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DB plan: What if Alternate Payee dies before retirement. Can amended DRO be submitted and accepted as QDRO?


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Guest QDROs

DB plan permits AP's interest to be paid to AP's beneficiaries, be forfeited to the Plan, or revert to Participant if AP dies prior to commencing benefits. Original QDRO provided that those benefits would be paid to AP's "designated beneficiary in accordance with the terms of the Plan." AP died without having completed a beneficiary designation form and Plan has determined that since AP failed to name a benficiary AP's benefit therefore reverts to the Plan.

Can an amended DRO be entered and served on the Plan to provide that if AP fails to designate a beneficiary (or none is alive at AP’s death), the benefit will revert to Participant? Does the Plan have to accept the DRO and determine whether it is a QDRO?

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AP died without having completed a beneficiary designation form and Plan has determined that since AP failed to name a benficiary AP's benefit therefore reverts to the Plan.

Really? Failure to complete a beneficiary designation is a forfeiture of benefits? Are you sure?

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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Guest QDROs

I have not seen the plan document (and how many would address this issue with this specificity), and QDRO procedures do not address it either.

The Employee Benefits Appeals Committee denied the appeal, stating that "since there is no beneficiary designation on file with The Vanguard Group, nor was the alternate payee married at the time of her death, no death benefit is payable." Querry: Does this statment imply that a spouse would have been a default benficiary?

The Appeals Committee letter says further "Given that the QDRO does not specify that in the event of the death of the alternate payee that the alternate payee's interst shall revert to you, the alternate payee's interst shall be forfeited."

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That decision is aggressive and had better be backed up by something more than an absence of plan language or QDRO language to the contrary. It is customary to resolve questions in favor of paying accrued benefits, not making them disappear. For example, if the plan did not provide for a prescribed result or a clear priority among the three options, a fiduciary would have to give very serious consideration to reversion to the participant over forfeiture. A plan that allows an alternate payee to designate a beneficiary also usually provides for a default beneficiary, just as it would for a participant. DB plans don't have to allow APs to designate a beneficiary for pre-distribution death, but the usual consequence is reversion to the particpant.

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You don't have to disagree. I did not commit myself.

I stated that plans that allow APs to designate beneficiaries usually have a default. That default is usually something like a priority for spouse, children and then estate. Sometimes it cuts immediately to the estate. Even if the plan does not have default terms, the fiduciary should consider that result.

The default of reversion is usually found when the plan does not allow APs to designate a beneficiary.

In any event, the message is the disappearance of benefits is the last thing that should happen, and only if the plan is clearly designed that way.

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Guest Kevin A. Wiggins

This seems to be a matter of the correct interpretation of the QDRO. If I understand the question correctly, these are the facts:

1. The plan says AP's interest can be paid to the AP's beneficiaries.

2. The plan defines the same term - beneficiaries - with a default provision that identifies the beneficiaries if none are desginated.

3. But the administrator is saying the order itself requires the AP to designate a beneficiary or else the AP forfeits the interest to the plan.

I have not seen any of the documents and of course don't have all the facts, but I would be surprised if that is the proper interpretation of the QDRO. I cannot believe both the participant and the AP would have ever intended for the QDRO to be given a meaning that allows a forfeiture to the plan under these facts. The only question is what can be done about it? You might be able to enter a clarifying order nunc pro tunc that qualifies as a QDRO, but I'm not sure of that. Even if you can, it sounds like the the plan has made up its mind and will probably reject it no matter what.

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  • 2 weeks later...
Guest QDROs

Thank you all. Even if I did not represent the Participant, I would agree that the plan's position is very aggressive. I, too, would have assumed that the AP would have a default beneficiary, just as a participant would. But, the Appeals Committee appears to be taking a hard line on this issue. How successful have any of you been in requesting proof of plan provisions that back up an adverse plan decision?

Since I first wrote, I did come across a comments in the “Model QDRO” which provides as follows:

“Death of Alternate Payee

In the event the Alternate Payee dies prior to receipt of distribution for the Plan, the Alternate Payee’s benefits shall be (a) forfeited or (b) revert back to the Participant or © be paid to the designated beneficiary in accordance with the terms of the Plan. (Note: If the order does not specify one of the stated options, the benefit will be forfeited). . . .”

Is the “Model QDRO” a substantive plan document on which the Appeals Committee can relay?

Kevin Wiggins does understand the facts. And, he understands the question – what to do about it now? I have been exploring the idea of a clarifying/amended order. Somebody must have done this. The original DRO order was entered in the State of Washington, in which I am not licensed. I am having trouble finding an attorney in that jurisdiction who is willing to enter an amendment/clarifying order. They get stuck on how to provide notice to the AP.

Since my original entry, I have been approached to prepare a QDRO for the same plan. My draft order provided contingencies in the event no AP beneficiary designation is on file or the designated beneficiary is not alive, etc. But, even that may not pass muster.

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There is no need to amend the QDRO. Under DOL rules the AP is a beneficiary. If the AP was vested in the benefit described in the QDRO then the payment must be paid to the AP's beneficaries as designated under the terms of the Plan. The failure to designate a beneficary does not result in the forfeiture of a vested benefit- the benefit will be paid to the benficaries as determined under the plan procedures (e.g., the estate). If the plan does not provide for a default bene the plan can file a complaint in interpleader in fed ct and name all the potential bene as defendants and let the ct decide who is entitled to the funds. Note- the plan can provide that the AP's interest is forfeited if the AP dies prior to commencing benefits which is different than the forfeiture of the benefits for the failure to designate a beneficiary.

mjb

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  • 2 weeks later...
Guest Kevin A. Wiggins

QDROs:

It all depends on how much is involved and how much your client wants to spend to get the benefits. From what I can tell, you have four options.

One, file a motion in Washington Family Court to clarify the order and, if successful, see if the plan will accept that. I recommend you get a family attorney involved and, if you can, make sure the resulting order is nunc pro tunc. This option can be risky because I'm sure the plan committee could come up with several arguments that the clarifying order does not qualify as a QDRO.

Two, exhaust your administrative remedies by filing a claim with the plan and an appeal and, if that is not successful, file a complaint in federal court. In filing the claim with the Plan, you may be able to present evidence of the proper interpretation of the QDRO. For example, if the participant is still alive, get an affidavit from the participant that says your position is the correct interpretation of the QDRO.

Three, you could ask the Department of Labor to help with the benefit claim. I doubt they would help - they generally will not help with individual QDROs, even if it is phrased as a benefit claim.

Four - do all three at once.

Mbozek:

I generally agree with you, but if the Plan doesn't agree with you - and it appears not to - then I see no other alternatives available to QDROs.

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