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Is QDRO relevant?


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I am reviewing a draft QDRO for a conventional DB pension plan. The date of divorce is after the participant's date of hire, but prior to the participant's date of participation. Upon participation, the participant gets a full year of credited service back to January 1 (which precedes the date of divorce). Got the picture?

Specifically, it awards X% of the participant's accrued benefit "as of date of divorce" to alternate payee. Does this have any force? Could it (assuming all other provisions OK) be a valid QDRO but with an award of zero dollars? Could it be construed to award part of the benefit which has not yet been earned as of date of divorce? What responsibility does the plan sponsor have to point out these issues?

(Sorry, that is kind of open ended.)

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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What was the participant's accrued benefit as of the date of the divorce? Sound like zero to me.In fact he wasn't even a participant. If he had terminated instead of divorced and you were asked to calculate his entitlement, what would your answer be?

As far as the validity of the QDRO is concerned, it would seem to become moot if there is no benefit to be paid.Let thedivorce attorneys fight it out. Your client( I assume) is the plan sponsor/administrator and his job is to interpret and execute the terms of the plan.

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Sounds like a zero benefit to me, too. It would be a good idea for the notice of qualification to state that the order is qualified, and the alternate payee has a zero interest. I like to shock idiots into recognition, as it prevents disputes years down the road when reality otherwise dawns on them.

One might argue that the order is not qualified because it does not assign an interest, but I think zero is a number.

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I agree, zero benefit. I believe that technically it is a valid QDRO because it assigns a benefit, which the Plan is responsible to determine. It just happens to be zero, which is a number.

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It appears to be unanimous. The participant's benefit as of the date of divorce is zero, and you could facilitate creation of a QDRO that divides that benefit.

But I think that you are doing everyone a disservice if you allow the process to continue. Contact whoever submitted the DRO to you, and explain that you can proceed, but that you don't see the point in splitting a $0.00 benefit.

RCK

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I agree with 0. But there may be a good argument that the QDRO itself is invalid. Section 414(p)(1)(A) specifically defines a QDRO as a DRO that creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, RECEIVE ALL OR A PORTION OF THE BENEFITS payable with respect to a participant under a plan.

Since there is 0 benefit, there is no such thing as all of nothing or a portion of nothing. That is basic math. In addition, there are NO benefits payable with respect to the participant under the plan as of the applicable date. From the language, it appears that there have to be some payable benefits.

Therefore, technically (and technical arguments are good some times) you do not have a proper DRO.

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I always believe it is better to follow the law than a rule of administrative convenience. If the law says I shouldn't even be entertaining the DRO as a QDRO because it is facially invalid, then why would I accept it? An argument could be made by the IRS or an interested party that I am not operating my plan according to its written terms and, therefore, it is not qualified, if the plan specifically incorporates 401(a)(13) and 414(p) by reference.

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Would the language in the DRO prevent it from being a QDRO? My point was that the Plan is determining the amount benefit, not the lawyer drafting the DRO. A mathemetician would tell you that zero can be divided by another number but not the other way around (I think). OK, I'm splitting hairs here. I agree with RCK; try to explain to the parties that there is no sense in splitting a $0.00 benefit.

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