QDRO - AlterNet Payee Amount more than the value of the account

[52626]

Back in February of 2020, the plan sponsor received a draft QDRO to review. Everything was in order and client was to tell the attorney to submit for signature.

The signed QDRO was delivered to the plan sponsor in March of 2021 ( signed by the judge one year after the draft was reviewed).  In September of 2020 the participant took a COVID-19 withdrawal. Leaving an account balance of about $1000.

The account balance as of today is only $5,000.

1. Is that that the amount the plan pays to the Alternate Payee? The Alternate Payee would then have to seek legal action against the participant for the balance?

2. Is the plan sponsor responsible for the balance of the QDRO Payment since they allowed the withdrawal in September?

Since the signed QDRO was not recorded by the court, was the participant  able to access funds from the account?

Bottom line, does approving the draft QDRO require the plan sponsor to  put a hold on the account and limit any withdrawals, or is the plan sponsor only responsible  once they receive the signed QDRO.

[Mike Preston]

What do the qdro procedures say?

[Luke Bailey]

My recollection is that the law does not actually impose an obligation on the plan sponsor in this circumstance to prevent the employee from making a withdrawal. Plans sometimes do that for a limited period. I suppose the divorce court could also have enjoined the participant from taking the funds out. Finally, I do think the divorce court could put a constructive trust on the funds in the hands of the participant, if he or she still has that amount.

[fmsinc]

Back in February of 2020, the plan sponsor received a draft QDRO to review. FROM WHOM?  WHAT OTHER DOCUMENTS (SUCH AS THE JUDGMENT OF DIVORCE OR THE MARITAL SETTLEMENT AGREEMENT) WERE PROVIDED?  Everything was in order and client was to tell the attorney to submit for signature.  WHO TOLD THIS TO THE "CLIENT" AND WHO WAS THE CLIENT, THE PARTICIPANT OR THE ALTERNATE PAYEE?   WAS THE APPROVAL AND ADVICE TO TELL THE ATTORNEY TO SUBMIT IT FOR SIGNATURE IN WRITING?  I ASSUME THE DIVORCE WAS GRANTED PRIOR TO FEBRUARY 20, 2020.  THE PLAN DOCUMENTS MAY DEFINE THE DUTIES OF THE PLAN SPONSOR WHEN THEY ARE ON ACTUAL NOTICE THAT A QDRO WILL BE FORTHCOMING.  MOST PLANS WITH WHOM I DEAL WILL PUT A "HOLD" ON THE MONEY FOR SOME PERIOD OF TIME AND NOT ALLOW THE PARTICIPANT TO MAKE A WITHDRAWAL, LOAN OR DISTRIBUTION.  THE PLAN HAS A FIDUCIARY OBLIGATION TO BOTH THE PARTICIPANT AND THE BENEFICIARY. 

NOTE THAT THE DRO IS NOT "QUALIFIED" UNTIL IT IS APPROVED BY THE PLAN AND BECOMES A QDRO.  SO ISN'T ACTUAL NOTICE THAT A DRO IS COMING THE SAME AS HAVING A DRO IN HAND THAT HAS NOT YET BEEN APPROVED BY THE PLAN AND BECOME A QDRO.  AND THE PLAN HAS 18 MONTHS TO APPROVE OR REJECT A QDRO.  

The signed QDRO was delivered to the plan sponsor in March of 2021 ( signed by the judge one year after the draft was reviewed).  In September of 2020 the participant took a COVID-19 withdrawal. Leaving an account balance of about $1000.  HOW LARGE WAS THE WITHDRAWAL?  

The account balance as of today is only $5,000. HOW DID IT INCREASE FROM $1,000 TO $5,000? 

1. Is that that the amount the plan pays to the Alternate Payee? The Alternate Payee would then have to seek legal action against the participant for the balance?  UNLESS THE PLAN HAD A DUTY PER THE PLAN DOCUMENTS (OR THE UNDERLYING LAW) TO PROTECT THE INTEREST OF THE ALTERNATE PAYEE, THE PLAN'S LIABILITY WILL BE LIMITED TO WHAT IS LEFT IN THE PLAN.  ANOTHER ISSUE NOT ADDRESSED IS WHETHER OR NOT THE PLAN DOCUMENTS REQUIRE NOTICE TO AND CONSENT BY A SPOUSE OR A FORMER SPOUSE BEFORE THE PARTICIPANT IS ALLOWED TO TAKE A WITHDRAWAL, LOAN OR DISTRIBUTION.  MANY PLANS REQUIRE SUCH CONSENT.  SEE BELOW. 

2. Is the plan sponsor responsible for the balance of the QDRO Payment since they allowed the withdrawal in September?  MAYBE.  

Since the signed QDRO was not recorded by the court, I ASSUME YOU MEAN "ENTERED" BY THE COURT.  was the participant  able to access funds from the account?  THE ABILITY OF THE PARTICIPANT TO ACCESS THE FUNDS IN HIS ACCOUNT HAS NOTHING TO DO WITH THE LATER ENTRY OF A QDRO.  IT IS DETERMINED BY THE PLAN DOCUMENTS. YOU DIDN'T SAY WHETHER THE PLAN WAS UNDER ERISA (ALTHOUGH USE OF THE WORD "QDRO" SUGGESTS THAT IT IS), OR UNDER A FEDERAL, STATE, COUNTY OR MUNICIPAL PLAN.    

Bottom line, does approving the draft QDRO require the plan sponsor to  put a hold on the account and limit any withdrawals, or is the plan sponsor only responsible  once they receive the signed QDRO.  THE ANSWER DEPENDS ON THE PLAN DOCUMENTS AND THE UNDERLYING LAW.  

DSG