaluing distributions to a more current date anyway, which will eliminate what he thought was such a clever demand!  YOU LOSE!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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3 hours ago, TPApril said:

Larry - I'm going to sound quite uninformed here, but may I ask why?

Why you should never allow in-kind distributions I assume is your question?  Because every employee has the right to demand in kind, and that means figuring out how much of each holding in the plan goes to that individual.  So, if there is just one mutual fund, no problem.  If there are multiple mutual funds, or multiple individual holdings, you are going to have to make pro rata distributions of each one of them. You are talking about a royal PIA.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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If the QDRO actually says they get $x and there is no adjustment for current earnings isn't that what the plan has to pay?  The the participant just takes all the losses and the Alt Payee gets the amount in the QDRO.  I don't see how the plan can do anything about it. 

 

I think there needs to be a good look at what the QDRO actually says.  If it allows for adj for earnings since split date the plan can do an interim valuation and the person gets no say.  If the QDRO doesn't allow for an earnings adjustment the participant takes the losses and the plan isn't allowed to do anything about it. 

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9 minutes ago, ESOP Guy said:

If the QDRO actually says they get $x and there is no adjustment for current earnings isn't that what the plan has to pay?  The the participant just takes all the losses and the Alt Payee gets the amount in the QDRO.  I don't see how the plan can do anything about it. 

 

I think there needs to be a good look at what the QDRO actually says.  If it allows for adj for earnings since split date the plan can do an interim valuation and the person gets no say.  If the QDRO doesn't allow for an earnings adjustment the participant takes the losses and the plan isn't allowed to do anything about it. 

Of course you have to look at the actual QDRO language;  I don't think anyone said otherwise.  And the original posting does include language about adjustment for changes in value.

If it's a fixed amount (I just did one a month ago for a fixed $450,000) which doesn't exceed the total value of the account, then the fixed amount is paid.  If the fixed amount is a very large percentage of the account, an interim val may be needed to make sure you are not violating the 100% of the account rule (my $450k was out of just over $1m so no problem).

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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1 hour ago, Larry Starr said:

  And the original posting does include language about adjustment for changes in value.

 

See the reply to my first question.  it seems to be saying there isn't an adjustment for earnings in that reply.

 

I didn't say anyone didn't say to not read the QDRO.  But what was happening was a discussion of if you should allow in kind dist to happen and not answering the actual question.

To me now that the facts are confused given what is said in the orginal comment and the reply to me that needs to be fixed first.   But to me worrying about the type of distribuion at this point is pretty secondary to getting the how much cleared up.   For one thing I still don't see how it matters. 

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On 3/12/2020 at 6:52 PM, ESOP Guy said:

See the reply to my first question.  it seems to be saying there isn't an adjustment for earnings in that reply.

 

I didn't say anyone didn't say to not read the QDRO.  But what was happening was a discussion of if you should allow in kind dist to happen and not answering the actual question.

To me now that the facts are confused given what is said in the orginal comment and the reply to me that needs to be fixed first.   But to me worrying about the type of distribuion at this point is pretty secondary to getting the how much cleared up.   For one thing I still don't see how it matters. 

From the original posting: QDRO is defined as a cash value at a certain date, to be adjusted through current for g/l.

I'd say that clearly is an adjustment for earnings. In addition, original posting had this: Participant has asked if dollar amount as defined in QDRO can be converted to equivalent shares for distribution.

That certainly seems like a question about in-kind distributions, so I think the discussion in the thread is appropriate.

It doesn't matter, but the participant thinks that if he can get a distribution of assets, he would get assets CURRENTLY VALUED at the number in his QDRO.  That is most likely the reason for his "oh so clever" request.  What he doesn't recognize is that the actual dollar amount WILL BE REVALUED so that even if he gets assets, it will be worth only the adjusted value.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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1 hour ago, Larry Starr said:

From the original posting: QDRO is defined as a cash value at a certain date, to be adjusted through current for g/l.

I'd say that clearly is an adjustment for earnings. In addition, original posting had this: Participant has asked if dollar amount as defined in QDRO can be converted to equivalent shares for distribution.

That certainly seems like a question about in-kind distributions, so I think the discussion in the thread is appropriate.

It doesn't matter, but the participant thinks that if he can get a distribution of assets, he would get assets CURRENTLY VALUED at the number in his QDRO.  That is most likely the reason for his "oh so clever" request.  What he doesn't recognize is that the actual dollar amount WILL BE REVALUED so that even if he gets assets, it will be worth only the adjusted value.

Larry you are being tiresome so this is my last reply to you in this topic.

 

Here is the reply to my first questions  from the person who posted the question which you seem intent on ignoring:

ESOP Guy - great question for clarification.

instead of saying value updated for g/l through current, I should have said last valuation date. Payee received 12/31/19 values, took their time to send in forms, and is now demanding that cash amount be distributed.  Sounds like plan is going to insist on an updated valuation anyway but it was a testy divorce so they are contemplating how to minimize issues.

 

Part in bold done by me. 

To me the plain meaning of that statement seems to change the facts from the original comment.

 

Have a nice day but like I said don't expect another reply from me in this topic.  I simply don't care enough to keep beating the dead horse.  

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44 minutes ago, ESOP Guy said:

Larry you are being tiresome so this is my last reply to you in this topic.

 

Here is the reply to my first questions  from the person who posted the question which you seem intent on ignoring:

ESOP Guy - great question for clarification.

instead of saying value updated for g/l through current, I should have said last valuation date. Payee received 12/31/19 values, took their time to send in forms, and is now demanding that cash amount be distributed.  Sounds like plan is going to insist on an updated valuation anyway but it was a testy divorce so they are contemplating how to minimize issues.

 

Part in bold done by me. 

To me the plain meaning of that statement seems to change the facts from the original comment.

 

Have a nice day but like I said don't expect another reply from me in this topic.  I simply don't care enough to keep beating the dead horse.  

 

This will be my last response to you (possibly forever). Tiresome????   Really?  I'll leave out my actual thoughts....

Anyway, the document more than likely has language that allows valuations at other times than just the last day of the prior year, as all of ours do.  So, the "last valuation" can readily be a current date reflecting the change in values.  If you fail to understand that, that's your problem.  I'm sorry you "don't care enough" to possibly have the right answer!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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I am coming late to this dance, but in my experience Plan Administrators will very often adjust for gains, losses and investment experience from the valuation date to the date of rollover, or distribution, or segregation of benefits to the Alternate Payee whether or not the QDRO requires it or not. 

In Maryland that result is implicitly mandated by the language of our statute authorizing the Court to transfer an "ownership interest" in a pension, retirement, profit sharing or deferred compensation plan from one party to the other.Gains, Losses, Ownership Interest and Constructive Trust.pdf  The legal support is found in the attached Memo.  

Let me add that in 32 years of preparing QDROs I have never seen an Alternate Payee ask for an in-kind distribution or a Plan make a in-kind distribution.  

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