QDROphile

The IRS issued Circular 230 to establish whether a taxpayer may rely on written advice for the purpose of avoiding certain tax penalties when the taxpayer takes a certain position position that the IRS ultimately determines is wrong. This sets the standard and framework for legal opinions in certain areas of tax practice. Check it out if you are interested in a deeper dive and can tolerate some fairly technical material. Otherwise, legal opinions are just opinions, all over the place in what they cover and how they are expressed. Sometimes the law and facts are such that a legal opinion gives a clear and definite statement without much explanation. A “reasoned opinion” usually includes a discussion of the law, as applied to the circumstances at hand and provides some conclusion that is not definite. A reason opinion may also include many assumptions that are not tested or verified. The opinion may include some measure of confidence about the conclusion, which reflects the uncertainty about the state of law, such as “more likely than not”. Some legal opinions are an exercise in the art of providing a legal opinion that says nothing that one can rely on. Opinions that a retirement plan is “qualified” tend to fall in this category — in my opinion. But such opinions often follow a certain convention that has a commonly understood meaning in the industry that is worthwhile for certain purposes, but not for establishing whether or not a plan is actually qualified.

Are you paying by the document or the word?

A domestic relations order can provide for a single sum payment from a defined contribution plan to an alternate payee. The plan should be indifferent to the underlying reason for the payment unless something impermissible is presented. How the order is worded may pose a problem for the plan. The underlying reason and the wording is a matter for the domestic relations court. If alimony is the underlying basis (or one of the reasons) for awarding an interest to an alternate payee in a defined contribution plan, the order need not use the word “alimony”.

Yes: IRC section 414(p)(1)(B)(i). The trick is to be able to reconcile your concept of alimony payments with the requirements of IRC section 414(p)(3)(A), among others. You can’t just tell the plan to make alimony payments in the same way a person would pay alimony to a former spouse.

Schoonmaker v Employee Savings Plan of Amoco Corp (7th Cir 1993)

fmsnc: While I disagree with your interpretation of some of the authority you cited, and some of your analysis, I don’t disagree with the importance and sensitivity of the subject. I also do not disagree with your assessment of the domestic relations courts and domestic relations bar to be able to deal with retirement benefits properly, which puts retirement plan fiduciaries in a difficult position. I usually work on the plan side, trying to reach a responsible position that protects the plan fiduciary without watching the parties drown in a whirlpool. Unfortunately, most plans do not have the sophistication or desire to put much thought into these matters. You did identify a practical solution that is within the grasp of the average domestic relations lawyer, whether or not the lawyer knows why it is a solution. I alluded to certain solutions earlier in the thread without explaining them. If you sent my plan client the Notice you described, or a California Joinder Order (sorry, I must spit here at that travesty), which has the same function, I would advise the client to send you back a notice of receipt of a domestic relations order with the explanation that the plan will determine whether or not that order is qualified under the plan’s QDRO Procedures. That would have the effect of a “hold” for a reasonable amount of time, with the hope that people will then get busy and send a real domestic relations order that could qualify. The plan would take its time. That the Notice does not really resemble a domestic relations order does not bother me because plans are entitled to be ignorant of state domestic relations law. Unless the participant argues to the plan that the. Notice is not a domestic relations order, everything is cool and froody for a while. This keeps the plan within the statutory QDRO legal framework and its own procedures, so we do not have the fiduciary breaching any plan terms or written policies or procedures of the plan.

You have to start from the interest awarded to your client in the divorce proceeding. That award is then described in the domestic relations order that is submitted to the plan. If the court defined your client’s interest as a function of months of marriage and months of employment, you might use those terms in the domestic relations order to inform the plan as to the proper division of the benefit. You might simplify the terms and just provide fractions if you know what you are doing. If you don’t know what you were doing, get some help. Understanding division of pension benefits in particular is beyond most lawyers.

That does not involve the plan making determinations. The plan only needs basic mathematical instruction and data.

1. The court could have done something about that while in process of considering and issuing a domestic relations order that wanted to be a QDRO. Lack of imagination and understanding on the part of the lawyers and the court is the problem. 2. That is what preemption is all about, especially when there are state courts means to prevent the undesired action within the ERISA 206(d) framework. The plan is not the appropriate target of disaffection.

I agree with David Rigby that the plan does not care about the dates of marriage, as such. If the plan does not get an adequate description of how to determine the interests, by periods (bounded by dates) to determine fractions or by simple numbers as multipliers and dividers, then the order will not qualify. No reference to the dates of marriage are required by the plan. The plan makes no judgment or computation based on its understanding of the duration of the marriage; it does not need an understanding of the duration of the marriage. It just needs to be able to do some arithmetic before turning to the actuarial aspects. Providing the dates of marriage does not tell the plan how to divide the benefit.

Your starting point is ill-considered. There is no statutory authority for interfering with participant rights under the plan prior to the receipt of a DRO. I know that the DOL QDRO book suggests this as a possibility, but if the DOL was confident that it was a good and legitimate idea, it should have issued the guidance in a regulation, which could then serve as protection to a fiduciary who could get sued for fiduciary breach for interfering with participant rights.* The fact that you have so many questions about how to administer a pre-DRO hold illustrates how problematic it is. In any case, why make it a plan problem when the problems lie in the domestic relations proceedings? Although few domestic relations lawyers have figured it out, it is extremely easy to achieve the same early restriction on dispossessing the future alternate payee within the existing framework that requires a domestic relations order before the plan will take any restrictive action. And if the participant is a bad actor, there should be remedy in the state courts. This is a subset of a larger set of problems with both domestic relations law and our legal and court system in general. Paying for competent legal help is beyond the means of many folks who need assistance in navigating the complexities of both the law and the delivery system. The plan should not try to solve that bigger problem by undertaking a mission to make sure everything is fair and square at least with respect to the division of retirement benefits. *A court that imposed liability for disregarding a participant's investment instructions during a pre-DRO "hold" allowed that maybe the plan could restrict if the written QDRO procedures provided for the restriction. Even if the court were correct, we don't know what such terms would have to cover, and how, to protect the fiduciary. You are asking those questions for good reason.

As they should. And the administrator should respect that line.

A QDRO is an order issued by a state court under state domestic relations law (a “domestic relations order”) that a retirement plan determines to be qualified. There is no signature requirement for the determination that a DRO is qualified. Whether or not signatures of parties is required is a matter of the state law and court rules regarding issuance of domestic relations orders. Whether or not a state court will issue a domestic relations order 14 years after the divorce is also a matter of state law. You correctly asked your question with respect to Maryland law. Maryland law is a mystery to me. As a matter of dealing with plans, leaving blank lines and spaces, whether or not superfluous, should be avoided because it may simply raise questions by the plan. Plans like certainty and regularity, and are easily spooked.

Back to my dislike of the shared interest and separate interest terminology — those terms are just shortcuts to describe a conceptual framework. They do not matter themselves and they are not precise. What matters to the plan and the parties is how the legal documents define the interest to the spouse/alternate payee (“plaintiff” in your case) and describe the disposition of the interest.

Are you saying the lawyer who wrote the terms of the decree does not understand whether the property interest described is a shared interest or a separate interest? I do not like the terms “shared interest” and “separate interest”, but I think I know what people mean when they use those terms. It looks like a poor attempt to describe a separate interest. That makes it confusing for everyone, and dangerous because of the uncertainties. The use of the term “retirement account” strongly implies that the plan is a defined contribution retirement plan. I have never seen a “shared interest” QDRO applicable to a defined contribution retirement plan. The phrase, “Until such time as the defendant retires” throws a curve into the interpretation and analysis. It does not make sense in the context of a defined contribution retirement plan and it does not properly describe the status of an alternate payee as a beneficiary, although an alternate payee is treated as beneficiary. I suspect that “covert” is intended to be “coverture”.

Going back to first principles, the origins of plan loan requirements are based on plan loans that bear no resemblance to today's current proliferation of loans from DC plans, and the idea that the loans should look to what is commercially reasonable (e.g. with respect to interest rates). Leaving my favorite aspect of loan security out of this discussion, the expectation in a commercial loan is that the loan will be repaid. Although most people, including the IRS, treat individual account plan loans as sui generis, examining the myth can be somewhat enlightening. Satisfying the criterion that a loan should not be made unless it is reasonably expected to be repaid has many paths, including having the applicant provide financial information (nobody wants to do that, either on the submission side or the review side) or servicing the loan by payroll deduction (knowing that life and job continuity are uncertain, but it is better than just relying on the good will of the borrower to submit payment and also much easier for loan administration). A prior loan default does need to be considered in a determination that a new loan is likely to be repaid, and the circumstances of the default and the ultimate payment are relevant (see Peter Julia's comments). The backstops against another default are relevant, which brings the loan procedures under scrutiny and some modification might be the ticket to greater comfort about the expectation of repayment. In any event, I think bringing the plan sponsor into the picture to resolve anything other than to make a plan amendment (which would make the plan sponsor a fiduciary -- another favorite subject of mine that tends to be completely disregarded in the area) is the worst thing that can be done. Somebody is a fiduciary with respect to making loans and that person is the one who should determine availability of a new loan after a default if the loan procedures do not cover the circumstances so well that loan issuance is merely ministerial -- which is what a lot of institutional plan loan procedures think they are so the computers can administer the loan program.

Except that you would be encouraging them to just do what they wanted to do anyway regardless of what they were supposed to do.

Have you first posed your questions to the plan administrator? You have disclosure information in the from of a summary plan description -- SPD -- and got specific information about distributions before you applied for the distribution or got the distribution. All of that information is still relevant to your questions. The plan administrator may refer you to written information or might be more helpful to by directly spelling things out relative to your personal circumstances.

I am extremely suspicious about your question. If this were a non-qualified pension, you should have been either sophisticated enough or rich enough to be able to understand the tax consequences or to hire someone to advise you about the tax consequences. I think you have a qualified plan distribution, but am extremely skeptical and cynical. There is nothing wrong with you or the question itself, but a proper characterization is important for people to give you a proper helpful response.

Next, consider what “retirement” means for purposes of 401(a)(9), especially when “current” compensation is minimal.

By what authority is the administrator increasing the amount that the order says to pay? The plan‘s written procedures should require in situations where the alternate payee is not the spouse or former spouse specificity in the amount that is to be withheld and how it relates to the amount awarded to the alternate payee. An order that fails to state the amounts, including withholding, should fail to qualify.

You do not report what kind of plan it is and you have narrowed the question concerning the nature and timing of the disclosure. I do not have any particular focus for the suggestion that it is always a good idea for someone knowledgeable to keep an eye on federal and state securities law compliance. It sneaks up on you.

Again, in my limited personal experience, contributions for a participant, or deferrals of the participant, are allocated according to the participant's investment direction on file with the plan administrator (and by extension to the investment provider). The plan should have an election by each contribution/deferral-eligible participant to identify where new money goes. This is different from an investment instruction from a participant to change an existing investment (e.g. portfolio rebalancing). I don't know the inner workings of the providers, but I imagine the plan sends money to some clearing account at the provider, not the participant's brokerage account.* The provider then allocates in accordance with each participant's investment instructions for new money. *I cannot say for any provider what is done internally. Maybe the brokerage account for each recipient is the clearing account that receives the money first before allocation according to investment instructions of the participant. That is not my experience looking at it from the plan administrator's perspective.

TIAA-CREF is in its own world.

My direct experience with a search is years old, but I think all of the major vendors can create a limited window of mutual funds only even though they can also easily provide a broader offering of publicly traded securities.