What to do for distributions that do not require spousal consent.

[jkharvey]

I would like to know what other administrators do in this situation. A profit sharing/401(k) plan does not provide for annuities as a form of benefit. Per the Code, therefore, spousal consent is not required for distribution. What should be done to be certain that a participant in the middle of a divorce is not trying to take his/her distribution to avoid losing part of it in in the divorce, via QDRO, etc? What types of questions are asked on every distribution? Do most administrators require spousal consent for all distributions? If so, under what authority?

[Guest [Pat M]]

All plans are required to have written Policies & Procedures for QDRO administration and determining the qualified status of domestic relations orders. Some plans include in their written policies a "temporary" restriction (e.g. 30, 60, 90 days) on the removal of funds upon adequate notice that a domestic relations matter is pending. This policy must be enforced as per the written policy - see United States Court of Appeals For the Seventh Circuit - Schoonmaker v. EMPLOYEE SAVINGS PLAN OF AMOCO CORPORATION. Note that this optional temporary restriction is not the same 18 month segregation of funds that is required upon receipt of a court-authorized domestic relations order.

[Kirk Maldonado]

Some plans even place restrictions on investments (after learing that a QDRO may be forthcoming). However, I think that is risky. Probably less risky is placing a moratorium on loans.

[jkharvey]

Thanks to both of you for your input. Additional question along this same line. How would the employer know that a QDRO is in the works, if no notice has been received? In other words, a participant terminates but the ER is not aware of divorce action pending. The terminated participant wants his/her distribution as lump sum. What kind of questions are administrators asking, if any, before issuing the distribution? Is this something that should be covered in the QDRO procedures you mentioned above?

[Kirk Maldonado]

I think that the plan has absolutely no duty to ask any questions. The obligation is on the attorney for the non-employee spouse to notify the plan that a QDRO wiil be forthcoming.

Also, I believe that even if the plan had knowledge of a forthcoming QDRO, it probably would not be found liable; the recourse for the non-employee spouse should be to sue his or her attorney for malpractice.

Nevertheless, because my role is to keep my clients out of litigation, even if they would probably prevail, I recommend plans stopping all loans or distributions if they have notice that a QDRO may be forthcoming.

[QDROphile]

The Department of Labor believes that the plan has an obligation to protect assets for a would-be alternate payee. The DOL does not distinguish between the validity of(i) an anonymous midnight phone call and (ii) the receipt of a copy of a divorce decree with a letter stating that a DRO is forthcoming. The DOL has also evidently never read the Schoonmaker case. The best approach is to set the standards expressly in the written QDRO Procedures, including what evidence, if any, will affect the account pending receipt of a DRO and for how long. I think it is defensible to take no extraordinary action until a DRO is received (if that is what the QDRO Procedures say). Woe to the dilatory alternate payee. And so says Schoonmaker.

[Kirk Maldonado]

QDROphile brings up a good point. The plan's procedures for these matters should be set forth in writing and followed in a uniform manner.