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Gain/Loss on Segregated Amounts


Guest paybdb

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In reviewing our QDRO procedures, it's been noted that we do not approve any DRO that requires the calculation of any gains/losses from the date of division to the date of distribution. Our procedure has been to segregate the amount in the DRO as of the date of receipt but that amount is kept uninvested. This doesn't seem correct to me. The way I read the regs is that while the DRO is being determined to be qualified or not, the amount that would have been payable to the alt. payee (if the DRO had been determined to be qualified) should be segregated and gains/losses should accrue as normal. If the DRO is determined to be qualified, then the amount that has been segregated, which should include gains/loss, is paid to the alt. payee. Is this correct? If so, is the segregated amount kept invested in the same manner as the participant's?

If this is correct, at what point does the 18-month period start? Upon receipt of the DRO? For example, if I receive a DRO today that has an order to pay 50% of benefits as of 12/1/03, do I need segregate the amount as of that date and calculate gains/loss up until today? Or do I segregate the amount as of 12/31/03 and let the gains/loss accrue starting today and disregard the period between 12/31/03 and the date the DRO was received?

Thanks for any help!

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Lots of confusion here. You need to get help on QDRO administration generally.

I will adress only one point. The 18 month period is usually not an issue. It applies only to preserve amounts that would otherwise be paid to someone else pending a determination of qualification. A simple example: After the order is received, the participant terminates employment and is entitiled to a distribution. The participant asks for a lump sum distribution. The plan administrator has to evaluate how much the AP would get if the order is qualifed (which can be tricky, because that determination may be part of the reason for the delay in the first place) and hold back that amount from payment to the participant. The 18 month period starts then because the alternate payee would have received a distribution at the time of the distribution to the participant if the order had been determined at that time to be qualified. When the determination is made later, the amount held back is paid according to the determination.

The 18 months is NOT a lot of things, including the measure of a "reasonable period" under IRC section 414(p)(6)(A)(ii).

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Guest Kevin Wiggins

I agree with QDROphile. In addition, there are more issues here than just QDROs. You have potential problems with ERISA fiduciary duties as well. I recommend you consult an ERISA attorney.

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