QDROphile

I can understand why an employer would like to limit withdrawals, especially in-service withdrawals, but if the plan is designed to allow the plan to be used as a bank, let it go. There are no regulatory concerns if withdrawals are in accordance with law (e.g. after age 59.5) and plan terms. I am a bit queasy about individual counseling concerning the wisdom of in-service withdrawals, but have no problem with a general statement that includes information that discourages withdrawals by pointing out the immediate and long term negative consequences.

The answer is completely dependent on the domestic relations law of the state in which the court is located and the local court rules and procedures. Federal law, meaning ERISA and the tax code, has nothing to say about it. To be more precise, you are asking about a domestic relations order. The plan to which the order applies determines if the domestic relations order is qualified, and the criteria for qualification include nothing about signatures of parties.

Good for you David for reading more closely to determine that the employer with the pension plan of interest was not the fire department. The convoluted explanation and irrelevant reference fooled me.

Your message suggests that your former spouse worked for a government entity. If so, the pension arrangements are probably not subject to ERISA and the common knowledge that goes with the body of law under ERISA. The plan terms, which may be statutory, will determine survivorship rights. You will not be able to get your answers based on general knowledge and expertise, only specific attention to your situation and the related plan. It is possible that the employer was not a governmental entity, but a nonprofit organization instead, and ERISA may apply.

Yes. Some states in particular look at NQDC as investment contracts and don’t have exemptions available generally and some of the “indirect” exemptions don’t always apply. The program should always be evaluated by someone with securities law expertise.

An early recognition of the issue may have provided some opportunity for planning a more desirable outcome, such as taking a full distribution from the plan sooner (or right away) and rolling it into an IRA rather than waiting. I regret that I will not try to evaluate or explain the plan's actions or a course of action for the alternate payee to take now. For me it is too close to individual advice, which is not the purpose of this forum. Others have different interest and comfort levels.

That’s OK. I spend most of my time in the ditch, and none of my time contemplating FERS.

Also, see the third answer, above, from me. The regulations are difficult to understand. That third answer is your answer in a nutshell. The participant’ account is treated as a single account with respect to the required distribution rules without regard to the QDRO that makes it appear to be a separate account.

The relevant Treasury Regulations are at 1.409(a)(9)-8, Q&A -5, -6, -7.

How about you inform the attorney for the participant that a proposed order with that calculation would fail to qualify under IRC section 414(p)(3)(A). If the attorney can figure out how to express the desired results, mathematically within the plans procedures for calculating and distributions, then the plan will comply with simple steps and functions. The client, the plan cannot be called upon to figure out and implement the after tax results that are desired, at least as you have described.

It appears that a clarifying amendment is in order to implement the desired policy.

“There are some fancy techniques with some short term possibilities, but not for civilians.”

You cannot borrow from your IRA. It will be fatal to the tax treatment of the account. There are some fancy techniques with some short term possibilities, but not for civilians.

My only comment is that once the new spouse has “vested” because the participant has retired, anything that would defease the new spouse or “restore” the survivor annuity for an alternate payee could be adverse selection. The plan would look disfavorably on it and could assert that any attempt to add a benefit through a QDRO would force the plan to pay a benefit that the plan is not otherwise obligated to pay —,thus disqualifying the DRO. This is most starkly illustrated by your suggestion of the death of the new spouse as an opening to award some benefit to the former spouse (other than sharing the life payments to the participant, which can always be done). The untimely death of the new spouse is a great thing for the plan from an actuarial perspective. Why would the plan give that up?

One part of the answer I cannot give you in full is that one needs to look at plan terms and make sure whatever is done ultimate is consistent with plan terms, especially compensation definitions, taking into account any proper elections. I realize I am begging the question with respect to some of the question(s). Part of that exercise includes determining the tax characterization of amounts received from the employer in the year under the settlement agreement and otherwise in the same year. For example, does the settlement provide for an amount with respect to back pay?

Emme: You need to deal with the plan with respect to the payment of benefits on the death of the participant. The plan will be looking to pay benefits to someone, and someone else may be claiming those benefits. You need to take measures to make sure that benefits you hope to be yours are not paid to some death beneficiary while you get matters relating to your domestic relations order straightened out and submitted to the plan. There are various approaches to this, but you should not rely on any informal contact you have had with the plan concerning your claim for benefits.

It never hurts to be reminded that just because you can do some thing does not mean it is the best thing to do. Are you receiving advice about the wisdom of using your 401(k) money for the purpose you intend?

Somebody might remind both the employer and the provider that there is a fiduciary duty to process domestic relations disorders and determine whether or not they are qualified. The statute suggests an outside time limit (often misinterpreted), but the law requires that things be done within a reasonable time. The threat of fiduciary liability sometimes gets things moving.

I would like to underscore Peter Gulia's comments. Employers and plan fiduciaries* should not be giving any advice about the law that is not specifically required by applicable law. For example, a plan is required to provide an explanation of rollover rules. A plan should not go beyond the mandate even with respect to related aspects of the rollovers, and certainly not with respect to other tax matters. *Unless the fiduciary is professional and engaged expressly to provide the advice. Even then, the appointing fiduciary would have to be prudent in the engagement, including determining if the fiduciary were competent to provide the service/advice.

Sorry, I am ignorant about Maryland domestic relations law. QDRO terminology does not apply to non-ERISA deferred compensation, though some of the concepts are similar. The relevant tax code provisions are also different, and therefore so are the tax consequences, despite some similarities. If you are dealing with non-ERISA deferred compensation, you have no ERISA pre-emption. I have never worked the garnishment route.

You can ask in the state court for whatever state law allows. I would start from the idea that the spouse is collecting an alimony debt, and that interest, perhaps at some statutory rate, is an appropriate addition to come up with the fixed number that will be submitted to the plan to cover the award. The plan does not care. The plan will pay whatever the domestic relations order specifies is awarded. Interesting question about which state law will apply with respect to recovering the unpaid alimony (if there are substantial differences) and whether equitable concerns, such as latches, will be at play.

Essentially, I agree with, “Get a different lawyer.” Maybe it does not have to be so dramatic. In the retirement professionals community, both lawyers and non-lawyers have a general expectation that most domestic relations lawyers do not understand retirement plans, and pension plans in particular (because they also include actuarial principles). Most domestic relations lawyers also know that they do not understand retirement plan law. Consequently, domestic relations lawyers will have a relationship with one or more lawyers who understand retirement plans and QDRO law. Before even contemplating a QDRO one must consider the design and provisions of the retirement plans to be divided in the divorce and how to measure and describe the interest that each party in the divorce will have in the plan or plans. The primary divorce lawyer can associate with, or be advised by, a lawyer who is competent to work with retirement plans, ultimately including drafting a QDRO. If your lawyer seems lacking in understanding or answers that can be conveyed to you so that you understand, then your lawyer needs to connect with another lawyer for help with the retirement plans. Or you get another lawyer.

Among other things, how your property settlement states "the pension remains my husbands [sic]" is important, so heed what Bill Presson wrote. But I can see why the plan representative told you "no" for the reasons david rigby wrote (and beware government plans). In addressing contingent annuities in pay status, some courts describe the contingent annuitant's interest as "vested" with the same meaning as "locked in".

Valuation is a constant bugaboo, and ESOP valuations are considered to be "special" (e.g. not to be undertaken by a non-ESOP valuation expert), so a discrepancy between/among valuations by different persons for different purposes is neither unusual nor necessarily wrong, but it can be confusing and controversial. You will often find in ESOP valuation engagements a nondisclosure provision -- the ESOP valuation may not be disclosed or used for other than ESOP purposes. You should discuss this with the ESOP valuation professional for free education. Actually, it is not free because the appraiser is being paid and it is good fiduciary practice to get a good understanding of the ESOP valuation. It is the ESOP fiduciary that sets the valuation, based on the professional advice. Questions about the valuation, how it is derived, and what it means (including relative to other valuations) are an indication of good fiduciaries at work.

A cynic might say that a legal opinion is simply a device for putting the lawyer’ malpractice insurance behind a proposed position or course of action that the client wants to take.