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QDRO & Disability Benefit


Guest pension222

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Guest pension222

I have two quick questions:

1) The QDRO answer book seems to imply that unless the QDRO so stipulates that the law does not require that the alternate payee ever share in any early retirement subsidy paid to the participant (Q&A 25). Have I read this correctly?

2) Typically a separate interest QDRO will split the participant’s accrued benefit on the earlier of when he begins to receive his benefit or when the alternate payee begins receipt of her benefit. Assume a defined benefit plan pays the participant his unreduced accrued benefit as a disability benefit.

(A) If this is it seems to me that the participant’s accrued benefit would be split when he begins receipt of his disability benefit. At that time we would calculate the portion of the participant’s accrued normal retirement benefit payable to the alternate payee. Since the participant has now separate from service and is in receipt of his benefit, she is now entitled to receive her benefit too.

(B) Must the alternate payee (by law) receive a portion of the unreduced disability retirement benefit or is she only entitled to her portion of the normal retirement age accrued benefit, actuarially adjusted to be paid over her lifetime? You can see how this could make a big difference.

I would think that the answer to the second question would be somewhat analogous to the answer to the first question.

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1. First, understand that the stuff about early retirement subsidy is based on legislative history, and is therefore questionable. Second, you have to put everything in context, follow the plan's written QDRO procedures and read what the order says. Third, read what the QDRO procedures and the order say. Fourth, read what the order says. Repeat 3 and 4.

Generally, if the alternate payee starts a benefit before the participant starts, the alternate payee will get a portion of the early retirement subsidy only if (a) the participant starts at a time when the participant's benefit is subsidized (e.g. nothing happens if the participant starts at normal retirment because ther is no subsidy), and (B) the order awards the alternate payee a portion of the subsidy. The alternate payee will then get a payment enhancement based on the portion of the subsidy awarded to the alternate payee.

If the alternate payee starts when the participant starts, the order probably does not have to say anything expressly about early retirement subsidy. It still depends on what the order says. If the order says to split the benefit when the participant starts, the order will split the subsidized benefit. If the order effectively requires the alternate payee's payments to be determined when the plan is paying a subsidized benefit to the participant, the alternate payee's benefit is based on the subsidized benefit.

The reason for the rule about mentioning the subsidized benefit is that when an alternate payee's benefit is determined before the participant starts, the plan does not know if it will be paying a subsidy, so the alternate payee does not get any subsidy then. If the plan starts paying a subsidized benefit later, the alternate payee gets to share the subsidy, but the sharing is not presumed. The order has to say that the alternate payee is supposed to pick up a portion of the subsidy after the start of the alternate payee's payments. If the alternate payee does not start payments until the participant starts, the plan knows that it is paying a subsidized benefit and can split the benefit between the alternate payee and the participant once and forever according to the formula in the QDRO.

2. As you describe the situation, I would expect the alternate payee to get a share of the unreduced (subsidized) benefit according to the formula in the QDRO. But the outcome depends on what the order says and the outcome may be affected by the QDRO procedures. It is also possible that the disability subsidy is not treated by the plan as a normal retirement benefit; it may be a specially designated subsidy. If the QDRO awards the alternate payee a benefit based only on a normal retirment, it may fail to pick up the special subsidy. You have to read all the documents and sort out what they cover. The alternate payee does not get anything "by law." The alternate payee gets what the order provides. But it is not presumed that the alternate payee does not get a part of the subsidized benefit if the alternate payee's payments are determined when the subsidy is in effect.

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