Adi

Something to keep in mind when amending or entirely undoing a QDRO is the plan's administrative capabilities and how the formula is structured in the QDRO (assuming the plan would otherwise accept the amended QDRO). It may be difficult to completely put the parties back into the position they would have been in had there been no QDRO. For instance, the AP's account post-QDRO may have been invested differently than P's account, and so gains or losses experienced on the funds in the AP's account would differ from what they would have experienced had they instead been invested in P's account during that period.

I looked into this question a few years ago and agree. ERISA says an alternate payee shall be considered a beneficiary (206(d)(3)(J)), and the exception to the anti-assignment rule applies only to QDROs with respect to a participant (206(d)(3)(A)). That said, I don't know if the drafters really intended to limit QDROs to participant accounts, despite the plain language in the statute. Ultimately, this limitation does result in some unfortunate situations when the parties to a QDRO discover an error after the QDRO is processed and seek to have some funds transferred back via a new QDRO assigning a portion of the AP's account.

To add to what Peter has said, it appears the President's hands are tied until a major disaster request is made by a local government (his hands aren't similarly tied with respect to an emergency declaration under the Stafford Act, and so can declare it even without the request first having been made). I would guess that individual states will (if they haven't already) make requests for a major disaster declaration, which the President sounds amenable to granting based on his announcement. Once that happens, and assuming FEMA declares the applicable areas as eligible for individual assistance by FEMA, a hardship distribution may be permitted under the new FEMA safe harbor. Alternatively, a plan could be amended to allow hardships for COVID-19 specifically, recognizing that it would not have the safe harbor protection. Another consideration is documentation of the hardship. The preamble to the recent hardship regulations recognize plans may be flexible in their documentation requirements for FEMA disasters but it would be helpful to have further guidance from the IRS.

What do the plan and/or QDRO Procedures say on when the Alternate Payee can take a distribution? With respect to whether you can negotiate, I am not aware of anything that would permit that. If the plan determines that the domestic relations order meets the requirements of a QDRO under law, then the Plan is obligated to pay pursuant to the QDRO, in the amount so specified.

IRS Notice 89-25 provides some helpful guidance: Q-3: What withholding rules apply to qualified plan distributions to nonspouse alternate payees? A-3: Section 3405 of the Code provides that federal income tax must be withheld from all designated distributions unless the individual elects not to have withholding apply. In general, a designated distribution is any payment or distribution from or under an employee deferred compensation plan but does not include the portion of a distribution which it is reasonable to believe is not includible in gross income. Section 402(a)(9) of the Code provides that, for purposes of section 402(a)(1) and 72, any alternate payee who is the spouse or former spouse of the participant shall be treated as the distributee of any distribution or payment made to the alternate payee under a qualified domestic relations order as defined in section 414(p). The withholding rules therefore are applied as if the spouse or former spouse were the employee. However, there is no similar provision for distributions to nonspouse alternate payees. Therefore, distributions to a nonspouse alternate payee during the lifetime of the participant are not includible in such payee's gross income, but instead are included in the gross income of the plan participant. Consequently, amounts shall be withheld from the distribution as if the plan participant were the payee, unless the plan participant elects not to have the withholding rules apply. -- And so, I read this as support for the view that the plan must withhold taxes from the distribution to the AP (unless the participant elects otherwise). The court can certainly order the participant to make a certain election. But it would appear the plan is bound to withhold pursuant to the election the participant actually makes (presumably on the plan's form or in whatever manner the plan accepts elections, which may not be through a QDRO).

With respect to the Plan's processing fee, I'd suggest checking whether the order addresses it. If not, the Plan's QDRO Procedures may have a default rule in place where a QDRO is silent (e.g., equally dividing the fee).

It's possible the plan received a copy of the divorce decree or something else indicating what the award would be, and so in anticipation of receiving a QDRO, placed a hold on a portion of the participant's benefits. While the law wouldn't require it to do that, perhaps its QDRO Procedures did.

Q/A 22 provides some guidance (albeit informal) on this issue. I think this is what Belgarth's post was citing: http://www.asppa.org/LinkClick.aspx?fileticket=lHluDaBqAQI=&portalid=2

Adding to Madison71's comment, the QDRO may have language addressing this situation. At the very least, it may help bolster a letter to the alternate payee if you have specific language in a court order requiring return of the funds. There's also likely language in the plan document explaining the plan's right to recover overpayments.

Another option may be to take loan if permitted by the plan. While not entirely clear, footnote seven of the 2000 preamble of the sec. 1.72(p)-1 loan regulations suggests a plan loan could be taken for a buy-out of a spouse's interest. The footnote states that the tracing rules of section 163(h) apply, and refers to Notice 88-74. Notice 88-74 says, "Regulations will also provide that, in general, debt incurred to acquire the interest of a spouse or former spouse in a residence, incident to a divorce or legal separation, will be eligible to be treated as debt incurred in acquiring a residence for purposes of section 163, without regard to the treatment of the transaction under section 1041 of the Internal Revenue Code."

Check out this thread and see my post that links to the q/a:

A slightly different situation, but see question #22 here: http://www.asppa.org/LinkClick.aspx?fileticket=lHluDaBqAQI=&portalid=2 This further supports what John has said.

I'm not sure how recently this was added, and agree that it's not entirely clear which requirement can't be met under the example I posted. That said, in another example, additional clarification is provided: https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-eligible-employees-were-not-given-the-opportunity-to-make-an-elective-deferral-election-excluding-eligible-employees Generally, if you didn't give an employee the opportunity to make elective deferrals to a 401(k) plan, you must make a qualified nonelective contribution to the plan for the employee. This contribution must compensate for the missed deferral opportunity. The corrective qualified nonelective contribution (QNEC) is an employer contribution that's intended to replace the lost opportunity to a participant who wasn't permitted to make elective deferrals.The QNEC must be 100% vested and subject to the same distribution restrictions as elective deferrals. The amount of the QNEC is equal to 50% of the employee’s missed deferral determined by multiplying the actual deferral percentage for the employee’s group (HCE or NHCE) in the plan for the year of exclusion by the employee’s compensation for that year. Other IRS safe harbor correction methods may be acceptable to fix this mistake. For failures found and fixed promptly, plan sponsors have the option to reduce the corrective QNEC contribution for the lost opportunity cost from 50% of the missed deferral to 25% under the following conditions: The excluded employee must be currently employed by the employer at the time of correction The period of failure exceeds three months Correct deferrals finally begin by the first payment of compensation made on or after the earlier of: The last day of the second plan year after the plan year in which the failure first began for the affected employee, or the last day of the month after the month the affected eligible employee first notified the plan sponsor; and Within 45 days of being given the opportunity to make salary reduction contributions (or the commencement of auto-enrollment contributions), the affected participant must receive a special notice. See Appendix A.05(9) discussed in Rev. Proc. 2016-51 for details as to the specific content that must be in this notice. If the participant terminates employment before the notice is provided, then this requirement has not been met.

Old thread, but the 401k Plan Fix It Guide address OP's question: Example 4: Assume the same set of facts, except that one of the XYZ’s excluded employees terminated in March of 2016. Then none of the special safe harbors in Appendix A.05(8) or .05(9) would be applicable to the terminated employee as the conditions discussed in Rev. Proc. 2016-51 can’t be met as the employee is no longer employed by XYZ at the time of correction. Therefore, the lost opportunity cost for the missed deferrals would be 50% of the missed deferral amounts for this employee. Adjust for earnings through the date of correction. The concepts relating to a reduced QNEC for missed deferrals may also be applied to failures involving a failure to implement a 401(k) plan’s automatic enrollment/escalation features or a failure to properly implement a participant’s written salary reduction election. https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-eligible-employees-were-not-given-the-opportunity-to-make-an-elective-deferral-election-excluding-eligible-employees