QDRO wording seems to stop immediate distribution to Alternate Payee

[Harwood]

I see many QDROs that have a flawed “savings” clause.

"Nothing contained in this Order shall be construed to require the Plan or Plan Administrator:

a. To provide to the Alternate Payee any type or form of benefit or any option not otherwise available to the Participant under the plan."

The correct wording, per IRC §414(p)(3) would be:

"a. To provide any type or form of benefit, or any option, not otherwise provided under the plan."

Most plan documents I deal with allow immediate distributions to Alternate Payees, yet the flawed version of the savings clause seems to prevent that [since an active Participant under a certain age does not have the option of a distribution].

Should I send an Alternate Payee who wants money now back to court strictly because of this mis-wording?

[QDROphile]

No.

[david rigby]

Not intending to put words in his mouth, my hunch is that QDROphile's succinct comment agrees with the sentiment he expressed here:

http://www.benefitslink.com/boards/index.php?showtopic=22038

[QDROphile]

Please don't confuse me with what I say.

But seriously, I think the connection is attenuated. I think this thread asks whether the words of the order should unilaterally be read literally and enforced strictly. Sometimes yes, sometimes no. In this situation and with these words, no. It is a matter of judgment. The other thread had more to do with warning a party about consequences of absence of language in the context of a somewhat tricky law/design feature of the plan.

To make life more fair and transparent, the notice that the order is determined to be qualified should state that the order is interpreted to allow the alternate payee to begin distributions [insert whatever the order otherwise says, e.g. "immediately" or "when the alternate payee elects"]. If another result was really intended, someone can appeal the determination and the plan can reconsider befoe laucnching people back to court.

If the order does not otherwise say anything about when the AP may start, I might be tempted to give effect to the limitation. But I prefer QDRO procedures that have a default that the AP can get funds ASAP in a DC plan, and would use that as a basis for an interpretation to that effect. The plan has its own legitimate interest to interpret the order in a way that is probably what the parties intended and that will minimize the plan's distractions with multiple passes by the parties to get it right. I think it is reasonable to assume that no one wishes to restrict the AP's distribution rights unless the plan makes a definite statement to that effect rather than a questionable indirect disguised statement that is thrown into the document thoughtlessly as part of common but unneccesary lawyer garbage language.

[Harwood]

Thanks QDROphile.

My other favorite is a QDRO that assigns tax liability when IRS Notice 97-11 explicitly states that "a QDRO cannot designate who will be liable for the taxes owed when retirement benefits are paid."

[david rigby]

attenuated

You lawyers like when the rest of us have to get out the dictionary.

[QDROphile]

You know what "garbage" means, even as a term of art.

[Mike Preston]

I agree with QDROphile. A strict reading of the a typical savings clause is that it gives the Plan Administrator the right, without asking that the QDRO be redrafted, to ignore the QDRO's provisions to the extent they provide for "any type or form of benefit, or any option, not otherwise provided under the plan". A more strict savings clause merely hamstrings the Plan Administrator into requiring the Plan Administrator to ask for a modification to the QDRO should it provide for something which is not otherwise provided under the plan. Assuming the QDRO asks for something which is allowable under the plan (such as immediate distribution to an alternate payee when authorized by the plan notwithstanding the participant's right to an immediate distribution) one never gets to the savings clause in the QDRO, as it is not needed.