Alternate payee is also a plan participant. Can they take the distribution?

[Guest oxdougw]

When we process a QDRO we typically provide the alternate payee distribution forms right away to take the money out of the plan. In this case, however, the alternate payee is also a participant in the plan. Should they receive any distribution rights or, as a plan participant, they would need to terminate per the plan document in order to have distributable event?

[Belgarath]

I would say they can take a distribution. Assuming that it is a valid QDRO, the participant is an alternate payee, and receives treatment under IRC 414(p) and ERISA 206(d). I'm not aware of any additional guidance restricting the ability of a plan participant to take distribution of an amount awarded as an alternate payee under a QDRO, just because he is also a plan participant.

[Guest Grabitquick]

If the terms of the QDRO allow an immediate distribution and the plan's terms allow for immediate QDRO distributions, then the alternate payee can get the payment awarded by the QDRO. He or she is a "beneficiary" with respect to the QDRO, not a "participant." The alternate payee's own account as a participant, of course, is still subject to the same restrictions on distributions as any other participant.

[Guest oxdougw]

This plan is big enough that I think they have their own legal counsel. I may go to them for a written opinion, just to cover my you-know-what.

[david rigby]

There have been at least two prior discussions on this topic:

http://benefitslink.com/boards/index.php?showtopic=2992

http://benefitslink.com/boards/index.php?showtopic=12124

[Guest Grabitquick]

Also, as Belgarath alluded to, you might find some comfort in confirming that the QDRO is "valid" in the sense that the parties are really divorced, or at least in domestic relations proceedings (with hopefully a judgment of legal separation at minimum). Although it's quite unlikely, it would not be unheard of for parties who are not actually in a domestic relations proceeding (or are not serious about prosecuting the proceeding they have started) to get a purported QDRO in order to effect a sham distribution. However, that really applies in any QDRO situation, not just those where both parties are participants.

[david rigby]

get a purported QDRO in order to effect a sham distribution

And there are other prior discussions on that topic. Such as

http://benefitslink.com/boards/index.php?showtopic=20568

http://benefitslink.com/boards/index.php?showtopic=23482

[Belgarath]

Hey, FWIW - one of my cohorts was cleaning up some accumulated debris on his desk, and discovered this precise question had been asked at the American Bar Association May 7 meeting with the IRS. He has no idea where he got a transcript of this meeting. Anyway, although this is an unofficial view and does not necessarily represent agency policy, etc... the IRS response (Q&A 44)was that the distribution could be made, because the distribution is made to the individual in his or her capacity as an alternate payee, not as participant.

There were a couple of other questions in this transcript that ring some bells - I think the same or substantially similar questions have since been asked. If I can locate them here on the boards, I'll post those responses as well.

[Harwood]

American Bar Association Joint Committee on Employee Benefits Federal Agency Q&As web page:

http://www.abanet.org/jceb/agency.html