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Can plan allow distribution event to be "later of" separation from service or a specified date?


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I don't understand why you would put the later of separation from service or a specified date.  If the distribution will occur one year after separation from service, then this date will always be later so no need to add the extra wording.

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Under CSRS and FERS the Former Spouse's payments begin within a month or two after the Employee goes into pay status no matter what the written Agreement of the parties, and no matter what the provisions of the Judgment of Divorce, and no matter what it says in the COAP.   In cases where there is a large disparity in age, the parties will often agree that the younger party will not receive a share of the older party's annuity until a certain date in the future.  OPM simply ignores this.  

But in the attached FAQ document put out by DoL you will find: 

"When can the alternate payee get the benefits assigned under a QDRO?
A QDRO that provides for shared payments must specify the date on which the alternate payee will begin to share the participant's payments. Such a date, however, cannot be earlier than the date on which the plan receives the order. With respect to a separate interest, an order may either specify the time (after the order is received by the plan) at which the alternate payee will receive the separate interest or assign to the alternate payee the same right the participant would have had under the plan with regard to the timing of payment. In either case, a QDRO cannot provide that an alternate payee will receive a benefit earlier than the date on which the participant reaches his or her “earliest retirement age”, unless the plan permits payments at an earlier date. This “earliest retirement age” is often a date earlier than the earliest date on which the participant would be entitled to receive his or her retirement benefit.

"The plan itself may contain provisions permitting alternate payees to receive separate interests awarded under a QDRO at an earlier time or under different circumstances than the participant could receive the benefit. For example, a plan may provide that alternate payees may elect to receive a lump sum payment of a separate interest at any time. As discussed earlier, section 401(a)(9) of the Code may affect when benefits must be paid under tax-qualified retirement plans.

"Reference: ERISA §§ 206(d)(3)(C), 206(d)(3)(D), 206(d)(3)(E); IRC §§ 401(a)(9), 414(p)(2), 414(p)(3), 414(p)(4)"

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And see Q. 3-9 of the more recent DoL publication - attached.  

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And, last but not least, 26 USC 414(p)(2)(C) provides: 

"(2)Order must clearly specify certain facts
     A domestic relations order meets the requirements of this paragraph only if such order clearly specifies
          (A)the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
         (B)the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
         (C)the number of payments or period to which such order applies, and"

So I think you are in good shape if you can determine the period to which the QDRO will apply.

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BUT...you used the term "separation from service", and that leads me to believe that you may be talking about a Military retirement.  In the future it would help is you identified the applicable plan.  If it is a Military Plan the answer is likely to be found in the attached DoD-FMR, and it will be controlled by whether or not the separation of service was prior to or after December 23, 2016 and fell under the old rules or the "frozen benefits" law that became effective on December 23, 2016.   

David Goldberg

 

 

DoL FAQs.pdf ++++QDROs Booklet from DOL.pdf 1364486998_DoDFMR7Basof08-13-2021.pdf

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I failed to notice that what you suggest is not possible on it's face.  You asked, "Can plan allow distribution event to be "later of" separation from service or a specified date?"  Since payments cannot be made PRIOR to the separation from service that is an option that can take place if the specified date is prior to separation from service. The question should have been, "Can the plan allow distribution on the date of separation of service, but not prior to ___________________,20________?

And I assumed in my previous post that you were talking about a distribution to a Former Spouse/Alternate Payee.  Was I mistaken?  Shame on me. 

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That mariemonroe posted a query under a forum about executive compensation and Internal Revenue Code of 1986 § 409A suggests that the issues might be different than those one might consider for a § 401(a) retirement plan.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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On 5/12/2022 at 11:09 AM, mariemonroe said:

Can plan allow distribution event to be "later of" separation from service or a specified date? 

 

 

mariemonroe, if as Peter suggests you're talking an NQDC plan under 409A, no. See Treas. Reg. 1.409A-3(c).

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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The final regulations and the 409A Handbook confirm that a permissible payment event can be the earlier of, or later of, one or more permissible payment events. 

I don't see a problem with the later of separation from service or a fixed date. From the original post, there doesn't appear to be any suggestion of subsequent deferrals, addition of a payment event, different forms of payment, etc. Am I missing something?

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8 hours ago, EBECatty said:

The final regulations and the 409A Handbook confirm that a permissible payment event can be the earlier of, or later of, one or more permissible payment events. 

I don't see a problem with the later of separation from service or a fixed date. From the original post, there doesn't appear to be any suggestion of subsequent deferrals, addition of a payment event, different forms of payment, etc. Am I missing something?

EBECatty, maybe that is right, but can you cite where in the regs it says that? I had thought the rule was different.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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OK, EBECatty. Although "earliest" and "latest" suggest at least three alternative events, and the OP posited 2, I think you're probably right. Thanks.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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