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Pending QDRO for retirement eligible participant.


Guest tkm4228

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Guest tkm4228

Our DB plan does not provide death benefits other than the surviving spouse benefit. I have a participant who "retired" several months ago and shortly aftewards was divorced. He and his ex are in the process of developing a QDRO and so he has not taken a distribution from the plan. This process may take another year to complete and he is concerned about protecting his asset for his children during that time. I understand QDRO's do not apply to IRA's so rolling it out and QDROing the IRA is not feasible. Can he roll it out and do a QDRO on our plan that applies to the distribution he received?

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Why not rollover the distribution to an IRA and save the cost of QDRO? Under IRC 408(d)(6) an IRA can be divided between the parties by a divorce decree and the spouse's portion can be transferred tax free to her own IRA. It is much cheaper and simpler to divide an IRA interest because there is no need for the IRA division to be approved by a plan administrator. The only reason to use a QDRO is if the spouse desires to receive some cash instead of rolling over the entire amount. Under IRC 72(t) a distribution pursuant to a QDRO which is not rolled over is exempt from the 10% penalty tax. Any withdrawals by the spouse from the IRA prior to age 59 1/2 are subject to the tax. If the spouse is over 59 1/2 there is no need for a QDRO. By the way protecting the assets for his children only applies to his pension assets which remain after the QDRO. Any pension plan assets acquired during the marriage are subject to division in divorce.

mjb

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Guest tkm4228

We have proposed that. I think the ex-wife is a little concerned about preservation of the lump sum amount since the ex-husband would be responsible for investing the funds until the propery settlement is finalized. This was an executive for our company and the pension lump sum is significant. They are not expecting the property settlement to be complete for months.

I have assumed that since we have been notified of the pending QDRO that we can not let this retiree exercise his right to receive a distribution from the plan. Can anyone clarify that for me? Is there a case where we could, without exposure to the plan or the company, go ahead and allow the retiree to elect distribution?

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