QDRO-Present Value

[JAY21]

Plan Document has the usual boilerplate QDRO language in it and includes the option to pay out before the normal QDRO Early Retirement Age. Given that, and given the plan has a lump sum option in it, do you use the age of the participant or the alternative payee for the present value of the accrued benefit (distribution). The plan document is silent on this issue and the QDRO merely mentions that optional forms of benefits can be paid, plan allowing (nothing further). If it's not a clear answer, any "actuarial norms" that can be argued either way ? or should I just bounce the draft QDRO back to the attorneys and make them hash it out ? Thoughts ?

[SoCalActuary]

If you are making a lump sum settlement under the QDRO, you are distributing a portion of the participant's accrued benefit, so you value the lump sum on the participant's age, the plan actuarial assumptions (including 417e), and then permanently reducing the accrued benefit by the annuity equivalent to the lump sum paid.

At least, that's my suggested method. Others are welcome to disagree.

[david rigby]

That is one way, and probably the most common, so I endorse it. Make sure you focus first on what the QDRO really defines.

But don't be too quick to blame the QDRO or the attorney(s) for any confusion. If it is like virtually all QDROs I have seen, it will contain "boilerplate" language that the QDRO is not requiring the plan to pay more in total benefits. I'll bet it is similar to the actual language of the statute. There is a pretty good chance such language is also in your plan document.

[JAY21]

Pax, the language does include that blurb about not paying out any higher benefit. However in this situation the alt-payee is a younger ex-spouse and so I was trying to figure out if I could use the younger age of the alt-payee instead of the participant's (my client) age and thus pay out a lower present value (if lump is elected). Do you think there is any justification for this ? I can't find anything in the plan or QDRO that addresses this exactly.

[GBurns]

Why would the payee/recipient matter?

This is not a payout to a plan beneficiary in the absence of or death of the plan participant. This is a transfer of the rights of a current plan participant and should be based solely on matters related to the plan participant and be the same as the amount that would have been paid to the current participant as if he/she was the payee.

[Blinky the 3-eyed Fish]

Jay, c'mon now. Think of a DB PVAB as the equivalent to a DC account balance. Each is representative of what the participant would get from the plan in a lump sum. Would you get to reduce the value of the account balance in a DC plan? Of course not. The same logical concept applies here. SoCal answered the question in his first post.

[david rigby]

Well, perhaps. It might be hasty to put all of this in one basket. Always start with a careful review of what the QDRO is awarding.

[AndyH]

OK, my turn. Pax wins the prize.

First, is this a DRO (proposed QDRO) or a QDRO (approved)? If it was approved, it should not have been unless what it says was readily determinable.

Jay, that is question #1. Question #2 is "Exactly what does it say is being awarded?". Do the words "actuarial equivalent" appear and if so, how? The trick is to convert the accrued benefit payable at the participant's age to an equivalent amount based upon the AP's age. If you don't do that, the plan could lose and that means you have a flawed QDRO.

You cannot do a lump sum calc without these items being resolved first.

[JAY21]

At this point it's still just a DRO. Some language from the DRO that may be pertinent is:

"Alternative Payee's Share of Retirement Plan Benefits and Participant's Share of Retirement Plan Benefits shall be charged with their pro rata share of any and all expenses incurred and actuarial adjustments required under the terms of the Retirement Plan as a result of the election to commence the distribution of benefits at a given time or in a given form."

Perhaps the latter part is my clue to actuarial adj. the accrued benefit for the age differences between the two parties, and then when I present value the benefit based upon the younger alt-payee age I'm probably essentially back to the same result as if I had used the participant's age from the start. Does that sound like a reasonable result ?

[AndyH]

My opinion is that is as good a guess as any but I think the language makes very little sense and the DRO should be rejected or at least a more detailed explanation of the intent of the DRO should be obtained.

Whoever wrote this did not seem to have a grasp of the issues. But then again that is the norm, not the exception, from my experience.

[david rigby]

Pax wins the prize.

What is the prize? and why did I win?

I'm not sure about AndyH's "as good a guess as any", but I agree that there is not enough information here (that is, on this discussion thread) to entirely evaluate the proper value of the Alternate Payee's portion. Likely, to determine the participant's portion, it will be whatever's left after you have determined the A.P. portion, so be sure the DRO gives adequate definition.

[AndyH]

You win because you said we have to first figure our what is being awarded. And you win....

... perhaps a free webcast (ASPA owes me) on DROs and how to write funny letters shippin em back to the general practice attorney who drafted it without having a clue what the words mean.