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Payout without a QDRO


Guest Diane DuFresne

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Guest Diane DuFresne

As the third party administrator, have just been notified that a payout to a former spouse has occured in a profit sharing plan without a QDRO (participant had an amendment to the judgement of divorce prepared by her attorney and VanGuard paid out of her segregated account based on this amendment--the plan trustee was unaware of the situation).

Our recommendation to the plan trustee was for the participant to go back to her attorney and have him draft a DRO for qualification. Even though the money has already transferred, we feel that having a QDRO in place after the fact is better than not having one at all, at least from the trustees perspective.

Does anyone have any thoughts on this thought process? Any comments would be appreciated.

Thanks,

Diane

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Do I dare ask why you are advising the plan trustee in this matter, and where do you stop? Are you advising about potential plan disqualification? The sufficiency of the domestic relations order for qualification? Breach of fiduciary duty? Whether Vanguard did anything wrong and whether there is recourse? Although I you like to help your client, this might be a good time to look at the terms of you engagement and stay within them.

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... and the best advice to your client would be that they should direct these questions to the Plan's ERISA attorney.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Usually there is somebody that your firm would rely on for advice in this area. That person might be internal or external. Have you run this by them? That person may very well come back with the advice that the client sort through the issues with ERISA counsel. But, then again, they may take a look at the Marital Settlement Agreement, note that same was provided to the Plan Administrator, determine that the Marital Settlement Agreement has all the information in it necessary to establish a QDRO (I know, I know - unlikely at best) and bless the whole transaction. Then again, they may not.

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The trustee / plan admin needs to ask vanguard why a distribution was paid out without the approvial of the Plan admin. since the fund co is a custodian who does not have discretion to make distributions of plan assets without approval of a fiduciary. After getting an answer from Vanguard counsel should be retained to determine how to fix the problem.

mjb

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