QDROphile

And while I am at it, my two cents on the Continental case was really about Continental being adverse selected, which one could argue that it deserved, or at least invited.

Unfortunately, the sad state of economic affairs of most people puts them in a place where retirement plan assets are either necessary or too tempting for survival after divorce, especially for alternate payees. Witness the hijinks of lawyers who try to draft orders payable to them for the benefit of their clients to make sure they get paid for their work in the divorce. Designing a plan or QDRO procedures to prevent immediate distribution can be a serious imposition on legitimate needs. Many plan administrators are familiar with begging and hounding by would-be alternate payees because money can’t be distributed fast enough. Also, some providers, especially those who also offer QDRO administration (with improprieties), will not accommodate a plan design that does not fit its conceptual template, appropriate for many employers, to encourage alternate payees to take the award and clear out of the plan.

I think a QDRO administrator should keep hands off a sham divorce and implement an order formally. If the state procedures are followed and a divorce or separation under state law is effected formally, so be it. Unfortunately, I cannot be comforted that state judges will exercise appropriate knowledge and understanding of ERISA to avoid orders that are what I called “naked” assignments of retirement assets without what we intuitively consider a domestic relations proceeding under domestic relations law, where division of marital assets has a presumed purpose and meaning that as far as I know has not been adequately adjudicated. I had a client that did not allow immediate distribution to a spouse or former spouse pursuant to a QDRO under its defined contribution plan because of anecdotal evidence of sham divorces. That dampened the incentive to go through the formalities under domestic relations law for the sake of buying the fishing boat. Although I am often a critic of the DOL when it comes to QDRO law, I am completely sympathetic to giving administrators a pass on the need to examine state law or state proceedings. Employers may care enough to design plans to hamper shenanigans, but the plan administrator should not have to care if participants are hell-bent to make irresponsible decisions about retirement savings. But damn the lawyers or other advisors who encourage it.

By “statute” I mean the IRC or ERISA.

You need to look at the definitions and conditions in the statute. A naked transfer funds is not going to qualify, and I doubt any state domestic relations law is going to provide for it, as such, outside of a divorce or separation proceeding.

No. Distribution is 80% of a wrong number (most recent valuation) but is hoped to be less than 100.01% of the right number (determined at the next valuation). The true up is the difference between what was distributed and the amount that would have been distributed if the value had been known at the time of distribution, which is what a special valuation provides.

I would love to know where people get the idea that the plan can sit on QDRO determination for 18 months.

Is the plan a DC plan? Are both parties, including the deceased AP by representation, requesting the assignment? Is the deceased AP a former spouse? If you are confident that no one involved will be contesting the assignment, you are pretty safe even if the definition, "a domestic relations order— (i) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan" does not include "estate of the alternate payee" within the meaning of IRC section 414(p). I have not tested this proposition by research and have no experience with the question. I have heard that death of one of the parties to a divorce proceeding creates issues under state law, but the plan does not have to worry about state law -- almost always the plan can rely on the order. If someone is contesting, then you need to dig deeper, but there are shortcuts to make someone else do the heavy lifting on the research.

When a domestic relations order is determined to be qualified, notice is given. That presents an objecting party an opportunity to file a claim for benefits under the plan's claims procedures. One way to frame the claim in this case is that the participant (claimant) asserts that the participant is entitled to the benefits awarded instead to the alternate payee. In this case, because the participant has been making so much noise already, evidently before the determination, the appropriate fiduciary (the "Administrator") could contact the participant in connection with the notice of determination and either 1) advise that the plan will treat the noise as a claim, but invite the participant to follow the claims procedures, at least to the extent of formalizing, clarifying, and supplementing the record as to exactly what the claim is, or 2) acknowledge the noise and advise that the matter should be taken up now under the claims procedure, and provide information about how to prosecute the claim (e.g. where to find or obtain the written the claims procedures). Note that I am not asserting anything about the conduct of the consideration of the claim, such as whether or not the Administrator will look into the bona fides of the court action or simply consider if the formalities of qualification have been satisfied. The claims procedure is the appropriate avenue for challenge/argument and the best way to rein in the participant. Under the claims procedure, the participant is sooner or later entitled to see all the documents relevant to the consideration and decision, so once the participant is channeled, the Administrator should be liberal, which in the end will slam the door tightly shut. Any payments under the QDRO usually should be suspended pending resolution, which should be pursued expeditiously.

How about 80% based on most recent valuation, subject to true-up after the next regular valuation, subject to further discretionary reduction (e.g. 75%) in case of a black swan market. Of course, the plan needs this in writing, such as the investment policy or distribution policy, supported by plan terms that provide for such written policies of the fiduciary, or the plan document itself (but good luck unless you you have a custom document). Probably too late to add for the current transaction at this point. It should have been part of the plan design whenever the pooled fund began. This issue has been around forever. Maybe the plan has some general language built in for fiduciary discretion that can be stretched to fit.

Yep.

Oh, Mr. Gulia, what a set up. It is a matter of what is in the agreement, and interpretation of the agreement when not expressly covered by the agreement. Some fiduciary is responsible for everything and agreements among fiduciaries allocate the responsibilities. The most fun comes when the fiduciaries disagree about who has the responsibility — the Uber fiduciary either asserts control or delegation and the sub fiduciary is either asserting or abdicating. But you well know all that. The ultimate question is adjudication of the agreement. If I were the Uber fiduciary and delegating claims functions, I would try to delegate all of them, with the ability, but not obligation, to step in with ultimate authority. I am not of the mind of the usual fiduciary who is inclined to delegate in the first place.

That may be true for creditors of the IRA owner (the designated beneficiary of the plan participant that rolls over to the IRA). But creditors of the participant …. ? Why would there be a difference if the distribution is rolled over or not?

I have only a thought/question to offer. If the participant has named the participant‘s estate rather than an otherwise named beneficiary, it might get more interesting for the creditor. I know nothing about the estate administration, but once the distribution is made, the ERISA protections are lost. Can the estate be compelled to satisfy a claim against the participant with the distributed plan funds, or can the estate try to shield the funds and dodge the creditor for the benefit of the estate beneficiaries while the creditor tries to catch the funds in transit or to retrieve the funds from the recipients? This should not work against a designated beneficiary (presumably protected by the anti-assignment law) — or should it?

Rivers v. Central and South West Corp., 186 F.3d 681 (5th Cir. 1999)

EPCRSGuru and fmsinc: My mistake. I was thinking of Hopkins v AT&T Global (4th Cir.) which is the seminal case I think the Fifth Circuit followed suit later under similar facts, but added nothing to the analysis. The Director’s Guild/Tise case, 243 F3d 415 (9th Cir. 2000) provides a satisfactory analysis, which Hopkins does not.

I think the U.S. Court of Appeals for the Fifth Circuit would say that the survivor annuity interest “vests” in the spouse at the time the benefit starts. Where to go from there, or not, is not answered because the circumstances were different. A former spouse of the participant was trying to capture all or a part of the “vested” interest. IRC section 414(p) refers to assigning some or all of the participant’s interest to an alternate payee, not assigning some of a vested spouse interest to the participant or another alternate payee. If the Fifth Circuit meant what it said (c.f. Ninth Circuit’s take on J&S interests vs QDROs), then the now former spouse cannot be divested or deprived in any measure. But the former spouse can be denied any interest in the participant’s stream of payments (effectively the participant’s life annuity).

Maybe it is a panel of lawyers, a council of counsel.

You need legal advice that you cannot get in this forum. First, you need advice about what the deceased former (?) spouse can get under California domestic relations law. That seriously narrows the field of of contributors to this forum and is the starting point for questions about what can be obtained from the pension plan. The assertion of the other side about what is deserved or attainable cannot be trusted either with respect to California law or the pension plan. Unfortunately, expertise about state domestic relations law and QDRO law do not often come in the same package. Whether or not the estate's lawyer or former lawyer committed malpractice is interesting for settlement purposes, but not what might effectively be asserted against your father's property.

Just for fun (what is your interest in the matter?), let's infer (because you don't give enough information to avoid a lot of speculation, which I don't find amusing -- speculating, I mean, because is is not very productive) that the DB plan is paying either a life annuity or a J&S annuity with the deceased former spouse as the contingent annuitant. Although the plan could be designed to accommodate other arrangements, I am going to take the strict approach that I advise for my clients. The benefit is now effectively a life annuity for the participant, and any assignment of benefits is going to be in the form of designated prospective payments from the payment stream, which might be commonly envisioned a "separate payment" approach. I am at a loss to see how the AP (or AP's estate, and I use the term AP even though I don't think there is an AP) can get anything. I would advise the plan that the description of the prospective separate payments (whether or not calculated to capture retroactive payments over some time) could not include a time frame greater than either the participant's or AP's life. The AP is dead, so the separate payments stop before they start. Unfortunately, the DOL soiled its pants in its efforts to comply with the Congressional mandate to provide guidance in the complex circumstances of death of a participant or spouse before a proposed QDRO is qualified. The DOL pretty much left us with nothing. It could have provided some guidance into these difficult and interesting issues that arise under DB plans. Other outcomes may be possible, but I think the plan can refuse to pay because I cannot think of a payment scheme envisioned by the AP that does not require the plan to pay in a manner or form that the plan is not designed to pay, at least as I assume this plan to be designed. You also have to consider, which I am not, whether or not state law is going to look favorably on a deceased party with respect to future qualified retirement benefit payments. The estate might have an interest in payments already made, but that would be against the individual rather than through the plan. And if the state is California, all bets are off from the perspective of ERISA-governed matters because of the travesty of how California domestic relations law tries to strong-arm qualified plans.

From your description, I can’t tell what is going on. If the plan has never been notified of the proceedings and the participant has died, and I were advising the plan, the designated beneficiary would get the benefits, mutatis mutandis if the benefits are in annuity form. A lot depends on what has been communicated to the plan, and what the plans standards are for processing a domestic relations order. State law has a lot to do with this as well with respect to division of marital assets and death of a party before entry of judgment, QDRO law aside. You may never get to the plan.

See IRC section 414(p)(2)(C)

Satisfies. The statement itself is not even necessary in the order, but it is a nice touch.

While ERISA is based in equity, and it may be possible to asset a defense of latches, I suspect the question will be answered in the domestic relations court based on the applicable domestic relations law. If that court issues a domestic relations order, I do not think the plan will entertain any objection because of timeliness. However, if circumstances have changed, the plan will refuse to qualify an order that requires the plan to take an action or provide a benefit that the plan is not designed to do. Sometimes it is impossible to implement the exact original terms because of a change in record keepers or other loss of original relevant data, such as plan balances at the time of the divorce. A domestic relations judge might not look kindly on having to reformulate the order to effect the approximate original terms when the responsible party was dilatory. As a rough approach to the question, I would ask why shouldn’t the original award be implemented, even if 12 years later? What about the settlement and award is now improper or unfair? Many QDROs do not have an actual effect or payment until years after a “timely” entry and qualification.

Who has responsibility for determining whether or not payment reported on Form 1099 is proper for the designated persons, who would not be employees if the Form 1099 reporting is proper? If not you, are you sure you will not be implicated and are you willing to accept the suspicious determination and being at least indirectly involved in the potential troubles and recriminations that may well result? If you sleep with dogs you often get up with fleas. Or, is you inquiry inspired because, as suggested by David Rigby, your lower body motor functions are appropriately inspired?