QDRO Distribution / Anti QDRO

[401_4_ever]

I am looking at a plan that had a QDRO come in that the plan qualified. The terms of the QDRO was that the benefit of the alternate payee is not distributable until the participant turns retirement age. (In my opinion, poorly drafted).

Despite this knowledge, the PA went ahead and processed a rollover to the alternate payee. Despite it being rolled over, the participant cashed the check (the check was made out to the IRA institution for her benefit, and some bank cashed it into her checking account).

While the QDRO didn't support the distribution, the Plan Document is a prototype document that permitted it.

Question 1 -- Is there any guidance that states the distribution is OK since the document supports it? (i.e. can the document override the qdro?)

Question 2 -- If not, what is the correction method? I'm thinking this is an overpayment under Section 2.05 of the ECPRS -- which means (1) the PA makes reasonable efforts to get the money returned and (2) if it is refused to be returned (where we are now), the PA makes the contribution to the suspense account to be used for future ER contributions.

[david rigby]

... the participant cashed the check...

Do you mean participant? or alternate payee?

1. If the QDRO states one form of distribution (which is permitted by the plan), but a different form is used, how is that "support"?

2. Does the Plan have its own ERISA counsel? It should.

[J Simmons]

The statutory language that gives the QDRO exception to the rule against alienation of the benefits away from the employee reads: "Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order." ERISA 206d3A.

So it would appear that a payment that doesn't square with the QDRO is a violation of the statute and the statutorily required plan language. EPCRS would appear needed from a plan qualification perspective.

The employee would also be someone aggrieved by the off-QDRO payment since it's an alienation of the employee's benefits for which the exception does not apply.

As pax wrote, the plan should have its own ERISA counsel--to help fix this one.

[Peter Gulia]

No advice, but a few random thoughts:

Before (not instead of) pursuing further corrections, shouldn't the plan fiduciaries start by getting the plan's money back?

One would like to think that the drawer's bank has no right to debit its customer's account unless the bank paid the check as the drawer specified. After restoring the plan's bank account, the mistakenly-paying bank can recover from the mistakenly-collecting bank. Then, that bank could reverse the credit to the account of its customer - the person who presented a payment that wasn't hers. All this should happen after the plan's bank account has been corrected. What the banks do about their errors should be their problems.

Once the plan is whole, the plan administrator might revisit some of its earlier decisions, and might decide not to pay an alternate payee any sooner than the time provided by a court order that is a qualified order.

[IRA]

Possible Solutions:

1. Ignore it if the participant doesn't care. I can tell you the IRS and DOL won't care. Technically the participant could bring a claim against the plan now for the distributed money. Get a signed waiver from the participant in exchange for the plan's agreement not to pursue the matter further and move on.

2. Ask the parties to get a QDRO that permits a distribution when it was actually made.

3. Tell the AP that you are going to sue to get the money back unless they get a QDRO that permits a distribution when it was actually made.

4. Even better, tell the AP that you are going to issue a 1099R unless they get a QDRO that permits a distribution when it was actually made. A 1099R would be appropriate because the plan is technically disqualified and therefore the distribution was not eligible for a rollover. Don't tell the AP that part. Just say you are going to issue a 1099R and go from there.

5. Look at the divorce decree and ask a family lawyer in that state (preferably, one of the parties' lawyers) if under state law the QDRO could be interpreted to permit an immediate distirbution (e.g., clerical error). It seems to me that unless the plan forced the distribution, the former spouse had to consent and therefore thought he or she was going to take an immediate distribution.

6. See if the plan requires an immediate distribution, regardless of what the QDRO says, or just permits an immediate distribution. If the plan requires an immediate distribution, and has an IRS letter, move on.

I know people will say you can't do these things, but the reality is that you can.