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QDRO: Payout from a DC Plan


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1. The plan can't pay out immediately unless the order says to pay out immediately AND the plan itself states that it will pay out immediately if ordered by a qualified order.

If the plan allows immediate payout, you might point this out to the AP and suggest that he/she might want to get the order changed to provide that payment will be made immediately. Without this change in the order, I don't think you can pay out - you'd be violating the terms of the plan and the order.

2. On the after-tax contributions, again I think this is something that should be covered by the order - the order should say something like "take it all from the after-tax account to the extent available."

As plan administrator, you could say that the order was ambiguous because this issue is not addressed and that you won't consider the order qualified unless it is changed to address the issue. If this is a problem, I suppose you'd have to follow some sort of administrative practice - my suggestion would be to split it up eqaully between the parties.

3. So far as not setting up a separate account for the AP, that doesn't make sense to me - it's going to be a lot more of a hassle to the plan to keep track of the earnings for the AP's portion of the benefit if you don't separate - also you get into issues like the after-tax contributions - better to take care of those up front by splitting the account.

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Guest yahoo

QDRO specifies that AP distributions from a DC plan should start at the earliest retirement date under 414(p), which in this case is when participant reaches age 50. Plan adminstrator does not want to maintain two separate accounts for AP and for participant until participant turns 50 because of all of the administrative burdens. (Hierarchy of distributions from deferrals, after-tax, unmatured match; loan tracking; etc.) Plan administrator states that plan procedures are to payout AP's portion as soon as possible. Practically APs do not usually fight this suggestion since they presumably want the money sooner rather than later. What implications does this practice mean for the plan and plan administrator as a fiduciary? Also, some APs request distributions from the after-tax portion of participant's account. Plan adminstrator responds that request is contrary to payout hierarchy where deferred portion comes first. Any suggestions on additions to QDRO procedures to address AP/participant tax liability?

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Guest yahoo

What if QDRO procedures state that AP distributions are distributed in a hierarchy with the deferral portion depleted before going to the next after tax level? Can a QDRO specifically call for everything out of the after tax portion and override the QDRO procedures? Of course, the tax benefit goes to the AP if he can get after tax money.

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Section 72(m)(10) of the Code provides that distributions to a spousal alternate payee will have pro rata allocation of the "investment in the contract" between the alternate payee's distribution and the participant's remaining benefits.

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  • 3 weeks later...

QDRO calls for AP to receive 50% of the plan account in a DC plan and requests that it be distributed first from the aftertax account.

pretax account $40k

aftertax account $40k (no earnings investment)

total $80k

How much does AP get? $40k or $40k minus taxes P already paid on that 40k?

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  • 1 month later...
Guest GregSelf

Two things to keep in mind: (1) "...A QDRO can't require increased or different benefits not otherwise provided by the plan. And once a domestic relations order is determined to be qualified, other jurisdictions can't require that an alternate payee's benefits be paid to other alternate payees..."

.  AND (2) "A QDRO may provide for payments to start to the alternate payee as soon as the participant reaches the plan's earliest retirement date, even if the participant has not yet separated from service. For this purpose, 'earliest retirement date' means the earlier of the earliest date benefits are payable under the plan or the later of the date the participant attains age 50 or the date when the participant could obtain a distribution from the plan if the participant separated from service." [Code Sec. 414(p)(4)(B)]
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