Payout wording of DRO - any issues?

[Guest chris4013]

The DRO states that "Alternate Payee may elect to receive from the Plan the amount in the separate account in Alternate Payee's name in any form avaialable to Participant under the Plan at any time after the separate account has been established for the Alternate Payee's share."

I read this to say that since the Participant is still employed, the alt payees options would be for whatever the plan options are for an in-service withdrawal, which in this case is none.

Do you agree? Why or Why not?

[david rigby]

What does the plan say? (Seems to the applicable to almost everything, doesn't it?)

What kind of plan is this?

Some, but not all DC plans (assuming that is applicable here), permit an Alternate Payee to elect immediate distribution.

[QDROphile]

That is not the usual reading of those provisions of the order. Although orders are typically poorly drafted, I distinguish between FORM of payment (e.g. lump sum, installments, annuity) and TIME of payment (e.g. any time, as soon as the plan allows, upon start of benefits to the participant, as soon as participant is able to start benefits).

I think the TIME specified in the order is as soon as practicable (the plan has to identify the amount and set up for distribution, typically by creating a separate account or subaccount), although the alternate payee may elect a later time. The FORM of benefit is any form available to the particpant, whenever the participant is entitled to benefits, The order is poorly worded, as usual.

But my suggestion is only an interpretation. As pax advised, the interpretation is determined by many things, primarily plan terms, terms of the plan's written QDRO procedures, all the other terms in the order. If a plan intends to be restrictive toward alternate payees, it shoudl be very clear about it and either the plan or QDRO procedures shoud have express restrictions or very clear provisions about how orders will be interpreted. If the plan terms are not restrictive, and most defined contribution plans are not, I don't see much point in trying to be unnecessarily restrictive about interpreting the order itself. The plan must follow the terms of the order, but does not have to be hypertechnical about interpretation of the order.

Back to the order for an example of interpretation. I assume that the plan says that alternate payees may be paid even if the participant is not eligible for distribution, as is the case with most DC plans. If the plan allows participants who terminate after age 55 to elect a lump sum or installment payments, but allows only lump sum if the participant terminates before age 55, then the alternate payee could be paid only in a lump sum if the participant was not yet age 55. But the alternate payee could still choose to be paid even if the participant was still working and ineligible for distribution. That is how I would read the order, and I would wonder what purpose is served by reading it otherwise. If the order really intended to lock the alternate payee into the plan until the participant terminates emplyment, the order should do a better job of saying so, and it would be really easy to say so.