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commencement of benefits to AP no later than when P commences--DB Plan


Guest jac

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I've seen several QDROs that permit the AP to elect to commence benefits on or after the P's earliest retirement age, but no later than the date the P commences benefits.

Any thoughts on why this would be part of a separate interest QDRO? For the convenience of the plan administrator? (Complete stab in the dark coming--) Anything to do with required minimum distribution rules (not required by the rules, but perhaps in response to rules)?

Thanks.

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All of the above. The required distribution date is still based on the particpant. See Treas. Reg. 1.401(a)(9)-8. If the AP has to start when the participant starts, it is easier to assure compliance without unusual records and procedures.

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That all makes sense to me. I've run into a problem communicating this to a colleague when he presents the following hypothetical situation.

Separate interest QDRO allowing the AP to elect to commence benefits on or after the P's earliest retirement age, but no later than the date the P commences benefits. P elects to begin receiving benefits at age 55 (his earliest retirement age under the Plan). AP is under age 55--say age 47--when P attains age 55. The Plan has no table reducing benefits for commencement prior to age 55. By extending the reduction factors in the table, the AP's benefit is $0 (or close to it). So, it does seem unreasonable in this circumstance to require the AP to begin benefits no later than the P.

What do you think?

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When you say reduction factors, are you referring to something like the 5/9th-5/18th standard reduction? If so, I would think that such reduction factors apply to the participant. The alternate payee most likely receives an actuarially adjusted portion of the participant's reduced early retirement benefit as per the QDRO. I wouldn't think that the plan reduction factors would be extrapolated and applied to the altenate payee's benefit even though the alternate payee is below the plan's early retirement age.

I must admit that I may be way out of my league on this topic, but what you are describing did not make sense to me.

...but then again, What Do I Know?

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I think there are few arrangements that would cause me to use a true separate interest approach under DB plans. That does not solve the problem of the wowser effect of actuarial reduction for a young AP. For that, one should listen one's parents, believe in the "equivalent" part of actuarial equivalent, or hire a better lawyer.

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Guest Harry O

It is not unusual not to have reduction factors for benefits starting before the earliest retirement age when the plan has no other provision permitting early commencement of benefits. You must have some type of tabular early retirement reduction or other simplified factors (e.g., 5% reduction for each year prior to age 65) that eventually takes you to zero. You should have the plan amended to adopt an interest rate and mortality assumption for this situation.

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