Basic QDRO Question

[kocak]

My understanding is that generally a qualified plan may not permit the assignment of benefits. 401(a)(13).

An exception to this is a QDRO. 414(p)

A QDRO provides for a payment of the "participant's" benefit to an alternate payee. I need to verify who is considered a participant.

The QDRO Answer Book seems to indicate that it is the participant or the participant's spouse. So I don't think participant in this context includes a beneficiary (unless it is the participant's spouse). Agree?

Also, I've been reading that an alternate payee cannot obtain a QDRO after a participant's death.

So, if a participant dies and the death benefit is payable to a non-spousal beneficiary then an alternate payee to the participant cannot, after the death of the participant, obtain a QDRO against a the benefit. Is this right?

Thanks for your comments.

Michele

[QDROphile]

Lots of cases and controversy on this issue.

First, let me say that when the situation arises, the plan needs competent legal counsel to advise it.

Then, I will go out on a limb and oversimply and project that the general rule is or will become that as long as the basic retirement plan property division is determined under applicable domestic relations law before the participant dies, the alternate payee should be able to get an effective QDRO after the participant's death. There are many implicit points, assumptions and limitations in that statement, so the statement is not a guide for deciding anything.

One of the implicit points is that if the plan distributes before the plan receives adequate notice of the domestic relations proceeding (controversy on that point, too), too bad for the alternate payee as far as the plan and the amount distributed is concerned.

[mbozek]

I think there is a distinction in spousal rights where the employee dies before the divorce decree is issued and when the employee dies after the divorce decree is issued regarding spousal right to benefits but the ee dies before a QDRO is approved. In the former situation the parties are regarded as married and the spouse is entitile to all benefits under the plan. If the spouse had waived the rights to the plan benefits before the ee's death the benefits will be paid to the designated beneficiary. If the EE dies after a divorce decree is issued dividing up the retirement benefits but before the DRO is submitted/approved there is case law which would permit the ct to issue a DRO which would be submitted to the plan admin for approval as a QDRO. There is a case where the ct held that a plan recieved notice of an impending QDRO when the exspouse called a plan turstee to discuss what had to be done to submit the order to the plan but never followed up with submitting the DRO to the Plan admin.

[QDROphile]

mbozek:

Could you identify that case? Since it would would be contrary to Schoonmaker, 987 F2d 410 (7th Cir. 1993), it would be important authority to consider.

[mbozek]

Notice of DRO -Stewart v. Thorpe Holding Co. Profit Sharing Plan (2000, CA 9 2000 WL 333377)

Retroactive QDRO after participant's death-Patton v The Denver Post, 2002 DC CO, (2002 WL 24351)

Termination of equitable distribution action upon death of participant before divorce decree is issued- Davenport v. Davenport, 146 F Supp 770.

[QDROphile]

The issue of what "notice" of a domestic relations order suffices to cause the plan fiduciary to take protective action under the statutory provisions was not before the court in Stewart v. Thorpe Holding Company.

The court discussed notice of the order in the context of its alternate ruling about standing and breach of fiduciary duty. Even in that discussion, the facts are so unusual that the opinion is no basis for a conclusion that informal "notice" of a domestic relations order triggers the statute. One of the trustees of the plan was a party to the domestic relations proceeding that divided the retirement benefits. The fiduciaries also took action on the divorce decree. No one tried to defend the egregious actions of the plan by claiming that the plan did not receive a domestic relations order.

The decison espouses an extremely liberal view of interpretation of orders and the rules for qualification. While that view has merit and represents a trend, it also presents problems for plan administrators.

For example, the decision says that lawyers should not be held to a standard of drafting domestic relations orders to comply with the statutory requirements and consequently plan administrators have to supply and correct missing and improper terms and have to become become familiar with the state law behind the order. Shame on the court on both points! Of course, a California court cannot imagine that there is any law other than the law of California, and concluded that a plan administrtor should have figured out how to divide the benefits based on a knowlege of California case law that was not even mentioned in the order.

The Department of Labor believes the plan adminstrator should interfere with a participant's rights under the plan at the whisper of "divorce." It has some support for its position in legislative history. If a plan intends to bow to the DOL position and abandon the bright line of the statute, the plan's written QDRO prcedures should have express detailed terms about what will cause the partiicpant's account to be compromised pending the receipt of a domestic relations order.

[mbozek]

What is sufficient notice is not at issue- The Stewart ct held that the plan was liable because a trustee was aware that a DRO had been issued and failed to to protect the interest of the alternate payee. (Appearently the plan ordered the funds to be sent to the AP but no transfer was made. The trustee also corresponded with the AP over the transfer of the funds.) In Schoonmaker the PA put a hold on the participant's ability to make trades of company stock- In its narrowest holding it stands for the principle that the QDRO procedure for the plan did not authorize the PA to put a hold on the participant's account prior to receipt of the QDRO. In a broader sense the PA could not prevent the participant from making investment decisions on the account (which could be a violation of the 404© rules) since the QDRO rules may only prevent the participant from removing assets subject to a divorce action from the plan after receiving notice of a DRO. A participant should be able to receive a distribution of plan assets acquired by inheritance during the pendency of a divorce because such assets are not subject to divorce actions. Finally a PA should not be liable under ERISA for allowing a participant to cash out funds before a DRO has been issued because all the participant is doing is transferring the assets to another pre tax account or to after tax amounts- which are still part of the marital estate subject to division under the divorce action.

[Guest mglazer]

May I get some additional clarity on QDRO as it relates to 403(b) NON-Erisa plans - just the plain old voluntary ones in most (all) of the k-12 markets. If the plan is non-erisa, does QDRO apply? Can a spouse get those funds? Are the forms/documents used the same as in Erisa plans? Thanks very much. MGlazer

[mbozek]

Under IRC 414(p)(11) a QDRO can be issued to divide benefits in a non ERISA plan. Annuities are also eligible for a non taxable division of property upon divorce under IRC 1041.