Treatment of Alternate Payee for Top-Heavy Purposes?

[John A]

I don't think there's any guidance in this area, so I would like to know what common practice is in the following area:

How do you treat money of an alternate payee for top-hevy purposes?

If the money is segregated from the participant to the alternate payee, for top-heavy purposes: do you treat the money as if it still belonged to the participant, as an in-service withdrawal, or how do you treat the segregated money for top-heavy purposes?

If the money is distributed to the alternate payee, for top-heavy purposes: do you treat the money as if had been distributed to the participant (in-service withdrawl if participant is still employed, "regular" distribution if participant has terminated employment), or how do you treat the distribution to the alternate payee for top-heavy purposes.

The prior threads I found on this topic were:

http://www.benefitslink.com/mbmirror/11195.html

http://www.benefitslink.com/mbmirror/9220.html

What are your practices regarding how alternate payees are treated for top-heavy purposes?

[rcline46]

First, I assume the QDRO applies to a key employee. Then I assume the alternate payee is/was spouse, so if employed would also be a key employee by attribution.

I consider the distribution to first be transferred to an account for the alternate payee. The money is still counted as key. Then the key becomes a former key. Under new rules the money for a former key disappears from the calculation after 1 year, regardless if distributed or not.

I do not feel the money remains counted as an inservice distribution because it would be double counted - consider the ex-spouse still working - how would you count the money?

[david rigby]

I think the issue is the same whether the QDRO applies to a Key or a non-Key.

But on a practical level, if the T-H test is not even close to 60%, this might be a waste of time.

Also, if the plan in question is a DB plan, then it is seems apprpriate to count the alternate payee's portion, even if distributed at any point in the past.

[Belgarath]

I agree with Pax. Although there isn't any specific guidance, since the alternate payee is treated as a beneficiary of the plan for 415, and since beneficiaries are included in the top heavy test, then it would seem logical to include the account balance inthis situation. (although I can see why people would argue against it)

Also, as a practical matter, since this "distribution" would be for reasons other than separation from service, death, disability, or termination fo the plan, then wouldn't you have the 5-year lookback, at a bare minimum, even if you disagree with including this balance?

I think you are stuck with counting it. I would hope that the IRS might come out with some guidance on this. Maybe someone can send this in as a question for the ASPA conference this fall?