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Shouldn't there be a QDRO?


Guest JD698

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A participant in a DC (money purchase) plan wants to rollover his money into an IRA since he was terminated from employment. The participant is divorced from his wife. The only reference to the pension plan is in the mediation agreement which was made part of the final divorce decree. It states that "if either party dies, the child shall be beneficiary of the husband's pension fund." There is no specific information in the agreement (child's name or information, plan name or information)

1. Shouldn't there have been a QDRO in this instance?

2. If not, can the money be rolled over?

3. Is the Fund obligated to protect the child's interest?

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What role do you have relative to the plan? What documents were given to you, by whom, and for what purpose? What is provided in the plan's written QDRO procedures about receipt of documents and information such as you describe?

At first blush, there appears to be nothing going on that would cause the plan to do anything except process the distribution as requested. Depending on the circumstances, certain formalities may have to be observed and distribution may have to be delayed.

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Guest Pensions in Paradise

From what you've stated, the child is not entitled to a benefit unless the participant dies. I don't see how this is any different from a normal beneficiary designation. The child is the participant's beneficiary under the plan. This does not prevent the participant from receiving a distribution/rolling over his money.

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Does anybody think that there is a duty to notify the ex-spouse about the transfer of the funds?

The husband could argue that he no longer has to designate the child as the beneficiary because the funds are no longer held in the pension plan.

(This is a sincere question; I've not got a firm opinion one way or the other on this point.)

Kirk Maldonado

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I think there should be(a duty to notify the spouse). It would seem that the goal is to ensure that the child receives the assets-as beneficiary, not just because the assets are in that plan .The challenge is maintaining that provision after the assets have been moved to the IRA and from IRA to IRA. There are many ‘passive’ custodians who will not care about such stipulations in a divorce decree and will accept any change in beneficiary designation from the IRA owner…

…also, isn’t there some rule that prevents such provisions from carrying over from a QP to an IRA? If so, the spouse may need to obtain an amendment…

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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My main concern was that the child would lose what he was entitled to, especially if the money was rolled over into an already existing IRA and the pension funds would then be comingled with the funds already in the account.

I had tossed around the idea of advising the participant that the money be placed into a new account which would name the child as beneficiary. The Fund, in facilitating the rollover would advise the bank of the fact that the child should be listed as beneficiary. But, once it is out of the Fund's hands, we have no idea what the bank will do. Would we be doing our due diligence in informing the bank of the court order and providing them with a copy? Would the Fund be absolved of liability at that point?

I hadn't thought about notifying the spouse. That's a good idea. The problem is that we don't have any information on the spouse.

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Personally, I don't see this as something the PA should be involved in. If there is no QDRO, you are just medling in their affairs (maybe litterally :D ) It is not the PA's responsibility to enforce a divorce decree, unless there is a QDRO or a pending QDRO.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Q. Was the mediation agreement incorporated as part of the divorce decree or property settlement? If the participant is not married then the PA must treat him as treat him as an unmarried participant for the purpose of distributing his benefits under the terms of the plan. I dont know why a PA wants to get involved in a non QDRO document. Notifying the bank does bupkis (nothing) because the bank has no responsibility to designate who will be the bene of the IRA (read the IRA custodial agreement). The fund has no liability because it has not agreed to follow the terms of the mediation agreement as a QDRO. Divorcing parties frequently use side agreements and side letters which are not enforceable to divide pension benefits in order to avoid the cost of preparing a qdro at their peril.

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