alternate payee beneficiary

[Earl]

I am hearing that an alternate payee under a QDRO may only name the alternate payee's children (and possibly the estate) as the beneficiaries of QDRO payments.

Is there a restriction?

Thanks!

[Guest mjb]

What type of plan are you thinking of? If the benefits is payable from a DB plan the spouse can be treated as the beneficiry of her own separate interest in the benefits but will not be able to transfer the interest to a sucessor beneficiary if she dies before benefits commence. If the benefits are payable under a DC plan the spouse will be given a separate interest in the account which can be transferred to another beneficary upon death.

[Earl]

Thanks -

The plan is a 401(k) Plan. The question pertains to the period of time between now (when a separate interest has been created) and the time benefits are paid (the Distribution Notice is out to the AP).

You seem to be saying that the AP could put a Des Ben on file for if she dies in the meantime, pre-distribution. Which makes sense to me as she has a separate interest in the plan.

But an attny is telling me what was noted above. I am not too concerned as I am sure the intervening time will be a couple of weeks, but it just seemed odd to me and I never heard it before/couldn't find anything specific allowing it.

[Locust]

The definition of "alternate payee" says it is either a spouse, a former spouse, a child or dependent of the participant . If an alternate names a beneficiary other than the participant's children, would they meet that definition? This is where the confusion comes in. I've seen plans go both ways on this - some read it literally and won't pay to a former spouse's beneficiary unless it is the participant's child. Others say that once the benefit is awarded to the alternate payee, it is his or hers, and he she can designate whomever. It may depend upon whom you represent - the participant may prefer the stricter interpretation, so that the money goes to his or her children (as opposed to gasp! the new friend or family). IRC 414(p)(1)(B)(i)

[Earl]

Interesting

So the AP does not become a Participant when the separate interest is created?

[Nate X]

Ignore the Participant definition in regards to the Alternate Payee. The Alternate Payee has some of the same rights as a Participant but not all.

I tend to believe what the attorney is telling you. Assigning a beneficiary to an Alternate Employee is one of the unwritten rules of retirement plans. It’s subject to interpretation and whether you want to take an aggressive or conservative approach.

Here’s my take on the conservative view: If the Alternate Payee dies, the Alternate Payee does not have the right to survivor benefits unless it is specifically granted in the QDRO.

[Earl]

thanks again to you guys for taking the time to respond.

it is appreciated.

[Guest mjb]

Earl. The AP is a beneficiary under ERISA. The usual drill is to designate in the QDRO that the AP's children or other bene will receive the benefits if the AP dies before receiving the bene. Most DC plans permit the AP to receive a distibution before the payment is available to the participant and the AP can rollover the funds to an IRA in her name and designate anyone she wants as bene.

[Guest RJMOB]

MJB....If there aren't any children and AP remarries and names new spouse as Beneficiary and then dies before the segregated QDRO monies are disbursed, is the new spouse eligible to rollover AP's balance to his/her own IRA?

[Guest mjb]

Under IRC 402(e)(1)(B) an AP who receives a a distribution under QDRO is regarded as the employee for the purpose of rollovers under 402©. 402©(9) provides that the spouse of an employee can rollover a distribution as if the spouse was the employee. It appears tha the spouse of the AP can rollover the distributions to an IRA or qualified plan.

[Locust]

mjb - I disagree. The alternate payee is not treated as the "participant" for QDRO or payment purposes, but as the "distributee" (and then only if there is an actual distribution), so payment to the spouse/beneficiary of an alternate payee would not be payment to the spouse of a participant within the rollover rules.

[Kirk Maldonado]

It seems to me that there are two relevant authorities that need to be considered in this discussion.

The DOL seems to take the position that the alternate payee can designate any beneficiary. See Q 3-8 of the DOL's booklet on QDROs at http://www.dol.gov/ebsa/publications/qdros.html.

The court in Shelstead v. Carpenters Pension Trust For Southern California, Ct of Appeals, 4th Dist., 1998 Cal App LEXIS 782 (1998) concluded that for a beneficiary designation to be effective, any person designated as the beneficiary of an alternate payee must (also) qualify as an alternate payee. (I am ignoring for this purpose the issue as to whether or not a state court has jurisdiction to decide whether a domestic relations order is a QDRO.)