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QDRO - Alternate Payee's Beneficiary


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Guest greymann

The problem here is that the court order probably is not a QDRO if the successor alternate payee is someone who does not meet the statutory definition of alternate payee (under Code Section 414(p)(8) this includes the spouse, former spouse, child or other dependent of the participant). At this point there does not appear to be any authority which permits the alternate payee to select a beneficiary under the QDRO who is not a statutory alternate payee. So, I assume the plan trustee is being properly cautious here.

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I am not so sure that an alternate payee's beneficiary has to be someone who could be an alternate payee, but it is an interesting thought and worth consideration.

Here's another way to look at the issue. ERISA says that APs are treated as the same as beneficiaries. While this is questionable under thetac code and the DOL sometimes seem to have forgotten this provision of ERISA, most plans do not allow beneficiaires to designate beneficiaries. Such a plan could refuse to allow an AP to designate a beneficiary. Depending on the plan and QDRO terms, payments would be made to the AP's estate upon death of the AP. My comments are are directed at typical defined contribution plans. The comments also do not apply to the situation where an AP is in pay status under a form of benefit that pays to a designated survivor or contingent annuitant, such as a joint and survivor annuity. In that case, the payments are made in accordance with the form of benefit when the AP dies.

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  • 3 weeks later...

I think that the Code specifically prohibits the AP from electing a J&S form of benefit (or perhaps the prohibition is when the contingent beneficiary is the new spouse of the AP).

Also note that when a payee (participant or AP) properly elects a benefit such as a life annuity with a ten-year certain period, then the payee can name a beneficiary. In fact, the Plan does not care who that is since the certain period is guaranteed. Because of the guarantee, that beneficiary can name a beneficiary, unless the plan specifies otherwise.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest Robert Collins

Take a look at the online version of:

BENEFITS BRIEFS®

Legal Developments Affecting Employee Benefits, Vol. 11, No. 5

Below is an excerpt:

"The DOL appears to have maintained that the outcome rests on whether the type of QDRO is of the shared payment or separate interest variety. In a shared payment order, the participant essentially retains the ability to select the benefit’s payment terms and the alternate payee simply gets a percentage of the participant’s payment. A separate interest QDRO divides the value of the participant’s benefit and permits each party to separately elect the form and timing of the benefit with

respect to his or her respective interest. The DOL apparently takes the position that since the nonemployee’s plan interest under a separate interest order is completely independent of the

participant’s interest, the alternate payee should be able to name his or her own beneficiary."

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The QDRO rules do not prevent a QDRO from providing that an alternate payee can choose any form of benefit allowed under the plan, including a J&S annuity, even when the contingent annuitant is the subsequent spouse of the Alternate Payee. An almost universal misreading of section 414(p)(4)(A)(iii) of the Internal Revenue Code is responsible for the almost universal misimpression that an alternate payee may not have (or the plan can prevent the alternate payee form having) a J&S anuuity with the AP's subsequent spouse as the contingent annuitant (except in the limited circumstances described in that code section). The "QDRO Answer Book" by Panel Publishers gets it right.

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  • 2 weeks later...
Guest greymann

This is a good discussion, but I am not sure if the original question of whether the QDRO can list the successor alternate payee has been answered (it seems established that the alternate payee can choose his or her sucessor (or beneficiary), but I am still not sure whether the QDRO can list this person, and I would argue that the QDRO cannot if that person does not meet the definition of alternate payee). Any comments are appreciated.

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I agree with Greymann; benefits can only be assigned under a QDRO to someone who can be an alternate payee.

I have always wondered whether this would preclude naming a child as successor alternate payee or beneficiary if there was no child support awarded -- but then what would be the basis for having a QDRO for an "other dependent" which presumably would not be related to child support or division of marital property.

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Guest RARogers

Also see Prop. Reg. ss 1.401(a)(9)-1(Q$A H-4) which indicates that the choice of a joint and survivor annuity (even if not a spouse of the alternate payee) by an alternate payee violates the minimum distribution requirements.

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I agree with greymann that a domestic relations order may be disqualified if the order provides for payment to a person who is not within the definition of "alternate payee." However, (i) the ability of an AP to choose a form of benefit under the plan that provides for payments to a survivor and (ii) the ability of a plan to allow or disallow an AP to designate a beneficiary for payment of the balance of the AP's defined contribution plan subaccount upon death of the AP are separate matters. A long discussion of those mattters is in order, but I haven't the energy. I cannot resist taking a shot at the statement from Benefits Briefs noted above. The brief discusses a case that by its own terms is restricted to a limited situation. Generalizing from the case without further analysis is risky and sloppy. Also, the reference to the proposed section 409(a) regulations should say that the designation MAY violate the minimum distribution rules. Those same regulations describe compliant situations that involve the beneficiary of the alternate payee.

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Guest RARogers

See Prop. Reg. ss 1.401(a)(9)-1, Q&A H-4, which reads in part:

"Distribution of the separate account will not satisfy section 401(a)(9)(A)(ii) if it is distributed over the joint lives of the alternate payee and a designated beneficiary (other than the employee)."

As I understand section 401(a)(9)(A)(ii), it prohibits payments on the death of the participant that extend beyond the joint life expectancies of the participant and his or her designated beneficiary. Also, it is my understanding that an alternate payee is considered a beneficiary, not a participant, so that a form of payment for the joint lives of the alternate payee and the beneficiary of the alternate payee would violate this rule.

If I am wrong about this, I would appreciate an explanation (but of course I don't think I'm wrong).

Also see the model IRS QDRO (Notice 97-11), which explains:

"Section 1.401(a)(9)-1, Q&A H-4, of the Proposed Income Tax Regulations addresses the application of the required minimum distribution rules of ss 401(a)(9) to payments to an alternate payee. The proposed regulation limits the period over which benefits may be paid with respect to the alternate payee's interest. For example, the proposed regulation provides that distribution of the alternate payee's separate interest will not satisfy ss 401(a)(9)(A)(ii) of the Code if the seprate interest is distributed over the joint lives of the alternate payee and a designated beneficiary (other than the participant)."

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  • 4 months later...

I am going to resurrect this debate and add another twist to my question. First I would like to summarize what I understand to be "the rules" for a defined contribution plan QDRO, with the AP having a segregated account or subaccount.

1. The AP can name a beneficiary to receive benefits that remain undistributed at her death. Even though she has the status of a beneficiary herself, she has a right to "no greater than" that of a participant to name a beneficiary. See. Treas. Reg. 1.401(a)-13(g)(4)(iii)(B).

2. There is little agreement among practitioners as to whether the AP's beni must him or herself be an AP. See several good arguments why the beni need not be an AP in Paul Hamburger's "Guide to Assigning & Loaning Benefit Plan Money."

3. Regardless of whether the AP's beni is or is not an AP him or herself, the beni's receipt of the remainder of the AP's share may violate the required minimum distribution rules. This raises my additional question:

4. QDROphile states that in some instances the AP's estate can receive undistributed benefits at her death. What about her issue, per stirpes? If the issue receive her remaining benefit in a lump sum at her death, would this still violate the rule that the benefits not be extended over the life of an AP and her designated beneficiary, as set forth in Prop. Reg. Sec. 1.401(a)(9)-1, Q&A H-4?

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Plan may require that the "successor in interest" to the alternate payee in the event the alternate payee dies before having received the payment must also qualify as an "alternate payee." Shelstead v. Carpenters Pension Trust For Southern California, Ct of Appeals, 4th Dist., 1998 Cal App LEXIS 782

(1998), 22 EBC 1906.

Kirk Maldonado

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