Shared Payment QDRO vs Separate Interest QDRO

[John Feldt ERPA CPC QPA]

A large new DB plan is in the process of being established. The plan sponsor does not wish to offer lump sums, other than the $5,000 cashouts.

In addition, because the company already provides life insurance outside the plan, the plan sponsor has decided to only provide the minimum spousal death benefit in the plan.

Thus, an unmarried participant has no death benefit payable from the plan unless they have retired and elected an option that provides for payments after death, such as life with 10 years certain.

The surviving spouse of a participant will only be eligible for the 50% survivor annuity payable no earlier than the date the participant would have reached their earliest retirement age (age 55).

As part of this process, the sponsor wants to know if their QDRO policy could be written to allow "shared-payment" QDROs only (rejecting any separate interest QDROs).

Can the plan adopt a QDRO policy that does not allow any payments to an alternate payee until the date payments begin to the participant? Thus, if the participant dies before retiring, the alternate payee gets nothing? This seems to be allowable, please comment.

[QDROphile]

See 414(p)(3)(A) and 414(p)(5) and hire someone who knows the law and has had experience with the processing of actual domestic relations orders to help design plan terms and written QDRO procedures.

[John Feldt ERPA CPC QPA]

414(p)(3) A domestic relations order meets the requirements of this paragraph only if such order

414(p)(3)(A) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan

414(p)(5) To the extent provided in any qualified domestic relations order

414(p)(5)(A) the former spouse of a participant shall be treated as a surviving spouse of such participant for purposes of sections 401(a)(11) and 417 (and any spouse of the participant shall not be treated as a spouse of the participant for such purposes), and

414(p)(5)(B) if married for at least 1 year, the surviving former spouse shall be treated as meeting the requirements of section 417(d).

This means a DRO can require the plan to treat the Alternate Payee as a surviving spouse and thus assign a specific portion of that QPSA or QJSA to the alternate payee upon the death of the participant, do you agree?

If so, must the plan allow a payment to be made earlier than 1) the date the participant dies and the QPSA or QJSA would be payable, or 2) the date the participant begins payments?

[John Feldt ERPA CPC QPA]

Ah, when I looked back to the original post, I realize that I failed to mention that the sponsor is a nonelecting church plan that wants to voluntarily adopt some sort of a QDRO policy. That leaves them some flexibility since they are not required to accept QDROs anyway. Must they adopt all of 414(p), or can they adopt a policy that might not include all the 414(p) provisions?

[jpod]

You better check the plan document and applicable state law governing trusts. This may not be a question of what the plan sponsor WISHES to do. My guess is that the plan is PROHIBITED from paying any benefits to any third party before they become due. As a result, benefits could be paid to a former spouse pursuant to a court order only AS AND WHEN they are payable to the participant.

[John Feldt ERPA CPC QPA]

Thanks jpod, that is very helpful.