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18-month disbursement restriction/segregation period


Guest DroDroDroYourBoat

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Guest DroDroDroYourBoat

I have a few technical questions about the 18-month disbursement restriction/segregation period that protects potential alternate payees and the plan administrator's fiduciary duty to protect potential alternate payees. The DOL discusses when the period begins in the online QDRO faq but doesn't seem to address the issues below.

Is the fiduciary duty only triggered by the submission of a bona fide DRO (executed and court entered)?

Many plans invite the submission of proposed QDROs that deviate from plan models and that are unexecuted and unentered (a draft order). Some published QDRO Procedures suggest that plans will voluntarily begin the 18-month period upon the submission of draft order. Is this legally required? If it is not legally required, do most plans invoke the protections voluntarily?

I understand that the protections are triggered by the submission of a judgment of dissolution/divorce (a bona fide DRO but probably not a QDRO). If the protections are not triggered by the submission of a draft order, would it be advisable for alternate payees/their counsel to submit a judgment of dissolution/divorce with the draft order to trigger protections? Should QDRO preparers be reluctant to provide judgments of dissolution/divorce to plan administrators/their QDRO reviewers? Would a plan administrator/its QDRO reviewer compare the judgment of dissolution/divorce with a proposed QDRO and reject/revise it if the two appear inconsistent despite the participant and alternate payee signing off on the proposed QDRO?

When representing an alternate payee in a case where distribution to the participant is imminent, will plans invoke protections based on a fax of a judgment of dissolution/divorce? A phone call (which is obviously problematic for the alternate payee and counsel because there's no proof)? Is mere notice of a proposed QDRO being prepared sufficient to trigger the plan administrator's fiduciary duty to restrict disbursements?

Thanks in advance.

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EDIT: Found some answers on this web site in http://www.benefitslink.com/articles/qdro.txt

The plan's obligation to hold back and

separately account under the Code literally does

not begin until the plan receives an actual order

(as opposed to a proposed order or mere notice of

a pending divorce), so the plan administrator

might be in breach of its duties to the

participant if the participant is denied the right

to make an in-service distribution in the desired

amount or the participant is denied the right to

self-direct the participant's whole account

See Schoonmaker v. Employee Savings Plan of Amoco

Corp., 987 F.2d 410 (7th Cir. 1993) (participant

sued plan for failing to allow him to sell

employer stock in his account; plan placed a hold

on the account when it was informed of upcoming

order by attorney for participant's ex-spouse).

But the legislative history to TRA 1986 (which

made some changes to the 18-month procedures)

indicates a plan administrator "may delay payment

of benefits for a reasonable period of time if the

plan administrator receives notice that a domestic

relations order is being sought." Conf. Rept. at

II-858. The report goes on to illustrate a

profit-sharing plan that is exempt from the

spousal consent rules on lifetime distributions

and says the plan administrator "may delay payment

of benefits" in that case. This language did not

find its way into the statute, however.

And that legislative history states the plan is

justified in continuing to hold back benefits even

if the plan administrator determines the order is

defective, if "the plan administrator has notice

that the parties are attempting to rectify any

deficiencies in the order." See Blue Book on the

TRA 1984 technical corrections contained in TRA

1986 at 224.

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Schoonmaker case hinged on the fact that Plan violated its own QDRO Review Procedure. The Procedure said that a hold would be put on an account when there was written notification of a QDRO; Plan placed a hold after verbal notification of an upcoming QDRO.

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The only sure way for an altrnate payee to invoke protections is to submit a domestic relations order. It does not have to be an order that one expects to qualify, but then the AP has to stay in communication with the plan to let the plan know that the AP intneds to cure any defects within a reasonable time.

A plan could afford protection earlier or without receipt of an order, but that depands on plan design, policy and procedures.

Just in case you fall into a common misconception, the 18 months does not start to run upon the submission of a domestc relations order.

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The only sure way for an altrnate payee to invoke protections is to submit a domestic relations order. It does not have to be an order that one expects to qualify, but then the AP has to stay in communication with the plan to let the plan know that the AP intneds to cure any defects within a reasonable time.

A plan could afford protection earlier or without receipt of an order, but that depands on plan design, policy and procedures.

Just in case you fall into a common misconception, the 18 months does not start to run upon the submission of a domestc relations order.

Does the 18 month period start when the first payment could be made, which could be many years into the future when the Participant turns 50 or perhaps 65?

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