Bad QDRO-What to do?

[AndyH]

DB plan sponsor receives and sends proposed QDRO to it's law firm who ok's it and it is recorded.

Recorded QDRO is sent to actuarial firm who immediately notices what looks like a problem. The QDRO divides an accrued benefit 50% participant, 50% spouse, without any actuarial adjustment, such that spouse who of course is younger is entitled to collect at same time and same amount as participant. This increases the pension obligation because spouse has a longer live expectancy.

What can/should be done other than notifying plan sponsor of opinion? Can it be changed? Must it be changed?

[QDROphile]

What does the law firm say?

[AndyH]

Don't know yet. This just happened.

[MGB]

I vote for "must be changed."

What does the plan administrator say? They are the ones charged with making sure it is qualified (not the attorney). Once it is pointed out to them that it was accepted incorrectly, the PA should make the call as to what happens next.

[AndyH]

I am willing to bet that this happens all the time with DB QDROs in the small to mid size plan world. I will bet this concept rarely is considered by lawyers who draft QDROs, and perhaps only by some who review them. In the small plan world, they typically are drafted by local divorce lawyers.

How is the Plan Administrator supposed to know the subtleties of this? That is why professionals are engaged. This was missed by a very experienced lawyer at a very prominent law firm.

Thanks for the comments.

[mbozek]

Whose life are the benefits paid over? If the APs 50% is paid over the life of the ee the benefit will cease upon the ees death, unless the AP recieves the surviving spouse's annuity after the death of the ee.

[AndyH]

In one place it says that each 50% calls for separate beneficiaries for death benefits, if any, applicable after payments have started.

In another place it says that each are the other's beneficiaries for any benefits accrued through the date of divorce.

In a third place it says that the AP's benefit is forfeited if the AP dies before starting payments.

Although these provisions are totally messed up, IMHO, that does not necessarily increase the actuarial value. I don't think I've ever seen a proposed QDRO that gets DB death benefits correctly addressed. Obviously the reviewer did not understand the relevant issues either. But that is bad drafting, not a violation of the rule that a QDRO should not increase actuarial value.

Hopefully these people never die, and we can set up a base labeled "Bad QDRO loss base"

I suppose this is all the more ammunition for taking MGB's view.

[JDuns]

To be qualified, the order must be clear on its face, so I would vote to have it revised and resubmiteed.

I have seen plan administrators who send a letter to the alternate payee, participant and their counsel setting forth the plan's interpretation of potentially confusing drafting and requiring the parties to countersign the letter agreeing with the interpretation or submit a revised order (and treat it as an appealable claim decision).

Hope this helps.

[AndyH]

Yes, thanks.