QDROphile

A slightly different point, but reflecting all of the concerns previously noted. I assume an ERISA plan. When the plan started paying the portion of the interest that the participant was supposed to get, I don't see how that is anything but a failure to follow plan terms. The apportionment of the benefit can only be done under the auspices of a QDRO. I infer that what was done was based on the idea of a separate interest division of the benefit. The plan is disqualified. What to do? My best shot would be correction of a plan failure, and that correction would be based on putting the plan and participants and beneficiaries in the position that they would be in if the failure (no appropriate QDRO in place) had not occurred. So get a QDRO in place in the form that was imagined before the payments and then play it out from there. The participant started payment of the assigned interest in a form that was proper (presumably). It would be nice if the Alternate Payee had the ability to elect to start later (such as now), but that would depend on plan terms and I think most plans would require the AP to start when the participant's separate interest payments began. That would mean that the AP would get retroactive payments based on some form of benefit available to the AP (probably a single life annuity), plus earnings because of the failure receive benefits timely. I realize that this s pretty rough and ready, but if all the affected parties agree (Ha! Good luck with the Plan, but it has dirty hands and the prospect of disqualification looming) and execute properly, I would bet the IRS would swallow it, assuming discovery. I think the odds are good either way. Caveat: I have not followed any development in correction procedures, so I may be all wet. I also have the view, borne out by experience, that the IRS is pretty generous about good faith corrections. All that may have changed while I was asleep at the switch. Of course, this is not advice to anyone. One could argue that the appropriate correction is to recapture all the misbegotten payments to the participant and start over, or reform payments so the participant "catches up" on the payment of the unpaid portion of the benefit, with earnings, that should have been paid to the participant all along. I don't favor that approach, although it might be more technically correct. Are there any service providers or fiduciaries who may be liable for some contribution toward extrication from this mess?

While I think the move by TIAA sucks because the investment provider is in the best position to approximate earnings and losses from a specified valuation date and dumping the exercise on the divorcing parties is confusing and expensive, it highlights the reality* that the “usual” calculation earnings and losses from a date has almost always been somewhat illusory. Check some other posts in this forum about the use of algorithms for that purpose and how they can be rather inaccurate, depending on the circumstances. Perhaps it is unrealistic to expect true, rather than approximate, but reasonable, calculation of earnings and losses. Maybe the providers simply don’t want the exposure of appearing to look like they are doing actual and true calculations as opposed to reasonable approximations. This problem has been evident for a long time when a plan changes providers. If the valuation date is under the prior provider regime, the plan often has no means to go back into that history to bring down (up?) the calculations to the date the new provider is presented with participant balances, because, among other reasons, they did not think of it, was not an available service from the prior provider, or is not a service available from the new provider (who does not have all that historical data loaded into its system). The burden falls on the individuals to account for the gap between the valuation date and the commencement date with the new provider. *Disclaimer: I do not know the systems and methods of investment providers for calculating earnings and losses forward from a valuation date to a “transfer” or “separation” date. Others have asserted that imperfect algorithms are used. The assertions make sense to me based on my witnessing of third party attempts to calculate earnings and losses from the data of the investment provider. It is possible that some or most investment providers have systems that can actually provide accurate figures for earnings and losses from a valuation date to some other date. I have plenty of experience with plans that have changed providers and create problems for the individuals because of the difficulty of working with historical data that is no longer in an active system. One lesson from all of this is that if one divorces, the division of the retirement benefits should be attended to as promptly as possible. That will minimize many problems. Unfortunately, a QDRO is often an afterthought.

Please explain the Vanguard account. Is it an IRA that will receive a rollover of the distribution from the plan of the alternate payee account balance after the plan establishes and funds the alternate payee account?

If you make private equity funds available to the public, then you create money making opportunities for the private equity fund managers by opening up a category of money and unsophisticated investors that would not otherwise be preyed upon.

As far as the plan is concerned, he is not married. The plan termination can proceed accordingly unless the plan receives a domestic relations order during the process. The plan should not wait. With respect to the participant and the former marriage and its termination, the participant is on his own with respect to any remedial action. That remedial action may include something in the state domestic relations court, but it is unlikely to be within time to produce a domestic relations order that can be effective with respect to the plan. The participant will probably have to find some other remedy for his ignorance. Whether or not that remedy is processed through the domestic relations court depends on the court jurisdiction and rules. Typically there is not an unlimited look back opportunity. Fraud would provide the best avenue, but then the participant would have to claim something more sinister than ignorance and potentially suffer greater consequences in the outcome.

I have another explanation, based on pure speculation that is less likely than the scenario offered by justanotheradmin, but it also is only a story of botched paper handling by an unsophisticated plan administrator and not anything untoward or that adversely affects anyone's plan interests. And I still see nothing to worry about in the description about how the formal qualification of the order was handled on behalf of the plan. I remind you that this forum is mostly for professionals to discuss technical matters. It is not designed to help individuals with their problems or questions about their individual circumstances. Some of us try to be more helpful than others, and none of us are offering advice on the boards that can be relied on in individual circumstances. We have been dismissive or reassuring (? depends on your point of view) about some of the concerns you raised and have offered some thoughts about where our concerns would be based on inadequate information (not meant as an insult -- you have done well for a nonprofessional in what appears to be a messy situation fraught with suspicions -- divorce is not pretty). I hope that there has been some clarification that helps the affected persons get the professional advice that that will resolve issues that may affect whether or not the plan benefits were divided as they "should" have been.

I continue to be drawn to the divorce proceeding, including the domestic relations order (NOT the qualification of the order by the plan), in which B does not seem to have participated in the identification, valuation, or terms of division of the plan interest in the context of the larger division of property between A and B in the divorce proceeding. That is a state court matter in which there may have been ignorance, inattention, unfairness, deception, omission, or other skulduggery, or not. There is nothing* about federal QDRO rules that relates to what B “should” or could get from the plan in consequence of divorce. In fact, the plan is generally not supposed to have any concern for what happened in the state court and may/should look only at whether the proposed QDRO appears to be an actual domestic relations order. The alarm about A’s position and behavior relating to the plan (other than refusal to provide (1) benefit information necessary for fairly adjudicating or settling rights in the state court divorce proceeding, and (2) information about plan procedures) seems misguided, despite the bad optics relating to A. The bad things that may have happened — or things that should have happened and did not — probably happened (or not) in the state court. Which brings me back to, “What does B think B should be getting from the plan by way of benefits that B is not getting under the terms of the QDRO?” The answer probably relates to the terms of the domestic relation order — the product of the state court — not the qualification of the domestic relations order by the plan. *Well, almost nothing.

Please explain how you envision that this would work and what aspect is troubling the plan . I think it is fair for the plan to require a “split the payment” approach: fraction x amount of monthly (?) scheduled payment = amount of monthly (?) payment to alternate payee The plan can refuse to do the math (apply a verbal formula) to determine the fraction and require the order to state the fraction.

Santo Gold might also ask: What is my Company’s responsibility with regard to determining the answers to the relevant questions or simply following instructions (other than determining whether or not there is a service agreement with anyone with respect to which the Company is obligated)? Are the questions in the post a matter of curiosity or are they a matter of gaining some advice for making some judgments. decisions, or recommendations that will be passed on to a client?

Is there something that Person B thinks is wrong with what the purported QDRO awards to person B? Is there something that Person B thinks wrong with what the divorce decree (or whatever it is called in Wisconsin) awarded to person B? I am having difficulty with understanding what the real problem is (though I grant you that Person A is in a ticklish position and does not seem to be acting beyond reproach). If Person B thinks they are getting the wrong amount, then they either (1) file a claim under the plan's claims procedures (which will force the plan to give an explanation about the plan's position on qualification and interpretation of the order, with reference to plan and QDRO Procedures terms), or (2) go back to divorce court to amend that court's order (which will involve both Person A and Person B), write a new proposed QDRO that implements the now correct award, and submit the new proposed order to the plan for qualification. #1 will require an ERISA lawyer because claims get you into part of ERISA other than section 206(d)(3) and that is possibly the first step to yet another legal proceeding. #2 probably gets you both the divorce lawyer and the QDRO lawyer because it is essentially a do over -- and hopefully will be done right. The valuation date is not something that can be manipulated to screw anyone. A competent QDRO professional should be able to get to the amount (or a reasonable approximation) that the alternate payee is awarded in the divorce no matter how the plan frames valuation dates.

First, an overview observation, and then an attempt to give a helpful answer. As someone that you might refer to as a QDRO lawyer, I see a lot of information and query that I think is very unlikely to matter in terms of determining whether or not the domestic relations order is a QDRO, including different vintages of plan document. A 401(k) account is a relatively easy thing to divide from a qualification perspective, assuming conventional liquid assets. Plan terms usually have no substantial effect. Because of the excess of text that appears to be irrelevant, it seems that there is a lot of confusion. The confusion also appears involve identification of the relevant “fiduciary” or fiduciaries who will be responsible for cutting through all of the noise and making decisions about the domestic relations order as qualified or not. The usual circumstances relating to a QDRO involve two pieces: (1) what part of the 401(k) account will the alternate payee get? This has everything to do with the divorce settlement and not necessarily anything to do with the terms of the 401(k) plan (except maybe vesting). The plan is totally agnostic about what the alternate payee should receive, except that the alternate payee cannot receive an amount or type of benefit that the plan does not provide for (which is a qualification matter and almost never an issue with a 401(k) plan). For determining the amount that the alternate payee should receive in the greater scheme of things, the parties need domestic relations lawyers to come up with a domestic relations order that I will refer to as the “divorce decree” which may or may not be the domestic relations order that is submitted to the plan to end up with a QDRO (probably not; see the explanation below about the role of the QDRO lawyer). (2) A domestic relations order (DRO) must be submitted to the plan in order to tell the plan what the divorce decree specifies to be the interest in the plan awarded to the alternate payee. The DRO must set forth the information that the relevant statutes require, which neatly corresponds to the information that the plan administrator (or other QDRO fiduciary) actually needs to administer the DRO and give the alternate payee what the divorce decree has determined that the alternate payee should get. Unfortunately, a QDRO lawyer (or other competent professional) may be required to make sure that the formal qualification requirements are satisfied. A QDRO lawyer will be concerned with plan terms, but, as mentioned before, plan terms usually have little effect. An experienced QDRO lawyer can probably put together a perfectly good domestic relations order while being almost blind to plan terms — not that they actually would. A QDRO lawyer is indifferent to the settlement terms that relate to what the alternate payee “should” receive from a 401(k) plan as long as the “what” is expressed in the divorce decree as a dollar amount or a percentage of the account balance as of a particular date. Valuation dates may be a matter affected by plan terms, which gets us to: (3) A common arrangement is for the domestic relations lawyer to have an association of sorts with a QDRO lawyer (or other professional) to make sure that the divorce decree defines the alternate payee’s interest in the plan in a way that can be implemented by the plan, such as by specifying a valuation date that is workable for the plan. The QDRO lawyer then drafts a domestic relations order that meet the qualification requirements to become a QDRO. So, the answer to your question is: both, especially since there seems to be so much confusion about what matters or not, and people seem to be enmeshed in a probably unnecessary push/pull. I am not unmindful of the misfortune that something that is conceptually quite simple ends up needing the assistance of expensive professionals to make things “right” whether or not anyone is made happy. Important addendum: No mention has been made of an extremely important document that plans are required to have: written procedures on qualified domestic relations orders (QDRO Procedures). If I were to have only one document from the plan, that is the one that I would request. However, while that document should be the most important and informative of all plan documents, that document often sucks and will disappoint. The QDRO Procedures may be incorporated into an SPD.

Why is the individual involving the plan in the purchase rather than buying the ranch entirely with personal (non-plan) funds? In these types of propositions I am concerned that the individual is using plan funds to serve personal (non-plan) interests, such as enabling the purchase when the participant does not have enough money outside the plan to cover the purchase price. That fits my understanding of a prohibited transaction. I also think it is a set-up for future PTs and other problems as the ranch is operated. Is the plan capable of covering its share of potentially unlimited demands for more capital? Qualified plans are not meant to operate businesses.

What is your role/concern? Are you starting with skepticism that their income reporting is incorrect? What if it is incorrect?

How about a spin off and merger? I know there is a lot of queasiness about plan mergers, but I think the concerns tend to be exaggerated. Or just a spinoff, as suggested by Bill Presson. Spinoffs occur as of the spinoff date, no matter how much time it takes for asset transfer, plan documentation, and other administrative matters. Some dates are more difficult than others.

And what distribution amount from what source are you asking about?