QDRO benefits

[FAPInJax]

A client has been presented with a valid QDRO (already determine to meet all the rules) which states that the ex will receive 50% of the participant's accrue benefit at the divorce finalization date. So the participant's accrued benefit ($1,250) was determined and the ex has 50% of it ($625).

The valuation of the plan is now performed as of 1/1/2003. The valuation produces an accrued benefit for the participant of $1,625 which is reduced by $625 to reach $1,000. The normal form is 10 certain and life.

What benefits are used for non-discrimination testing??

a) The gross benefit $1,625

b) The net benefit $1,000

Obviously, if testing divides by years of participation / service the EBARs could be drastically different.

I am waffling BUT not leaning towards using the gross (and just accepting the fact that there is an alternate payee for $625).

Now, the spouse has the benefit 'segregated' and the valuation has to determine the value.

Does the spouse use the 10 certain and life but payable at the participant's NRD??

Is she entitled to begin payments at the participant's early retirement date BUT NOT receive any early retirement subsidy? (That seems to mesh into my reading).

Thanks for any and all comments. I just do not do these often enough to feel comfortable.

[david rigby]

The plan produces an accrued benefit of 1625. That should be what is included in funding, and non-discrimination testing.

The payment form is another matter. It is likley that both the plan and the QDRO contain language specifying the the QDRO does not require the plan to pay an increase in total benefits (determined on an actuarial value basis). Are you sure that the spouse benefit is "segregated"?

You will have to use the QDRO to help determine what adjustments are needed to ensure the plan is not "on the hook" for additional benefits.

[mwyatt]

I'd lean towards the gross benefit; in fact for testing, I'd take the stance of ignoring the QDRO reduction entirely for your testing benefit (ie, add it back into the participant's net benefit and ignore the variations of payment for the spouse). I wouldn't really think that a QDRO should affect the results of the General Test, as a logical argument. And if the QDRO was on an HCE, I sure wouldn't want to hang my hat on any results wherein I pass on the net benefit, but not the gross (pre reduction) benefit.