QDRO - market loss

[Guest Jodi S.]

A DRO has language as follows "The alternate payee is hereby awarded 100% benefits and benefit rights under the plan as of December 28, 2007." The value on 12/28/07 is about $600 more than the current value due to market fluctuations. There have been no contributions, distributions or investment changes/transfers since that date. Is there a problem with distributing 100% of the value on the distribution date (less than the value on 12/28/07) if the order is determined to be qualified? The DRO makes no specific mention of earnings/losses accrued from the 12/28/07 date.

[david rigby]

Is there a problem with distributing 100% of the value on the distribution date (less than the value on 12/28/07) if the order is determined to be qualified?

There could be. The most obvious circumstance is IF there are any other contributions between now and then. Perhaps someone could suggest that the DRO be clarified on this point?

[JanetM]

If the DRO is qualified they get 100% of value as of 12/28/07. So if market goes up or down, they get 100% of gain or loss. IF there were contributions since 12/29/07 they belong to the participant allong with the associated gains and losses.

[GMK]

I trust that JanetM is correct, but it would be helpful to know why.

Is it that one of the "benefit rights" awarded to the Alternate Payee is the right to the losses after 12/28/07?

or is there a cite that applies when gains/losses are not mentioned in the DRO?

Thanks.

[Mike Preston]

QDRO's don't magically change the English language. If I'm awarded 100% of the account balance, then I'm awarded everything that goes along with it. I would certainly expect that in the absence of clarifying language, that should the account balance increase based on a positive investment return that the account balance I'm entitled to would similarly increase.

Can a QDRO be drafted such that the account balance is a fixed amount and it never changes from that moment forward? Well, I suppose anything is possible. I wouldn't recommend that a plan adminsitrator accept it, though, since in the case of a loss, it would require the plan to pay a benefit that is not otherwise available. That is a no no, right?

[QDROphile]

The plan administrator has an interpretation issue. The interpretation advanced by Janet M is plausible and reasonable, but it would only be an interpretation, not a rock solid certain conclusion. It would be helpful if the plan's written QDRO procedures spoke to certain interpretation presumptions on common matters such as these, but the QDRO procedures of most plans suck so Jodi S. will get no help from the QDRO procedures.

The basis for the interpretation offered by Janet M is that the plan administrator presumes recognition of time value of money, absent express provisions in the order to disregard time value of money, and that the plan's procedure for recognizing time value of money is to recognize both postive and negative actual investment results with respect to the amount awarded.

Since the interpretation is uncertain, the plan should use its usual procedure of notifying the parties and explaining its interpretation (whether the Janet M interpretation or the unadjusted amount interpretation), but not implementing the interpretation without a reasonable time for objection and correction. That is the usual procedure, as provided in the written QDRO procedures, right?

The other option is to reject the order based on ambiguity.

[masteff]

As a best practice, if a QDRO intends to give an exact amount, then the QDRO should be drafted w/ that exact amount stated in dollars, payable as of the date of account segregation. "On the date of segregation, AP gets $25,000."

As to the question above, you treat it as if the recordkeeping transaction was done on 12/28 and the 100% balance was transferred to the AP. Then you roll forward gains and losses based on the investements. The AP suffers the loss. Had there been a gain, the AP would have received it instead.

[JanetM]

I don't see any ambiguity in the language. AP is awarded 100% as of 12/28/07. The award is an investment in assets expected to appreciate over time. Change in market value happens daily. Hope is it will always be upward not downward. AP is sole owner of 100% including gains & losses.

ADRP procedures are the best way to handle this. Ours say the AP gets invested in same asset allocation as participant unless the qdro states investment allocation. Our form letters and model qdro sent to attorney explain this and the related change in market value that can occur.

[Guest mjb]

A DRO has language as follows "The alternate payee is hereby awarded 100% benefits and benefit rights under the plan as of December 28, 2007." The value on 12/28/07 is about $600 more than the current value due to market fluctuations. There have been no contributions, distributions or investment changes/transfers since that date. Is there a problem with distributing 100% of the value on the distribution date (less than the value on 12/28/07) if the order is determined to be qualified? The DRO makes no specific mention of earnings/losses accrued from the 12/28/07 date.

If this is a DC plan the procedure would be for the plan admin to create a separate account in the name of the AP as of 12/28/07 and transfer all assets and securities positions from H's account to the AP's account. The value of the AP's account would fluctuate with the value of the assets in the account and the value of the account on date of distribution to the AP would be the FMV of the account.

Q. If the above answer is not correct, who ponies up the $600 decline in the assets? The participant, the plan?

H's account would have a value of 0 on 12/29/07 and would be increased by any contributions after 12/28/07 and adjusted for investment gains and losses.