Effen

Agree. All makes sense now.

A few things: 1) Doesn't really matter what the divorce decree says, it matters what the QDRO says. 2) Both participant and AP would have signed the QDRO to accept it (or at least their attorney did). Doesn't mean they understood it, but they should have. 3) Often, but not always, the APs share is based on the # years married / total years working * final benefit. Sometimes it is 50% of the benefit at the time of divorce. Depends on the wording in the QDRO. 4) She has a right to see a copy of their QDRO procedures. 5) The QDRO should have a specific section that address what happens if one of the parties die before benefits commencement. If it was a true "separate interest" QDRO, the APs share would just be forfeit if they died before commencement. If it was a pure "shared interest", the benefit reverts to the participant. Many are a blend of the two where they are shared until commencement, then they become separate. In those cases, if the AP dies before commencement, the benefit typically reverts to the participant. 6) Seems like the only way the AP's portion could be paid to someone other than the participant would be if it was a separate interest QDRO (since they are treated as 2 separate plan participants) and the plan had a death benefit for non-married participants. So, maybe a lump sum or a period certain annuity? Not logical that it would be a life annuity. 7) Easiest/cheapest thing is to read the QDRO. If she doesn't have it, request a copy from the Plan Administrator. She probably only needs to hire a lawyer if the PA isn't following the QDRO.

As Dave alluded to, you can't just offer lump sums to actives because "they would like to". There has to be a distributable event - attainment of normal retirement age, plan termination, death, disability, retirement, etc. I think you can slide down the in-service distribution age to 59.5, but not younger than that without terminating the plan. Regarding freezing accruals for those who take the lump sum prior to NRD, it seems like as long as the effect of the amendment is non-discriminatory, you could do it. I would make sure you accurately disclose everything to the participants, then it is their choice, but it feels pretty scummy. You would also be required to show the plan is non-discriminatory every year thereafter since they froze accruals for non-excludable participants.

If the late retirement provision use the greater of the actuarial increase or the age/service benefit, the actuarial increase will almost always be higher. Therefore, if the participant receives a lump sum, and the plan offsets future accruals by the actuarial value of prior distributions, there will almost always be no future accruals. IOW, the value of the prior distribution will exceed the value of the additional age/service accruals and no new benefits will be payable.

I believe what C.B. Zeller said is correct. s/b 4.96%

Thank you. The article was very helpful. Covenants not to compete are intangible assets amortized over 15 years (Sec. 197(d)). This makes it clear that they would not be "earned income". However, the article mentions a potential restructuring of the Covenants into a consulting agreement, "to the extent that a portion of the consideration can be legitimately attributed to the consulting agreement" but it seems like this is generally done to favor the buyer. Thank you all.

I have a prospective client who received a $500K payment in 2024 for signing a “non-compete agreement”. This will be reported on a 1099. Can income for signing a non-complete be used as “earned income” for pension purposes? This person has other self-employment income that can be used, but wondering if they could also use the $500k in 2024?

"marital share" will be defined by the QDRO, but it is typically 50% of the benefit earned during the marriage, or attributed to service during the marriage. It typically applies to all rights and features of those benefits, including death, disability, early retirement, etc. Different ways to handle all of that. There are "shared interest" and "separate interest" QDROs that can produce different outcomes. As David said, these are very significant legal issues and if you attorney isn't familiar, find one that is.

I could be wrong, but my understanding is that any distribution from the plan must meet a defined form of payment. This would be some sort of lifetime annuity or a lump sum equal to the present value of the accrued benefit (or account balance if cash balance plan). An in-service distribution just means that a participant who has attained normal retirement age (NRA) doesn't need to separated from service in order to qualify for a distribution. The distribution paid still needs to satisfy one of the optional forms of payment stated in the plan document. IOW, I don't think a DB plan can just pay some random amount requested by a participant. If the participant attained NRA and wanted a LS distribution, the plan can pay it (assuming no restrictions apply). If the plan provisions allow that individual to earn additional benefits after the distribution, then they could be paid those as well once they have been earned. I don't really see anything wrong with taking a lump sum equal to the full accrued benefit at the beginning of a year, then another distribution later in the year if they have earned an additional accrual, but I think most documents restrict the recalculation to once a year. I don't think the actual funding of plan is relevant, other than if it impacts benefit restrictions.

Agree with QDROphile, the plan document currently contains language related to the death benefit. At a minimum, the spouse would need to receive 50% of the J&50 survivor option. Sometimes the spouse has the option to take this as a lump sum, but it would only be about 45% of the original lump sum value. Many plans, especially "small plans", contain a more generous death benefit. In small plan land the most common death benefit is the present value of the accrued benefit, which in essence is the same as the lump sum that was going to be paid to the participant. Check the plan document, your answer is there. If is the ERISA minimum (50% of the J&S) and the sponsor wants to pay the full lump sum, they can always amend the plan to provide it. You also need to deal with the MRD issue, which likely involves retro payments to the estate, with some tax implications that are beyond my pay grade.

This won't help RamblinWreck, but it might help future readers. Traditional Cash balance plans are great, but when you have multiple owners you run into these types of distribution problems that are generally not fully explained at the front end of the engagement. If the cash balance plan is overfunded, the exiting owner wants a piece of the excess, and if the plan is underfunded, the remaining owners don't want to give them full value - or in this case, the exiting owner can't be paid at all until the funding level meets the 110% rule. There are other types of plan designs that handle these situations more efficiently. "Market based" cash balance plans can be a better solution, but you still end up with overfunding/underfunding at different points in time. They are a better solution, but still not perfect. There are also "Direct Recognition VIP Retirement Plans", or VIP plans which are not based on the cash balance regulations but look very similar. In a VIP plan, the value of the assets is always equal to the sum of the account balances because the benefit is based on the number of "units" and not a stated dollar amount. Each of these options comes with a little higher price tag, but the extra administrative cost can save a lot of expense and frustration if one of the partners wants to leave before the others.

1.416-1 T-22 T–22 Q. In the case of an employer who maintains a single plan, when must the determination whether the plan is top-heavy be made? A. Whether a plan is top-heavy for a particular plan year is determined as of the determination date for such plan year. The determination date with respect to a plan year is defined in section 416(g)(4)(C) as (1) the last day of the preceding plan year, or (2) in the case of the first plan year, the last day of such plan year. Distributions made and the present value of accrued benefits are generally determined as of the determination date. (See Questions and Answers T–24 and T–25 for more specific rules.) See T-23 for rules relating to aggregated plans, but answer is still the same.

Are you actuarially increasing the post NRA benefit and asking what years should be used to determine the 100% of the pay limit? As David said, if the plan was really "hard frozen", I think you would limit it to the average compensation used before the freeze. However, nothing legally wrong with using the current average compensation for that purpose, but would probably require a plan amendment. Consider that any time you amend the plan the effect of the amendment needs to be non-discriminatory, therefore, if the only person who would benefit from the change is an HCE, then the amendment would be difficult to justify. However, if the amendment would benefit NHCEs, then the amendment would likely be fine.

FWIW, I have seen governmental QDRO's where the AP forfeits benefits if they remarry. As QDROphile said, you need to review your QDRO to know if your remarriage would impact your benefits.

If you already have municipal plans in multiple states, why not just ask them who does their legal work?

what State?

None that I am aware of. Also, I know in PA, plan documents are not even required so some municipalities just operate from ordinances. Plus, a lot of the ERISA rules do not apply to governmental plans, so be careful when trying to pound the round peg into the square hole.

Agreed. This is not a sign of fraud in any way. Central States has 360,000 participants so they found < 1% were deceased. They received $36 B in SFA. Yes, $127M is a big number but it is only .35% of what they received. Also, not like that money goes into anyone's pocket - other than truckers and other pensioners who use it to live on. PBGC has changed their procedures and now do their own data scrubs before the SFA filing is reviewed. Previously, funds needed to show documentation that they scrubbed the data, but now, PBGC does it for them.

"The DRO was drafted ... and was submitted to the PA. ... It was approved and sent to both parties and his ex's attorney along with the procedures." "she ...send it to the Judge exactly how it had been (originally) approved. The Judge's signature was stamped on it and it was filed" So, the original DRO you mentioned in your 3rd sentence was ultimately submitted to the judge for approval, ignoring the changes the participant wanted, and the court approved it. However, the court approved QDRO has never been sent back to the PA because the AP won't sign it. Is that correct? "We just don't know why her and her attorney hold all the power over his pension and if there are any clauses in ERISA or any other laws that might disqualify her from getting her share because of her not doing what she was supposed to do." Others may chime in with more legalistic responses, but as I have said before, the answer s/b in the QDRO procedures. The PA is not required wait indefinitely for the final QDRO to appear and they have no right to hold back the participant's portion. In other words, her failure to sign should not be impacting his ability to receive his portion of the benefit. You may find this DOL material helpful https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/qdros.pdf especially Section 2 which discusses the PA's responsibilities. Section 2-11 states, "during any period in which the issue of whether a domestic relations order is a QDRO is being determined (by a plan administrator, by a court 19 of competent jurisdiction, or otherwise), ERISA requires that the plan administrator separately account for the amounts that would be payable to an alternate payee under the terms of the order during such period if the order had been determined to be qualified. These amounts are referred to as “segregated amounts.” During the period in which the status of a domestic relations order is being determined, the plan administrator must take steps to ensure that amounts that would have been payable to the alternate payee, if the order were a QDRO, are not distributed to the participant or any other person. The plan administrator’s duty to separately account for and to preserve the segregated amounts is limited in time. ERISA provides that the plan administrator must preserve the segregated amounts for not longer than the end of an “18-month period.” This “18-month period” does not begin until the first date (after the plan receives the order) that the order would require payment to the alternate payee. It is the view of the Department that, in order to ensure the availability of a full 18-month protection period, the 18 months cannot begin before the plan receives a domestic relations order. Rather, the “18-month period” will begin on the first date on which a payment would be required to be made under an order following receipt by the plan. See Questions 2-12 and 2-13, which discuss how benefits should be treated when determinations on qualified status are made either before or after the beginning of the “18-month period.” [ERISA §§ 206(d)(3)(H), 404(a); IRC § 414(p)(7)] Seems to me that the PA has a DRO, but they have not "qualified" it because it isn't properly signed. Therefore, they should segregate payments for 18 months - paying the participant his share and holding the APs portion. I would expect they would notify both parties this was happening, (but you said they already provided their QDRO procedures so if it is in there, maybe they wouldn't need to notify again). If no final DRO appears within the 18 months, they should release the AP's portion to the participant. Has the participant made a formal request to commence his payments? If the AP is holding them up, ask them what authority they have to withhold his entire retirement benefit?

I am confused. Are you saying a QDRO exists - court approved and PA approved, but now your SO doesn't like the wording and wants to change it. If a QDRO already exists, it will be very difficult to change as you might be finding out. Not sure why the PA is holding up payment. Either there is a QDRO or there isn't. If there is, the PA should follow the terms of the QDRO and pay the appropriate benefits. . However, if no QDRO exists, then there is no QDRO and the PA should pay the participant the full benefit. Or what?

I don't think there is a "right" answer to this as the law never contemplated buy-ins. We have continued to use the segment rates, but it has always generated a $0 MRC so haven't really had to think too hard. We would probably think harder if the plan had a VRP premium. Since the PBGC has no risk if a plan is 100% in a buy-in doesn't seem right that the sponsor would be required to pay a VRP. I guess if that ever happened, we would probably have a conversation with the PBGC.

Thank you, interesting story. What is your role in all of this? From the Plan Administrator's (PA) perspective - they only review the DRO as provided and determine if it is "Qualified". Being "Qualified" has nothing to do with the separation agreement, or divorce decree, or what is said in court. It only relates to - is the split determinable and does it increase the plan's liability. I specifically tell my clients NOT to read the divorce decree or get involved of any of the "he said, she said", or probably now, "they said". None of that stuff matters in determining if a DRO is a QDRO. The Plan should have a QDRO Procedure that is available to the member. Something the member might want to request and read. It sounds like the attorney submitted a draft to the PA for preliminary approval, but the PA said it needed additional information. So they have a DRO, but not a QDRO. The QDRO procedures will define what will happen, but typically, if nothing new comes in for the PA to approve, they will move forward and just ignore it. The Participant will receive full payments until a new DRO is submitted. At that point, the APs only option will be a shared interest QDRO on a future payment stream. Get the QDRO Procedure - you answer should be there.

Good luck. Let us know how it works out.

There is a lot of information here, and I am not an expert on teachers plans, but hopefully someone else will jump in. I am also assuming these are related to a defined benefit plan (monthly lifetime benefit) and not a defined contribution plan (pool of money) Teachers plans are generally operated by the state and therefore some of the QDRO rules apply differently. That said, to answer you basic question of "can a QDRO be amended post-divorce?", Yes, but it would be very rare. In order for the QDRO to exist, both parties had to agree to the current wording. Therefore, in order to change it, both parties would need to agree that the wording was now incorrect for some reason, they would need to agree to get the attorneys involved, then they would need to go back to court and get a judge to agree. So I won't say it isn't possible, but I have never seen it done. I am also not clear what you would want to change. You mention naming children as beneficiaries, but that would likely not be possible even if you could change it. QDROs can only allocate the benefit the plan was obligated to pay. Generally, pension plans only pay lifetime benefits to the employee and their spouse.

https://www.irs.gov/pub/irs-drop/n-23-73.pdf Thanks Slider - This is the link.