QDROphile

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.

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.