May an alternate payee designate a beneficiary of his or her account u

[Guest blev]

May an alternate payee designate a beneficiary of his or her account under a QDRO? Recent case law (Branco) suggests that this does not work for a shared benefit QDRO in a defined benefit plan. However, if there is a separate benefit in a DB plan, or a segregated account in a DC plan, does the alternate payee have the ability, under the Code and ERISA, to designate a beneficiary? In other words, can a plan pay a benefit to someone who is not a participant or a beneficiary under the plan?

[QDROphile]

A plan does not have to allow alternate payees to designate beneficiaries. Many defined contribution plans allow it. Although there are arguments to the contrary, allowing a designation of a beneficiary by an alternate payee in most cases under a defined contribution plan should not be an impermissible assignment of a benefit. Certain payment restrictions may apply.

Most defined benefit plans (except for cash balance plans) do not allow an alternate payee to designate a beneficiary because they either do not provide for payments to anyone but a participant or spouse or they are correctly concerned with issues under section 401(a) (9) of the Internal Revenue Code. However, it is possible to allow an alternate payee to choose a form of benefit distribution that provides for payments after the alternate payee's death as long as the form is permissible under 401(a)(9), such as a five year certain annuity. One may argue to the contrary. The terms of the plan control, as implemented through the written QDRO procedures.

[mbozek]

According to the DOL QDRO book Q2-16, the alternate payee is generaly considered a beneficary under the plan for the purposes of ERISA. In some QDROs the AP will designate the beneficiary in the event of death of the AP. Q3-7 notes that some QDROs issued for a DC plan in which a separate interest is created for the AP will provide that the separate interest will be held in a separate account in which the AP may exercise all of the rights of a participant. If the AP is regarded as a participant then the AP should have the right to designate a beneficary. In a DB plan, the right of an AP to designate a beneficary of the APs interest in the plan would exist in very narrow circumstances, such as a plan which provided a separate annuity benefit directly to the spouse which is not contingent on the spouse surviving the particpant and which would permit the spouse to designate a beneficiary. If the DB plan does not allow a spouse to designate a beneficiary of the spouse's interest I dont believe that a QDRO could require such an option.

[mal]

With respect to the separate benefit of an AP in a DB plan...

If the AP predeceases the participant prior to establishing

an effective date of benefits, does this always result in

a reversion to the participant? What would other options

be?

[mbozek]

forfeiture to the plan or payment to a designated beneficiary of the spouse perhaps.